June 7, 2015

Restaurants Don't Fail Any More Often Than Other Businesses

I recently saw someone say that 90% of restaurants fail in their first year.     I wrote about the topic of Misleading failure rates on small businesses a few years ago and later Business Survival Rates  in which I pointed to actual BLS data on the topic :  Chart 3. Survival rates of establishments, by year started and number of years since starting, 1994–2010.    All of that discussion was about failure rates of small businesses in general.   But are restaurants that much more prone to failure?   I mean it seems like a bit tougher business and we often see restaurants opening and closing... so maybe.

Turns out that, no, restaurants don't really fail much more than any other small business in general and the failure rate is nowhere near 90% in the first year.

I found two pretty good sources on the topic with similar numbers on the topic :

Bloomberg article The Restaurant-Failure Myth says that research from H.G. Parsa  an associate professor in Ohio State University's Hospitality Management program, "found that about one in four restaurants close or change ownership within their first year of business.  Over three years, that number rises to three in five."

Forbes article Restaurants Don't Fail, Lenders Do
"According to the National Restaurant Association 30% of new restaurants fail in the first year, and of those that survive, another 30% close in the next 2 years.  Sure that is significant but according to the Small Business Administration’s Office Of Advocacy the two-year failure rate for all small businesses is 31%, and after five years the rate increases to 49%."


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