Topic

Why Restaurants Fail

Instructions

There are two main requirements:

You must study the case carefully.

Case: Why do restaurants fall?

After the study of the case, evaluate and discuss some of the key internal and external factors that lead to restaurant failure.
And with each chosen key factor, come up with suitable remedies to avoid such failures, with supporting literature to justify.
Based on this case study, you will write your Individual Report (max. word count 3000 excluding. Executive Summary, Contents Page, References and Appendices) on the analysis and evaluation of this case. It is important therefore that you fully research the case and make critical and justified arguments, comments and recommendations.

Answer Preview

Economy

The case study reveals that economic factors constitute the major external factors that determine success and failure of restaurants. This is consistent with Samnani (2014) argument that the economic factor is critical in shaping an organisation as it engages consumers. Ideally, economic factors determine spending and consumption power of consumers; these depend on the prevailing income levels, savings, prices, and availability of credit (Egan, 2012, p. 64). In the case of unfavourable economic conditions, the consumption power declines, reducing demand levels for restaurant services. For example, the 2008/09 economic crisis resulted in a drastic impact on the restaurant industry. As the crisis resulted in declining consumer confidence in 2008, Starbucks resorted to close more than 600 locations as they depended on consumers (CBS News, 2008). Other impacts of the crisis included the drop of Dow Jones U.S. Restaurants & Bars Index by 13%, affecting other restaurants such as McDonald’s, Ruby Tuesday and Olive Garden. This example shows that unfavourable economic factors translate to low consumer confidence and consumption power. Restaurants depend largely on customers for revenues, and a decline or a drastic change in consumption pattern would result in a negative impact on restaurant sales. A study by Sharma, Gregoire & Strohbehn (2009) established that the cost of ingredients and operating costs remain a major challenge for restaurants. As with other industries, the restaurant industry remains sensitive to changes in the economic environment, making it highly vulnerable to economic downturns (Ries, 2011). However, this does not imply the absence of a remedy for restaurants. The counteractive measure is discussed below.

Word Count: 3800