Why Do 85% of F&B Go Bust Within 12 Months?

Having consulted with more than 50 F&B outlets over the last few years have given me the insights into the high failure rate of F&B in Singapore.

These insights are from my personal consulting experiences and shall not be considered as exclusive and/or exhaustive. They are not ranked in any order of priority or importance.

  1. Lack Reserve Running Capital
  2. Too Optimistic about the Future
  3. Poor Costs Information and Management
  4. Not Targeting at a Certain Customer Group
  5. Expansion (Too Fast, Too Furious)
  6. Indifferent Customer Service
  7. Unbalance Board of Shareholders/Partners
  8. Too Large a Menu
  9. Poor Location
  10. Poor Pricing

Most new F&B outlets started with many shareholders or partners coming together to achieve a common goal. They would pool their financial resources and form a joint venture to buy all the necessary equipment including renovation and selecting a location for their business. However, in most cases this is where their funding stops. They have maxed out all their Credit Card and Credit Line facilities. Thinking that their venture will start to bring in the money they need for repayment. They have even agreed not to take any pay in the short term until their venture takes off.

This is in their minds for most of them. They are just too optimistic and they have allowed their enthusiasm took the better part of them.

And after 3 months into the business and when money is still not coming in enough for them to make any repayment to the banks, problems and quarrels start. For most of them, they stopped talking to one another except through their lawyers.

These unpleasant situations can always be avoided with better planning and realistic projection of revenue and costs. Most failing F&B do not have any reliable cost information on their side. They do not know the exact cost in selling a Pancake, a bowl of Salad, a cup of English Breakfast Tea or a plate of Spaghetti etc. What they have are just the “average” costs and this is the killer of any business without accurate cost information. To make matter worse, the larger your menu the bigger will be your cost problem, and the earlier your F&B will fail.

Without accurate cost information and management, no business owner will be able to price their products or services with any confidence of making a profit. They are doomed to fail in their pricing strategies no matter what. Most failed F&B followed the “Market Price” for their products and services. They did so because they did not know any better pricing strategies out there in the market. They have unknowingly made their products and services like a commodity where the only competitive advantage they had was a low, low price. They just priced themselves out of their business. Period.

In addition, to succeed in the F&B business or any other business for that matter, you must not be all things to all people. You must be selective in going after only certain customer groups. Having known your targeted group of customers that you want to attract, you then decide on your marketing objectives, strategies, and measurement etc. They must all be aligned in one straight line.

Some F&B failed after they have expanded their business too fast and too furious. Upon the runaway success of the first outlet, they quickly expanded. Thinking that the more outlets they have they would receive multiples of profits. This is never true in any sense of business. When a new outlet is opened, sunk costs are incurred and running costs are fixed more of less but revenue and profits are still a mystery and a non-guarantee. The risks are just too high. Therefore being too positive in business in my opinion is no good for business. We need to be very practical and risk-intelligent.

Recently a F&B business owner came to me for advice on how to increase his sales revenue and profits. He served great western and fusion food. The service staff were nice and polite, The decoration at his cafe was cosy. I tried some items from his menu and was amazed at the culinary skills of his chefs. I told him there is only one thing that he can do to transform his F&B business into a money making machine – Get out of the Red Light District where he is currently located and move to another location where they are more food crowds. At times just by changing your location of business is all you need to turn your business around.

It is my wish to see more successes in our F&B sector in Singapore and the failure rate decreased. I hope with this article, some of them would be saved from failure.

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