The Restaurant Failure Rate, Real and Imagined

One often hears that almost all restaurants fail within their first year, but that’s not true.  Turnover is high, but it’s nowhere near 90% in the first year:

[H.G.] Parsa [then an associate professor at Ohio State, now at the University of Denver] says he spent three months trying to track down someone at American Express who could give him a source for the 90% figure quoted in the ad. As it turns out, they didn’t have one. “American Express has not been able to track down a specific data source for the statistic,” reads a written statement a spokesperson sent Parsa in response to his request.

Parsa wasn’t surprised. He had run several spreadsheet simulations to verify the statistic himself and found that not only is the 90% figure off base, it’s practically impossible, given industry growth rates. He decided to do his own research on failure rates, using Health Dept. records to track turnover among 2,500 restaurants in Columbus, Ohio, over a three-year period.

His research—consistent with similar studies—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.

See, The Restaurant-Failure Myth @ Bloomberg Business, and Restaurant Failure Rate Much Lower Than Commonly Assumed, Study Finds @   

Still, it’s a hard business, with many restaurants changing hands. 

Notify of

Inline Feedbacks
View all comments