The Reality of the Hospitality Industry: Balancing Idealism and Purchasing Margins

Why running a restaurant is hard, and combining it with social impact is even harder

“Your purchasing costs are 41% of turnover. In the catering industry this should be a maximum of 30%.”

It was the end of 2022, our accountant looked at our figures, and suddenly it became clear why we had been in the red for months. Due to all the other challenges - corona, staff shortages, inflow problems - we had not had a good view of our basic economy for too long.

We weren't running a social impact restaurant. We were running an expensive social project that also happened to serve food.

The Hospitality Reality

Running a restaurant is a challenge even at the best of times. Margins are small, costs are high, and everything has to be perfectly timed. The average restaurant has:

• Purchase costs: 25-30% of the turnover
• Personnel costs: 30-35% of the turnover
• Fixed costs: 15-20% of the turnover
• Gain: 5-10% of the turnover (if you are lucky)

That leaves little room for error. And no room at all for additional social objectives.

Our Complicating Factors

We had all the normal hospitality challenges, plus a few extras:

Higher personnel costs: Part of our team was busy with trajectory guidance instead of productive hospitality work. Conducting conversations, learning Dutch, giving coaching – all necessary, but not generating turnover.

Lower productivity: Trainees were still learning. That meant more time needed for the same tasks, more guidance, more explanation. Logical and valuable, but more expensive.

Changing occupation: Due to trial periods, dropouts and external circumstances (AZC transfers, procedures), our planning was constantly in flux.

Limited opening hours: We were open 9-5, Monday-Saturday. And the evenings and weekends are exactly when restaurants make the most money.

Our hospitality challenges

Our biggest problem turned out to be purchasing. While we were busy with processes, governance, and all the other challenges, our purchasing costs were rising too much. In addition, attracting guests consistently was a big challenge. There were too many peaks and troughs. 

2020 and 2021 made everything even more difficult. First we were only allowed to do takeaway, then limited opening, then closed again. Sometimes trainees couldn't come due to lockdowns. Our turnover collapsed, but the fixed costs remained.

We survived through NOW schemes, but they came back later as a debt that had to be repaid. That continued to haunt us, and it made a challenging business model even more difficult. 

The Founders Grant

The most painful reality was that we as founders were not paid most of the time. We worked many hours a week without pay to keep Grenzeloos afloat.

This wasn't sustainable and it wasn't fair, but the alternative was to stop. So we kept going, hoping that one day it would turn around.

The Subsidy Dependency

To bridge the gap between income and expenditure, we were dependent on subsidies for trajectory guidance. That made us vulnerable:

• Delay in subsidy payments meant liquidity problems
• Changes in subsidy schemes affected us directly
• In order to maintain this, time had to be constantly invested in finding funding for the projects

The Personnel Dilemma

Another kind of challenge was staffing. We needed two kinds of people:

Experienced catering staff: To keep the restaurant running and to supervise trainees. These people cost money.

Trainees: Still learning, working slower, need guidance. These people cost extra time.

When trainees dropped out (due to illness, transfer, or other circumstances), experienced employees had to take over their work. This meant higher wage costs at the same turnover.

In 2022 Q1 and Q2, two permanent employees were regularly absent due to health complaints. The result: around June, a situation arose in which the restaurant regularly had to close early and could not even open on certain days.

What We Have Learned

1. Hospitality figures are ruthless There is no room for error at the core. If your purchasing costs or personnel costs are too high, you will go bankrupt.

2. Social impact costs extra Coaching, training, and supporting costs time and money. Those costs have to be earned somewhere else.

3. Subsidies are not a structural solution They help you get started, but ultimately a company must be profitable itself.

4. Scale is key With 38 seats, it is a big challenge to keep a restaurant running smoothly. A social enterprise is twice as difficult. 

5. Focus is essential You cannot excel in hospitality and trajectory guidance at the same time without very clear roles and processes.

The Turning Points

There were times when we could have turned it around:

Expansion: The plans for renovation and more seating were good, but came too late.

Evening catering: We tried evenings, but didn't find the right concept 

Professional purchasing: We should have addressed this much earlier.

Brighter roles: Who does catering, who does guidance, who does what and when.

The Hard Lesson

In Q1 2024 it became clear that it was no longer sustainable. The numbers did not lie:

• Structural losses despite subsidies
• Rising debts (corona, taxes)
• Exhausted founders
• No reserves to absorb setbacks

We had a choice: invest heavily to turn it around, or admit that this model wasn't working.

For Other Social Entrepreneurs

If you want to combine a restaurant with social impact:

1. Take the catering figures seriously: First make sure you can run a profitable restaurant. Social impact can only come on top of that.

2. Choose a business model with margin: Hospitality has low margins. If you want to make social costs, you need a higher margin model.

3. Clearly separate roles: Make it clear who is a catering employee and when is a trajectory supervisor.

4. Invest in systems: Professional purchasing, planning, and administration are essential, not optional.

5. Plan for scale: With few seats it is very difficult to make a restaurant profitable.

The Reality Check

Restaurant + social impact is possible, but much harder than we thought. It requires:

• More capital than just catering
• More expertise in both domains
• More focus on basic economics
• More realism about what is possible

We started with the idea that good intentions and hard work would be enough. Reality taught us that in the hospitality industry, intentions do not outweigh hard numbers.

But that doesn't mean it's impossible. It just means you need to make the numbers add up before you start on your secret sauce.

In the next blog, we’ll share why we ultimately decided to take a different course – and how a forced change opened up new possibilities.