What Are Five Factors Which Contribute To The Failure Of New Restaurants?
Darren Atlee
Economics
January 13, 1995
Definition of Business Failure: Business that ceased operation following
assignment or bankruptcy; ceased operation after foreclosure or attaching;
voluntary withdrawal leaving unpaid debts.
It is a common assumption in the restaurant industry that restaurants fail
at an exceedingly high rate, the highest failure rates in the U. S. economy. In
researching this topic, statistics numbers and percentages fly around routinely.
All give somewhat the same concept; in the starting years, most restaurants fail.
The most often cited statistic is the 95/5 ratio. 95% success and 5% failure.
Conversely, another favorite concept exists. Somewhere between 50 to 80 percent
of all new restaurants which open this year will fail within the first 12 months
of opening their doors. The same conventional wisdom also suggests that about
50% of the remaining restaurants will fail in their second year of operation and
another 33% in the third year. This means that if 100 new restaurants were to
open this year, 50 to 80 would fail before their first anniversary. That would
leave 30 restaurants open in the year two. Half of these 30 would subsequently
fail in their second year, and a final third of those remaining would fail in
their third year. As a result, there is about a 90% compound failure rate over
the first 3 years of a restaurants lifespan. (Mullen & Woo ...