Restaurant failure rates: fact or fiction?

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FOOD SERVICE

Restaurant failure rates: fact or fiction?

Posted 5/20/13

It happened again.

I was having a business conversation with a local retail manager who brought up the old saw that 80 percent of restaurants close their doors within their first five years of operation.

There are various versions of this “statistic.” The most-often quoted version is, “90 percent of new restaurants fail in their first year.”

Prior to 1996 or so, when we went out to restaurants merely for food and drink, before the restaurant boom and the foodie culture, the odds of us paying $150 for a seat at the Providence Performing Arts Center to watch a chef and a food writer sit on the stage and banter were slim and none. Dining out is entertainment today.

Chefs and food writers such as Anthony Bourdain, former host of the Travel Channel’s “No Reservations,” and Eric Ripert, renowned chef of Le Bernardin, are rock stars. So why does the myth persist that the restaurant business is so uncertain? University studies going back to those pre-rock-star days, and current evidence shed light on this so-called conventional wisdom.

A website clearinghouse for independent restaurateurs attempted to examine the restaurant-startup-failure myth. Restaurantowner.com contacted the National Restaurant Association to find some hard evidence of failure rates. The response from the organization’s research department: “We don’t track restaurant failures.”

Cornell and Michigan State University each conducted a study of restaurants in three local markets over a 10-year period back before 2000. They came to the conclusion that after the first year of being in business, 27 percent of restaurant startups failed. As time went on, the number increased after five years to 70 percent, still a far cry from nine out of 10 not making it past 12 months. And even back in the ’90s, Ohio State University researchers debunked the 90 percent first-year figure.

According to H.G. Parsa, associate professor of hospitality management at Ohio State, restaurants in Columbus, Ohio failed at a rate of 57 to 61 percent for a three-year period from 1996 to 1999. The highest failure rate was noted during the first year, when about 26 percent of the restaurants failed. Columbus happens to be the home of several chain-restaurant headquarters, so there may have been some experimental concepts among those eateries which closed their doors during the period of the study. Still, not 90 percent.

There is no recent data. However, the marketplace has much information to be mined. When reopenings by other restaurateurs at “closed” locations are examined, the so-called failure equation becomes even more irrelevant. Here in Rhode Island this year, Benjamin and Heidi Sukle’s new restaurant, birch – correctly spelled in lower case – is scheduled to open in June at the former Tini space at 200 Washington Street, itself the historic location of a luncheonette known back in the day as The New Yorker. The couple - he the chef, she the front-of-house manager, the job once known as “hostess”- were on the startup team at The Dorrance, which is located in the restaurant space known previously as Federal Reserve. How does the conventional wisdom look at this? There are still restaurants at both addresses. Hanley’s Ale House and Cigar Bar now occupies the space that was formerly McFadden’s at 92 Pine St. in Providence, that had been America and once upon a time, the legendary Challenges.

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