Many restaurant businesses experience failure and closure within the first couple of years. Now, the situation is further aggravated by the COVID-19 pandemic.
What is the exact restaurant failure rate? What are some of the reasons for the closure? How did the pandemic impact the restaurant business?
In today’s article, we’re going to put our focus on the failure rate in the restaurant industry, as well as on some of the factors which had negatively impacted the business. We’re also going to mention the situation with the ongoing pandemic and its influence on the industry.
Keep reading and get all the facts and numbers.
4 Key Restaurant Business Failure Rate (Editor’s Pick)
- The restaurant failure rate in the United States is 30%.
- 29% of restaurants were successful when they closed.
- Only 20% of newly opened restaurants will find growth and success.
- The fast-food industry had the fewest closures during the pandemic.
11 Restaurant Failure Rate Statistics
1. COVID-19 impacted the entire restaurant and foodservice industry.
First things first – the COVID-19 pandemic has massively impacted the entire restaurant industry. The best example of that impact is the fact that the industry’s sales fell by $240 billion in 2020 from an expected level of $899 billion. The restaurant industry really took the bullet when we’re talking about the pandemic.
Source: On the Line
2. More than 110,000 restaurants were closed temporarily or permanently in the United States due to the pandemic.
Restaurants have been among the hardest-hit industries in the COVID-19 pandemic. Restrictions, lockdowns and closures, social distancing, and economic uncertainty are still major obstacles for restaurants. According to the National Restaurant Association, more than 110,000 restaurants in the United States shut their doors in 2020, either permanently or temporarily.
Source: National Restaurants Association
3. In the US, the restaurant failure rate is 30%.
To move away from the pandemic and its impact on the industry, let’s focus on the more basic reasons which led to the closures of numerous restaurants. The average restaurant failure rate is difficult to track worldwide. However, the National Restaurant Association estimates that the failure rate in the restaurant industry in the United States is 30%. That means that one in three restaurants won’t survive their first year. By the third year, 60% of restaurants will be closed.
Source: National Restaurant Association
4. Restaurateurs overspend beyond their means.
Many restaurants businesses fail because they don’t have a financial plan well-made and prepared. The cost of starting a restaurant is on average $375,000. That amount doesn’t include operating expenses once the restaurant is opened. A lot of restaurateurs overspend beyond their means and then they don’t have high enough sales to make up for their expenses. And that’s why most of them are forced to close the business.
Source: On the Line
5. Almost 30% of restaurants were successful when they closed.
Not all restaurants are closed because of their bad financial status. According to Forbes, 29% of the restaurant businesses in 2003 that closed were actually successful at the time of the closure. Perhaps owners decided they wanted to do something else, or the restaurant was located in the building which was sold for another use, or some other reasons. Not all restaurants are closed due to some negative factors.
6. The success rate of the restaurant is as for any other small business.
We already mentioned the failure rate of 30%. That means that in their first year, 30% of restaurants may fail or change ownership. In three years, that number jumps to 60%. However, restaurants are no more risky investment than any other small business. Even though these percentages do sound high, they actually present the average success rate of every other small business. According to the International Franchise Association, franchise restaurants have roughly the same success rates as independents.
Source: Webstaurant Store and International Franchise Association
7. Restaurants are fighting the trend of online food delivery.
One of the reasons for a restaurant business to fail is definitely the online food order and delivery. This segment of the restaurant industry is massively growing. And if some restaurants aren’t using all the beneficial factors of this segment, they certainly need to, because otherwise, they’re losing thousands of people who want to enjoy the restaurant food from the comfort of their own home.
8. Only 20% of newly opened restaurants will find growth and success.
According to the data provided by BinWise, within the first five years, 80% of restaurants fail. This is a quite high percentage but according to the available data, the remaining 20% of the restaurants go on to find long-term growth and success.
9. More than 10% of the US restaurants are permanently closed due to the pandemic.
We already mentioned the high number of restaurants that closed permanently and temporarily during the pandemic. According to Restaurant Dive, over 10% of the US restaurants have closed permanently since the start of the pandemic. That percentage presents 79,438 restaurants out of the 778,807 restaurants in the operation.
Source: Restaurant Dive
10. In the food truck segment, more than 20% of mobile eateries have closed.
The food truck segment has seen the hardest hit of any foodservice segment in the last couple of years. The Restaurant Dive reported that 22.5% of mobile eateries have closed due to the impact of the COVID-19 pandemic. That is quite a high percentage caused only by the pandemic.
Source: Restaurant Dive
11. The fast-food industry has had the fewest closures.
The quick-service segment, also known as the fast-food industry, has had the fewest closures, losing only 9.8% of fast food joints. When we’re talking about chain restaurants, those with less than 501 locations have closed at a higher rate than independent restaurants. They had the largest permanent closure rate of 16.2%.
Source: Restaurant Dive
To Wrap It Up
There is no doubt that the restaurant business is tough and hard so don’t let these numbers and percentages scare you. At this moment, the COVID-19 pandemic massively impacts the entire restaurant industry so the numbers of closures are high mostly due to the pandemic. However, before going into business, you need to get your facts straight, understand that no business is easy, make a financial plan and stick to it. Even though the restaurant failure rate is high, especially now and due to the pandemic, the market will be ready for new openings once everything is back to normal.