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Why are so many new shops closing? -Solving issues that even ramen shop owners don’t know about, based on 17 years of accumulated experience since the opening of the Yamato Ramen School: chapter 1

Let’s start by looking at the reality of the ramen industry.

1. very short life expectancy

Do you know how long the average lifespan of a ramen shop business is these days?

Based on our own calculations, using the closure rate within one year (42-3%) and within three years (72-3%) for newly opened shops, which is already captured in the statistical data, the average life span is approximately 2.4 years, as shown in Figure 1 below.

One of the reasons for the very short average life span is simply that sales are not increasing and profits are not being generated; if the business was making a good profit, the life span would not be so short.

Calculation method

An approximate curve is created from the closure rates in years 1 and 3, the closure rate in year 2 is calculated to predict the number of remaining shops in years 5, 7, 9, 11, 13, 15 and 17, and the area between plots is calculated.
Dividing the area by the initial number of shops gives an average life span of approximately 2.4 years.

2. the decline in the number of shops is unstoppable

First of all, please have a look at the graph below.
You can see the frightening decline in the number of shops.
This phenomenon is not only limited to the noodle shop business, but is also true for other food and beverage businesses: udon noodle shops are even more severely affected, with a 25% decrease in the number of shops over the same period.

Number of registered 'ramen shops' (2006-2015).

Over the past 10 years, the number of ramen shops has declined by about 16%, with an average annual decline rate of 1.6%.

3. ramen shops have become a difficult business to make money in!

Twenty to 30 years ago, ramen shops were considered a very profitable business, no matter who started them.
At that time, competition in the restaurant industry was less intense and the overall market size of the restaurant industry was steadily rising and continuing to grow.

However, the rapid evolution of the internet has undermined the principles of competition in all businesses, making it easy for anyone to judge whether a restaurant is good or not by looking at gourmet websites based on the evaluations of many people, without having to visit the restaurant or try the food.

The development of gourmet websites has made it possible to score various restaurants throughout Japan and anyone can easily see their rankings. This has made it possible to differentiate between popular and unpopular restaurants, and whereas in the past it would have been possible to do well at a mediocre or ordinary restaurant, only the best restaurants can survive.

In the same way, the rapid development of the internet has completely changed the way of winning in the business world. The rapid development of the internet has completely changed the way of winning in the business world.
As a result, it must be said that ramen shops have recently become a very difficult business to make money in, as the TKC data below shows.

Ramen noodle shops, recent TKC revenue data (annual turnover under 50 million yen).
 Total number of surveysEnterprises in the blackLoss-making enterprises
number of events22962167
Same left rate %10027.0772.93
Number of employees5.85.45.9
turnover29,80132,05228,966
Same left rate %92.9810090.37
variable cost10,32110,22310,358
Same left rate %34.6331.935.76
fixed cost19,97020,36319,824
Same left rate %67.0163.5368.44
interest-4901,465-1,216
Ramen noodle shops, recent TKC revenue data (annual sales of JPY 50-100 million or less)
 Total number of surveysEnterprises in the blackLoss-making enterprises
number of events1466185
Same left rate %10041.7858.22
Number of employees1311.414.1
turnover70,36870,03770,605
Same left rate %100.47100100.81
variable cost23,86222,83824,598
Same left rate %33.9132.6134.84
fixed cost46,50045,08147,519
Same left rate %66.0864.3767.30
interest42,117-1,511
Ramen noodle shops, recent TKC revenue data (annual sales of ¥ 100 million to ¥ 250 million)
 Total number of surveysEnterprises in the blackLoss-making enterprises
number of events1004357
Same left rate %10043.0057.00
Number of employees2422.125.4
turnover147,543153,253143,236
Same left rate %96.2710093.46
variable cost49,55148,92150,026
Same left rate %33.5831.9234.93
fixed cost97,28199,99895,231
Same left rate %65.9365.2566.49
interest7114,333-2,021

The above TKC data clearly shows that the smaller the shop size, the fewer the number of profitable companies, i.e. the less profitable they are, while the larger the shop size, the more profitable they are and the more profitable they are.

It can be determined from this that in the ramen shop market, more than half of all shops of any size are in the red, and the smaller the shop size, the higher the rate of loss (approximately 73%), and that in the coffee shop market, or in the food and drink business as a whole, or in any other business market, market oligopoly has developed, productivity is high, management This means that larger shops and larger companies with more resources are more likely to survive.

4. a number of causes for the very high rate of closure of new businesses

In opening a restaurant, there are three key elements that a new restaurant operator needs to understand

・Mindset
・Skills
・Manegement
The following three elements are.

1. mindset

The first is mindset, the importance of the mental aspect.

The importance of the mental aspect is one of the most overlooked aspects of starting a new business these days.
What I find with many Noodle School students these days is that there is a huge increase in the number of people who are lacking in this area and think that they are not going to make it.

Business is a system, so there are always inputs and outputs, with a series of different elements along the way.
And there is always a time lag between input and output.
The human body is also a system. For example, if you drink a glass of water now, will you go to the toilet immediately?
Business is exactly the same, even if you improve your products or services today, sales will not increase immediately from today, but there is always a time lag of a few days, months or even years.

In short, as long as the system is a system, there is always a lime lag between input and output, and the more complex the system, the bigger the time lag.
This is why business people need passion, perseverance and a strong mentality.
I have written down these aspects of mental strength as business achievements in my book ‘Textbook for ramen, udon and soba restaurants that thrive even in a recession’ as follows.

‘Business results = responsibility x dreams x passion x concentration x willpower x experience x focus x perseverance.’

All of the above are related to the mind-set, or the mental aspect, and I believe that the importance of the mind-set needs to be understood more than ever before in this day and age.

2. skills

The second important factor is skills (technical).

Most new openers are looking for a property when the product is not yet ready, and although they have secured a property, decorated the interior and exterior, and the building is ready for opening, the crucial product is not yet ready.
Naturally, the products are run-of-the-mill or not up to the level of a professional.

Before the development of the internet, it was possible to get by with a mediocre level, but now that the internet has developed so much and any information can be obtained instantly, even a professional level is useless and you have to reach the level of a professional among professionals to get by.

Many of the people who open new restaurants and fail are those who offer immature products and services at the time of opening and end up closing their restaurants with a score of around 3.0 by the specialist bloggers on the gourmet food websites they visit.
If you open a new restaurant, you absolutely need to score at least around 3.3.

It is important to first complete the product completely, then run through the business model simulation to exhaustively calculate the money flow (profit to be gained) many times, and then look for a suitable property.

3. management

The last important theme is monetisation, creating a business model that is profitable and can be managed neatly.

No matter how good your technology is, if you don’t have the management skills, your restaurant will not succeed.

For example, Hakata Ippudo has become a global Ippudo in the 34 years since its establishment, with 150 shops in Japan and 100 shops abroad, because it has the ability to manage.
The establishment of a system that enables this many shops to continue to generate profits domestically and internationally is a management system that involves people, goods and money.
Therefore, management is also a comprehensive capability.
Thus, when aiming to open multiple shops, reinvestment is not possible unless profits increase.

Reinvestment means investing in human resources, investing in product development, investing in raising service levels, reinvesting in property, etc. Reinvestment in people and goods must be constantly carried out in order to survive.
In order to keep the business running smoothly in this way, we must always continue to reinvest in all necessary items, and it is essential that we continue to invest in IT and AI from now into the future.
Therefore, creating a business model that keeps customers best pleased, spends a lot of money and continues to generate maximum profits is the most important task for a business owner.

The very high rate of closures of new businesses these days is due to a lack of understanding or preparation for 1-3 above, which leads to early closures.
If you are making a solid profit and are making enough profit, you will not close so easily. The main reason for closures is that they are not profitable, i.e. they are not making money.

5. never imitate or compete with rivals (understanding the blue ocean in business)

One of the many mistakes that many new business start-ups make is to imitate other restaurants.
The following is a statement from the Hakata Ippudo website, which should be of great help to many business people.

History and the future Hakata Ippudo

Hakata Ippudo was born on 16 October 1985.

Ippudo’s name, which means “a small shop with only ten seats at the counter”, is a symbol of Ippudo’s passionate desire to create a new wave in the ramen industry, and the bowl of ramen it serves overturns the conventional wisdom of tonkotsu ramen.

The owner, Shigemi Kawahara, has created a mild-tasting tonkotsu ramen that removes the smell of pork. The interior of the stylish restaurant, which is made of plenty of wood, is like the atelier of a wood sculptor, and every inch of the interior has been polished and polished.

The background music is modern jazz.

The warm and attentive customer service brought a lively atmosphere to the shop. The restaurant, which was revolutionary in every way, also attracted the support of female customers who had previously had nothing to do with ramen, and created a stir in the Hakata ramen industry.

As described above, Ippudo did not imitate the many Nagahama ramen shops that existed at the time, but created a shop that was completely different from them and became a huge success, becoming the Ippudo of the world.

Blue Ocean Strategy

What you must never do is the red part of the red ocean in the centre of the diagram above.
Conversely, you must only do the part of the Blue Ocean where there are customer needs and no competition from rivals.

6. is this a business that you are truly passionate about?

Many new entrepreneurs have a passion for money, but few have a deep passion for the noodle business.
They should only do so in the red area where the following three items overlap in the diagram below, which is explained in the hedgehog concept in Visionary Company 2.
In Visionary Company 2, we took 14 very successful American companies and did a comparative analysis of companies that had been equally successful in the same genre up to the middle of their journey, but had gone bad along the way, to find out what the differences were.
What they found was that only those companies that concentrated on the following three areas were very successful

・Companies that concentrated only on what they were passionate about
・Companies that concentrated only on the areas where they could be the best in the world
・Companies that concentrated only on what would drive them economically

Visionary Company's hedgehog concept
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