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Past research on restaurant failures has focused mostly on quantitative factors and bankruptcy rates. This study explored restaurant ownership turnover rates using qualitative data, longitudinal data (1996-1999), and data from Dun and Bradstreet reports. In contrast to frequently repeated statistics, a relatively modest 26.16 percent of independent restaurants failed during the first year of operation. Results from this study indicated marginal differences in restaurant failures between franchise chains (57.2 percent) and independent operators (61.4 percent). Restaurant density and ownership turnover were strongly correlated (.9919). A qualitative analysis indicated that effective management of family life cycle and quality-of-life issues is more important than previously believed in the growth and development of a restaurant.
Keywords: restaurant failure; dinner-house operation; entrepreneurship; restaurant bankruptcy
I suffered from mission drift. When things didn't work, I would try something else, and eventually there was no "concept" anymore.
-A failed restaurateur
The restaurant industry and its analysts have long pondered the enigmatic question of why restaurants fail. Restaurant failures have been attributed to economic and social factors, to competition and legal restrictions, and even to government intervention. In the current complex environment of the restaurant business, we believe that it is imperative that prospective and current owners understand why restaurants fail (see Sidebar 1).
Most hospitality research has focused on the relative financial performance of existing restaurants instead of examining the basic nature of restaurant failures, and most of these studies considered only bankruptcy reports.1 Most bankruptcy studies are limited in their scope, however, because many restaurant closures result from change-of-ownership actions, rather than bankruptcies. These change-of-ownership transactions are treated as legal matters instead of actual bankruptcy procedures and may not be included in public records. Furthermore, because the focus of academic research has remained primarily on bankruptcy studies, the qualitative aspects of business failures have received little attention. In writing this article, we hope to determine the underlying factors that determine the viability of a restaurant.
Types of Restaurant Failures
Restaurant failures can be studied from economic, marketing, and managerial perspectives. Of these three perspectives, we observe that restaurant failures have been studied primarily from the economic perspective.2
Economic perspective. This category includes restaurants that failed for economic reasons such as decreased profits from diminished revenues; depressed profits resulting...