How Often Do Restaurants Fail?
Restaurant failure rates are among the highest of any business…or are they? It may not be as bad as you think.
Key Takeaways:
- Restaurant failures aren’t as frequent as some believe.
- Multiple factors, including financing challenges and location choices, can cause restaurants to fail.
- Non-compliant restaurant construction can lead to poor workflow and regulatory action.
- Addressing these areas proactively can enhance a restaurant’s chances of long-term success.
The restaurant business is fiercely competitive. But competition in the marketplace isn’t the only thing shutting down restaurants.
Correctly identifying how often restaurants close (and all the contributing components) requires separating fact from fiction. Some prevailing myths still color public perception of restaurant failure rates.
That’s why, in this article, we’ll help restaurant owners, managers, and foodservice professionals gain a better understanding of the factors contributing to restaurant closures and offer actionable advice on making their business as fail-safe as possible.
Debunking the Restaurant Failures Myth
The notoriously difficult restaurant industry has been subject to a few urban legends, such as the notion that most restaurants fail within their first twelve months or that the percentage of overall failures and closures is far greater than the successes.
In reality, a study from the University of Central Florida found that less than 30% of new restaurants fail in their first year, with the National Restaurant Association accepting a 30% failure rate as the norm.
Sadly, it’s also true that a restaurant’s chance of success diminishes with consecutive years as costs mount in the face of ever-expanding competition.
In an industry where survival is tough, knowing why so many restaurants fail isn’t optional…it’s everything.
Six Factors Influencing Restaurant Failures
Restaurants are arguably one of today’s most embattled business models. And it’s an easy argument to win, because the following factors can make successful restaurant ownership a serious challenge:
1. Poor Location Choice
Inadequate market research can doom a restaurant from the start. Did the community need or want the service? Is your target demographic local enough to support it? How stiff is the nearby competition, and can you offer a unique value proposition?
Failure to answer these questions in advance can leave restaurants with low accessibility, reduced foot traffic, or rental costs that cannot be sustained in the long term.
2. Operational Inefficiencies and Non-Compliant Construction
Even the most popular restaurants aren’t safe from closure if their premises and practices don’t conform to health and safety regulations. Many restaurants can fail as a result, with Florida’s DBPR making restaurant closure rates public record.
3. Labor Costs
Restaurant staff are all trying to earn a decent wage, made increasingly difficult for restaurant owners by the rising cost of living. Maintaining ideal labor costs of no more than 30% of gross sales is challenging for many sites.
4.Rising Food Prices
Basic ingredients are now more expensive, forcing menu prices to rise; this is not the best way to attract or retain customers and stay open. The price of eating out is expected to rise by 4% in 2025, which, when combined with the expectation of restaurant tipping, could prompt some people to stay home.
5. More Expensive Insurance
Workers’ compensation. Health coverage. Professional liability. Those are just three of many insurance types restaurants must afford monthly, and policies rarely drop in price.
Depending on a restaurant’s size and deductibles, simply meeting regular premiums or paying out on claims can be financially exhausting.
6. Falling Behind on Technology
Today’s restaurant customers expect nothing less than an intuitive website combined with contactless and mobile payment options. Failure to meet these expectations for faster, more convenient digital services can result in a diminished customer experience, negative reviews, and lost business.
Even in this challenging sector, restaurant failures don’t have to include yours. You can still stake a successful claim by following some sensible tips.
Five Steps to Help Prevent Restaurant Failure
Your restaurant can give itself a fighting chance to thrive with a comprehensive, proactive strategy:
– Stay Compliant
Your premises, personnel, and practices must adhere to strict health and safety regulations to pass inspections, avoid closure, and prevent reputational damage.
We recommend staying current on food safety and sanitation and contacting your county health department for more information on what’s expected of your site and staff.
– Stay Trendy and Have Your Own Identity
Boost your odds of gaining attention by following which foods and drinks are generating a buzz while serving up some established staples.
Ensure you don’t fall behind on integrating technology like an optimized website and cashless payments. Utilize both social and traditional media to effectively reach your target demographic.
Lastly, consider revitalizing your restaurant’s design for a more contemporary feel that reflects your brand.
– Build Right, First Time
Our earlier blog explains how to navigate permits and compliance in restaurant construction, a best practice that will help you avoid fines and closures by considering key factors like zoning, local building codes, and more.
– Operate Your Site to Its Full Potential
Smart restaurant kitchen design is crucial. It helps maximize efficiency and productivity, providing faster and more satisfying service, while also playing a significant role in meeting health and safety expectations.
– Choose a Construction Partner With Restaurant-Specific Skills
Building a successful restaurant can mean starting from the ground up or redesigning an existing property.
Either way, you’ll need the right contractor to do it. They’re easy to spot when you know the factors to look for, like verifiable restaurant experience, licenses and qualifications, and strong communication skills.
At RPC General Contractors, we’ve used our comprehensive restaurant construction knowledge to help many businesses build their dream.
As a full-service construction company, we cover every base of restaurant construction from first design to budgeting, and project management to final completion.
Integrate that with smart strategy and best practices, and you’ll be doing all you can to make restaurant failure rates someone else’s problem.