"Is it my greed or the customer's needs?"... 'Business Type Change' strategies for restaurant owners facing closure

As the management environment in the restaurant industry deteriorates rapidly, an increasing number of small business owners are considering closing their businesses. With the three-year survival rate of small business owners falling to approximately 33%, there is a significant decline compared to the survival rate of about 50% five years ago. Analysis suggests this is not simply a matter of poor management, but a structural problem caused by a surge in competitors and changing market conditions.

According to a video from the 'Obsessed with Business' channel on the Baemin Oesigeop Gwangjang YouTube channel, Bae Mun-jin, a restaurant brand planning expert, presented two strategic options—'business type change' and 'rebranding'—to owners considering closure. Bae advised, "If business is not going well, rather than blaming it solely on oneself, one must flexibly redesign the business to match the changed market conditions."

Business Type Change vs. Rebranding: What is the difference?

Bae distinguished the core difference between the two strategies to be reviewed before closing a business as 'product' and 'method of expression.' A business type change involves changing the product being sold itself, with the goal of attracting new target customers rather than existing ones. On the other hand, rebranding keeps the product but changes the way it is delivered to customers (name, interior, plating, marketing, etc.). Rebranding is characterized by a high probability of re-attracting existing regular customers.

As a successful case of rebranding, he cited a bulgogi specialty restaurant that had operated in Jongno 3-ga for 35 years. The video explained that while the restaurant did not touch its existing bulgogi recipe at all, it changed its method of expression with a youthful sensibility, such as replacing the sign with a European-style exterior and using ceramic tableware instead of melamine plates. Through this, it successfully settled in by expanding its customer base, which had been centered on the elderly, to various age groups. Bae emphasized, "The key to rebranding is maintaining the quality of the food while expressing it in a way that customers will like."

"Such stores must definitely consider a business type change"

Then, in what cases should one carry out a business type change? Bae identified three main cases. First, when the commercial district and floating population are good, but only one's own store has low sales. In particular, if one is running a specific item (e.g., a meat restaurant) and other meat restaurants in that same commercial district are also struggling with sales, this should be interpreted as a signal that the commercial district itself does not want that specific item.

Second, when running a 'flash-in-the-pan item' that has passed its trend. Items that were popular 1–2 years ago are already perceived by people as being outdated, so a quick transition is necessary. Third, when a mismatch occurs between the menu and the commercial district. Bae pointed out, "Even if you have MZ-style interior and menu, if customers flock to the neighboring store's cost-effective menu, it means the owner's greed does not match the needs of the commercial district." He urged, "You must first decide whether you are doing business for your own satisfaction or to make money," advising to prioritize customer needs.

Securing budget and operating funds is essential when changing business types

Since a business type change is essentially no different from starting a new business, thorough funding plans are required. According to the video, the average additional cost required for a business type change is around 30 million won. However, Bae emphasized 'reserve funds' as a must-consider point when changing business types. This is because marketing costs to attract customers with a new item and operating funds to endure initial trial and error are needed separately.

Bae advised, "If you have 60 million won in funds, you should use 30 million won for the business type change costs and leave the remaining 30 million won for initial operating and marketing costs." This is because if all funds are poured into facility investment and operating funds are exhausted, one may face the crisis of closure again immediately after the business type change. He added, "In any case, starting the existing store would have cost hundreds of millions of won," noting that it is not a bad strategy to attempt a business type change with about 50 million to 60 million won in funds while having an understanding of the commercial district.