We have all come across the concept of SWOT analysis, it is included in every business 101 guide.
Technically, it is a simple strategy tool. SWOT stands for Strengths, Weakness, Opportunity, and Threats.
Strengths and Weaknesses account for things you can control in your restaurant business. Opportunities and Threats are external factors that are usually out of your business control but tend to impact your restaurant directly.
When you combine the 4, you get a holistic view of your restaurant venture inside the hospitality landscape.
When you apply this simple strategic tool in a real-life situation, it can get tricky or intimidating. First, there are always questions around when and why you should do it. As with any complex task, we usually opt not to do it at all. Which is a big no, no and means we should focus on it sooner rather than later.
Second, many restaurant owners wonder about the right process to go about it. Should they do it alone, since as owners, they know their business well, or should they make it a process and also include staff. If that latter, then yes, who exactly should be involved?
Lastly, restaurant businesses are innately complicated, and it becomes difficult to categorize many characteristics under the SWOT analysis. For instance, are low prices a strength or a weakness? Well, this depends on your business model, as sometimes low prices equate to a higher customer count, which in turn results in higher gross volume, which is a strength!
In this piece, we will deep-dive into all of the three points of concern for restaurant owners to break down these concepts with relevant examples so they can be easily relatable.
The piece will help you know when and how you should perform a SWOT analysis for your restaurant. Here we go:
Table of Contents
When Should You Do the Analysis?
Whether you are a newly opened restaurant, a restaurant about to launch, or a well-established restaurant, there is no running away from SWOT analysis. The purpose of this tool is to evaluate your position in the hospitality industry, to see how your establishment ranks compared to your competitors (both direct and indirect), and understand how external factors can affect your restaurant business.
In addition to that, a SWOT analysis can help you in strategic planning, brainstorming, and decision making. This is because the SWOT analysis gives you an idea of how your restaurant is performing and which areas need attention.
To get a rough idea, think of this fictional scenario. When you are planning the strategy for the next few years, you identified that your strength lies in your customer service quality, and you need to work on your weakness – high staff turnover to maintain that quality. You have identified a new opportunity of attracting office lunch groups, but there is a threat to your neighboring restaurant as they increased their lunch menu offering.
You still managed to bring in the new target group as you worked on providing exceptional staff, less waiting time, which is valuable to the office staff. Since they were regulars, they built relations and loyalty to your waiting staff (who are now not quitting as frequently) and to your restaurant.
The analysis that you did helped you identify your SWOT and helped you with your long term strategic planning, directly helping you grow your business.
Common Scenarios Where a SWOT Analysis Is Useful:
1. When you want to explore a new restaurant business opportunity, a whole new venture or a new product in your existing restaurant.
2. When you want to give in to trends and evaluate their attractiveness.
3. When you want to implement new technology or processes in your business.
4. When you want to respond to a competitor’s strategy or new development.
When you are faced with one of the above situations, doing the analysis can help you evaluate your business, and it’s the position. Then make the best decision and proceed accordingly.
One more perspective to identifying the need for SWOT analysis is by looking at issues that need to be addressed. Some examples of such problems are staffing issues, restaurant public-facing image, operational inefficiency, and more.
When you look at these issues, a few things come to mind. You either find a solution by looking at your strengths, or you see which strengths can overcome this kind of an issue. You understand that if one of your problems can have grave consequences such as missed opportunity or loss from threats.
All in all, the SWOT analysis helps you better visualize your current situation and proceed in accordance.
How Can You Go About Preparing a SWOT Analysis?
Once you have decided to do a SWOT analysis, the next step would be to set-up a timeline and a process to go about it.
For smaller issues or decisions, you can rely on your internal team for your SWOT analysis. You must include your management, sales, marketing, operation head, general/floor manager. They could have more insights into the business that you might miss out from the macro view.
Further, having different perspectives on this helps with a more comprehensive analysis. So, for instance, when you are just trying out new products based on some trends, then the internal team and their subsequent discussions should suffice.
For more critical issues or complicated decisions, it is advisable to hire an external consultant. Consultants have experience with this kind of analysis, and to top that, they have a strong knowledge of the external factors.
So, for instance, when you are exploring a new business opportunity, and both the investments are risky, an external consultant can be a good sparring partner in the process.
Take the SWOT Analysis Further, Look at the Competition
In addition to doing the SWOT analysis of your restaurant, doing the same for your main competitors can also be helpful. From the information you have about your competitors, the SWOT framework could give you an idea of their position and help with a comparative analysis. It can help you understand topics like how to identify essential gaps you need to fill in.
Additionally, this analysis can help you position yourself to stand out from your restaurant competition, or how they behave in the face of opportunity or threat and what you can learn from their anticipated response (think Game Theory).
The Category of the Restaurant SWOT Analysis
We know that SWOT stands for strengths, weaknesses, opportunities, and threats. In this section, we will dive deep into each one to understand what comes under each of these SWOT blocks and how it relates to your restaurant business.
Download my restaurant SWOT analysis by clicking here.
Each category has some example questions to ask, that will help you categorize whether a particular characteristic is a strength or a weakness, or whether it is an opportunity or threat.
An example could be, an economic slowdown could be a threat in general. But you are known for low prices, and this is why the customer chooses you.
So for your restaurant business, even when there is an economic slowdown – people will switch from more expensive restaurants to your offering. This economic change could be an opportunity for you if you see this coming, and you should increase your offerings and service at the same or similar prices.
Go on and try to answer the questions listed below for your business and write them in the relevant blocks.
Building on Strengths
To assess your restaurant’s strengths is to understand your business’s positive qualities, factors that help you stand out, points that make the customer choose you.
Some questions you should ask yourself, restaurant team, and/or consultant to recognize your restaurant strengths:
1. What makes the customers choose you over your direct/indirect competitors?
Think about the customer service, the restaurant interior or ambiance, menu offerings, promotions, that one mind-blowing dessert, prices, and the relevant emotions attached to your dining experience.
2. What went well in the past 6-12 months, and to what can you attribute that success?
Think on the lines of increased foot traffic, growth in sales, increased profitability, less staff turnover, reduced costs, booming bar business.
3. What positive feedback/reviews are you getting?
Always keep a tab on customer sentiments towards your restaurant. These are highlighted in person or online via Yelp and Tripadvisor.
4. What are your advantages over others?
Think about your secret recipes (KFC has one remember), perfect location, excellent staff, financial stability, and customer following.
To know your weaknesses is to understand the gaps in your restaurant, issues your business is currently facing, and the relevant aspects that need improvement.
Some questions you should ask yourself/team/consultant to identify the weaknesses:
1. What areas need to be improved?
For example, menu offerings, ambience, cleanliness, food quality and staff quality (employee training).
2. What are causing the losses for your restaurant? Where are you bleeding costs?
Think of high cost of goods, high staff turnover, increasing expenses, untrained back of the house staff, failing menu items, inventory sitting on the shelf, and so on.
3. What are the reasons you are losing out on sales?
Think of not enough space and losing guests, high wait times, reduced food quality, poor customer service.
4. What negative feedback/reviews/complaints are you getting?
Keep a tab on any, and all complaints received, utilizing the online review channels like Yelp and Tripadvisor.
To seize the opportunity is to assess your environment and look out for any shifts, changes, developments, or improvements that you can leverage to your restaurant’s advantage.
Some questions you should ask yourself, team, and/or your consultant to highlight opportunity areas:
1. What are the new shifts in consumer taste, preference, consumption patterns, spending behavior, and so on?
Are your customers going more plant-based, are they preferring plastic-free (paper straws), are they wanting instagrammable plating, are they spending more?
2. Are there changes from the policy side?
This could be from the government, labor union, restaurant unions, food supply organizations, health-related bodies? We saw this recently in NYC with the CBD food-related items banning.
3. What are the new technological advancements in the restaurant industry?
Think on the lines of accounting software to automate your tasks, point of sales systems taken to the table side, and kiosks for quick service checkout.
4. What are some improvements needed in the restaurant industry and how can one fill those gaps?
For example, the market around me does not have Indian cuisine, and people like the taste and flavors that make the cuisine or the industry needs more sustainable practices, and I can market myself as an energy-efficient restaurant.
5. Are new restaurants opening? Are businesses shutting? What are some changes on this competitive front?
Knowing who your competitive set is and when it changes is crucial.
6. Are there any changes in the economic conditions? Is there a boom expected? Are many investors joining the industry?
Understanding market cycles and how it affects your industry is crucial for long term success in the restaurant industry.
To be aware of your threats is to spot any external factor that could hurt your restaurant(s).
Some questions you should ask yourself, team or consultants to point out threats are:
1. Are your competitors getting stronger or are there new ones coming?
As I have said earlier, tracking your competitors and updating your analysis quarterly is invaluable.
2. Are there any policies from one of the governing bodies that could affect your operations or bottom lines?
For example, increased labor costs caused by an increase in the minimum wages.
3. Is the economic condition dwindling? Is there a recession around the corner?
Macroeconomics plays an essential role in consumer behavior. The wealth effect equates to fewer cocktails and appetizer purchases, don’t underestimate the consequences.
4. Is the landscape changing and you do not fit into the picture anymore?
For example, health consciousness is leading to reduced sugar consumption, and you are known for your decadent desserts.
Am I Ready for a SWOT Analysis Now?
If you were able to answer these questions for your restaurants and build your framework, you are ready to go ahead and analyze. This is the power of the SWOT analysis; the framework sets you up for success.
This one strategy tool serves multiple purposes, and having it drawn out can help you deeply understand your restaurant business. If you are stuck at any part of the process, go back to the examples and the questions listed in this piece, and customize it to suit your business. As always, email me if you need some additional assistance!
Download my restaurant SWOT analysis by clicking here.