The Solution to Neophobia in the Restaurant Business

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Neophobia is a rational but economic problem entrepreneurs face all around the world. It is the fear of anything new. And when you are presenting potential customers with a new product, business or idea, this can really get in the way.

The reasons behind this fear are well documented and don’t take much to understand. Deeply encoded in not just humans, but animals too, is the idea that newness can often come with high risk. Without direct knowledge, eating poisonous berries or crossing deserts without provisions mean life or death.

But as we all know, “new” can also be an incredibly beneficial thing. In fact, “new” is almost always at the center of great technological and societal advancement.

The most common form of neophobia is fear of new foods. It is most apparent in children and seniors, for obvious reasons. Children don’t trust something they don’t experience regularly. Elderly have decades of knowledge about what is pleasant and safe to eat. So, they are less likely to go out on a limb with a new cuisine.

Two studies in 2010 show that overall about 51%-55% of all people have significant food neophobia. But this fear isn’t only limited to what kinds of foods people eat. It can also be a devastating economic blow to where people eat.

We’ve all heard terrible – and to be fair, mostly false – stats about failure rates at new restaurants. It really isn’t 90% that fail. But it can run as high as 60% depending on the area.

It really depends on hundreds of factors. Causes such as location and quality are two we most often hear as the reason a new restaurant is already closing. But they’re not the only… or possibly even the main… reasons restaurants close.

The simple fact is, for the vast majority of restaurants, margins are tiny. The cost of ingredients, equipment, staff and overheads like rent and advertising can be prohibitive to early profits. Ask any failed restaurant owner and they’ll tell you there are costs they never expected to deal with… right when they could afford them least.

But this isn’t a story about how to make a successful new restaurant. Nor is it about why you should avoid eating or investing in one. As we said, some can have great success.

What we want to discuss is the fact that whenever a new restaurant shutters its doors, another often pops up in its place. There might be a slightly higher number of people fearing anything new than not. But there’s still about 45%-49% of the population that are risk takers… including entrepreneurs.

Again, we’re not going to try to rationalize why a new restaurant would open on the grave of several failed predecessors. But we do have to acknowledge that they often do.

Restaurants are the face of the food. But they couldn’t exist without suppliers. That can include every kind of company from kitchen equipment makers to food services giants like Sysco.

These suppliers are typically far more stable than their customers. They offer products that each new restaurant, bar or hotel needs no matter how successful that individual business is.

Sysco is the largest with a market cap of $34 billion. There’s almost a 100% chance you’ve seen the company’s trucks dropping off food products to a restaurant – old or new.

In fact, even restaurants that exclusively get their ingredients from local farmer’s markets or are homegrown often rely on Sysco. Along with ingredients, frozen foods, beverages and desserts, the company also leads in paper product and cleaning supplies for the service industry.

So, how is business for such a supplier? Well, see for yourself:

As you can see, there’s no inverse effect on this supplier despite the hundreds of thousands of restaurants closing, changing hands or opening in just the U.S. in that period. In fact, more than 10,000 independent restaurants closed their doors just last year. But for suppliers like Sysco, business is still good… very good.

In fact, over just the last four years, the company has more than doubled its bottom line. Of course, none of this is to say you should go out and buy Sysco stock today. It does trade at a rather high valuation – only somewhat forgiven considering its growth.

But there are others. And plenty of them. There’s US Foods (USFD), Performance Food Group (PFGC) and The Chef’s Warehouse (CHEF) to name a few. The point is there’s a thriving business behind even failed businesses.

This approach is always worth considering. Want to get into mining stocks? Consider mining equipment instead. Want to get in on mobile technology, consider the computer chips behind them. There are almost always alternative investments in an industry. And often, they are where the money really is.

As always, we will continue to watch these back channels to profits. In coming weeks, we’re going to be sharing several of these with a select few readers. So, keep an eye out for that.

In the meantime, feel free to share any of your thoughts on this subject. Comment below or email me at jim.nelson@netgrowthmedia.com.

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