Why successful restaurants fold


Mismanagement of food businesses, competition, high cost of operation and theft are among the factors causing the folding down of restaurants. FILE PHOTO | SHUTTERSTOCK

Noma, the five-time best restaurant in the world based in Copenhagen, Denmark, is closing down.

After two decades of a rich reputation for serving authentic cuisine, Noma will close its doors in 2024 to become ‘‘a giant food lab’’.

The announcement last week sent shockwaves across the culinary world, as foodies came to terms with the end of a facility whose origin is ‘‘rooted in an exploration of the natural world.’’

Lunch at this Three-Michelin star restaurant drills a $700 (Sh86100) hole in your pocket. Then there is VAT and tips.

For diners willing to shell out this kind of money, dinner or lunch at the restaurant is a 20-course and rare multisensory journey.

But if you think burning Sh86,100 on a plate is ridiculous, getting a reservation at an establishment like Noma is a tall order. You might be on the waiting list for several weeks, if not months.

The news of Noma’s closure, while devastating, was not entirely unexpected. In 2020, the restaurant that was founded in 2003 by René Redzepi announced losses. Since then, the closure has been on the horizon.

Redzepi says of Noma’s business model: ‘‘Financially and emotionally, as an employer and as a human being, it just does not work.’’

Closer home, Hotel Intercontinental, Simmers, Honey & Dough, Burger Dome, Hilton and Kune are some of the restaurants, hotels and food businesses that have recently folded.

Before closing its doors on New Year’s eve, Hilton Hotel had been in operation in the country for 70 years.

And it is not just the big names. It is no longer surprising to visit an eatery hoping to dine only to be met by a cold padlock. Or a new tenant. For hotels, restaurants specialising in exotic cuisines are discontinued.

Experts say running a restaurant is like conducting an orchestra and failure is a sequential process. First, the drums fail, followed by the tambourine and the guitar. Next is the violin, the saxophone and the cello in quick succession. In the end, the music stops.

But why do seemingly successful food businesses fold?

Simon Wanjau, a seasoned chef, and hotel manager Edna Odongo cite mismanagement from the outset and overzealousness as common culprits. There is also competition, high cost of operation and theft.

“Restaurants are an incredibly high-cost, low-profit-margin business and the Covid-19 pandemic only made those odds infinitely worse,” says Edna, the managing director of Mawimbi Seafood restaurant in Nairobi.

“It takes a lot of money to keep a restaurant running. There are food and beverage costs, overheads, and other costs that add up quickly,” she adds, noting that even the best restaurants, in spite of having delicious dishes, competent staff, great marketing, and good books still struggle, with many giving up the fight in the end.

Illusory success

Simon says having a full house does not mean a restaurant is making money. “It is sometimes an illusory success.”

“Profitability in food is very slim. Every little miscalculation in your finances is unforgivable. Many operators end up spending their own money to run the facilities,” says the founder of Kobbi’s Oven.

To deal with slim profit margins some restaurant chains like Java Kenya have been opening multiple branches across the country to maximise volumes.

By having standard operating procedures and a standard menu, they are able to guarantee not only quality but control costs as well.

Then there is influencer marketing, where the pressure has soared in recent years as businesses seek to boost their visibility.

In most cases, influencers are paid with money or experiences, which Simon says eats into the business’s bottom line.

“If you do not factor in marketing costs, you end up spending so much money that is not accounted for.”

For most high-end restaurants, sourcing quality and fresh supplies at affordable prices is a challenge. Major restaurants have specific and accredited suppliers of vegetables, herbs and spices, dairy products and meats.

Any disruption in the supply of these products causes drastic changes in the menu, including pricing.

Chef Wayne Walkinshaw of the Chophouse restaurant Radisson Blu told BD Life last year that the hotel had at one time had to withdraw seabass, lobsters and foie gras (fattened goose/duck liver) and some prime beef cuts from the menu when they could not source them at the height of the Covid-19 pandemic.

They had to make do with what could be sourced locally. ‘‘There might be fewer cuts and limited options, but they are of equally good quality.’’

Simon, though, argues that the market has most of the supplies readily available.

There are also mistakes that lead to the closure of popular joints. Simon says some restaurants put ‘‘the wrong people’’ in charge, alluding to money laundering that is alleged to be at the core of most leading entertainment businesses in Kenya.

Edna observes: ‘‘Having a very large menu is one of them. There is also overstaffing and opening in the wrong location.’’


Simon Wanjau, a seasoned chef in this photo taken on October 11 2012. PHOTO | EMMA NZIOKA | NMG 

With so many costs to foot to keep a restaurant running, the two say some owners look for cheap labour, bringing on board unqualified or underqualified workers. With staffing challenges, the overall diner experience is watered down.

Strategic staffing

Simon says strategic staffing is non-negotiable in the food business. ‘‘When you get professionals to run the business, they will do so competently and guarantee quality.’’

Even so, he admits that training staff is expensive. ‘‘With better remuneration, a manager or supervisor will even train staff. This gives the business a succession plan. You are not inconvenienced when a chef or supervisor leaves.’’

Some of the chefs at Noma left to open their own restaurants and create new dining experiences. Simon left Intercontinental Hotel to start his own business.

Edna says working as a unit makes the departure of a team member less disruptive to a restaurant’s operations.

Are these mistakes avoidable, though? She thinks so. ‘‘You learn with effort and time.’’ Only most restaurants operate on borrowed time.

“Putting in [the work] to understand the inner workings of the business and the needs of the customers is key,” she says.

But it is theft that sinks most of the restaurants. So audacious are some of the theft schemes that workers give patrons different accounts to make payments for their bills as the business is gradually running aground.

Simon suggests that competitive remuneration is one of the ways to deal with theft. ‘‘It does not make sense to pay Sh15,000 to a waiter who is handling Sh100,000. They will steal from you,” he warns.

Large restaurants that host many diners normally lease godowns where some of the food, especially pastries, is prepared.

This off-site preparation of food comes with the added cost of extra hands, rent and transport, which many smaller restaurants cannot afford.

Stiff competition

To avoid losses and eventual closure, the experts say pricing of items is critical. ‘‘The price of each item on the menu should cater for tax, payroll, rent and your profit margin. This is why a beer at a regular club and a five-star hotel does not sell at the same price,’’ Simon explains.

Restaurateurs may have themselves to blame for their own failures. Against external factors such as competition, they are helpless. Nairobi may already have so many places for eating out, but this does not keep new ones from opening.

‘‘[There are] so many Italians restaurants in Nairobi,’’ remarks Sarah Mwangi on Twitter.

Nduta Njogu says: ‘‘So many cute restaurants opening up in Nairobi. I want to go to each one of them…but my account.’’

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