A “SWOT” analysis is an exercise designed to help business owners understand a company’s viability. It’s a comprehensive listing of the strengths, weaknesses, opportunities and threats that face the business and can serve to prepare the owner for making hard choices about the present and the future. The restaurant industry is notorious and a myth exists that 90 percent of businesses fail in the first five years, but, really it’s 60 percent of restaurants that fail in their first three years. Doing a SWOT for restaurants is a good step toward not being in that 60 percent.
Doing SWOT for Restaurants
The strengths and weaknesses of fast food restaurants are considerably different from casual and fine dining restaurants. Some areas are similar, like staff turnover or the strength/weakness of whether the food’s any good, but they are very different industries and must be looked through a different prism.
Fast food restaurants tend to be franchises and there’s a playbook for making them successful. Often, the parent company won’t sell a franchise if the proposed location and market are deemed too risky for success, since failure can hurt the national or global chain's branding. Having that kind of corporate oversight and guidance can be invaluable to a new business.
Strengths for Restaurants
In the 1980s, Lee Iacocca wrote that a restaurant was good business if it was a good location with a good product, because people always need to eat. Times have changed, though, and the proliferation of restaurants has reached a saturation level whereby failure is frequent.
The strengths of opening a restaurant come down to things like whether the business model can be sustained with minimal staff, along with:
- Are the meals ones that can be prepared affordably with low-cost but good quality ingredients?
- Is a location promising, with things like strong foot traffic, accessible transit and nearby parking?
- Is there a dearth of that food style in the region, but a savvy populace who yearns for it?
Weaknesses and Threats of Restaurant Business
During the economic collapse of 2008 and 2009, McDonald’s saw profit, which seems ironic considering the economy’s cratering, but fast food is one business that tends to thrive in downturns because of fixed pricing, product predictability and affordability.
The rest of the restaurant industry, however, is threatened by economic downturns because people lose their disposable income. Other threats include a lack of visibility from poor foot traffic and no parking, and issues like:
- Leasing challenges from bad landlords, insufficient space, lack of rent protection.
- Infrastructure problems, like possible road construction to interrupt consumer access, plumbing troubles.
- Rising food costs – from poor weather through to oil prices affecting shipping costs or providers going out of business – all affect the profit margin.
- Staffing is always a challenge and in cities with a high cost of living, eateries often reduce opening hours or close entirely because they can’t maintain staff.
- Food quality: If customers don’t like how dishes taste, this is a weakness and a threat that must be solved.
Opportunities in Restaurants
Opportunities can come in all kinds of ways for restaurants, from new food trends, like going vegan, through to finding new funding sources from grants and investors. When looking for opportunities, keep an open mind and look outside the box.
- Is there an opportunity to serve local businesses with lunch delivery?
- Is there a gap in the local food industry that you can fill, like perhaps offering take-and-bake dinners?
- Is catering an option?
- Is a food truck available to you for festivals and public spaces, where you can increase sales but also evangelize your brand?
- -goldy-/iStock/Getty Images