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There Are Too Many Restaurants
Want to see more small eateries? Zone out the chains
Restaurants, like marriages, are a big risk. You’ll find studies quoting a range of conflicting statistics and factors. But the common denominator is that the failure rate is high. And yet, because the heart wants what it wants, that doesn’t stop anyone from doing either. The reasons for failure in both scenarios are pretty similar — inexperience, lack of planning, and undercapitalization.
A new restaurant can reasonably predict many of its first-year expenses, the tens or hundreds of thousands allocated to rent, renovation, inventory, food, and labor costs. But it is much more difficult to predict revenue, because competition is deadly fierce. Yes, product, quality, location, and marketing all play a role in potential sales. And competition usually improves a service. But there are just too damn many restaurants out there.
At last estimate, there were 660,755 restaurants in America and 329 million people. That’s one restaurant for every 497 people. If that seems like plenty of customers per business, consider that the average Applebee’s has 225 seats.
To keep their engines running, large chains and franchises eat up the majority of dining clientele. And chains, operated by corporations whose boards of directors expect constant expansion, keep growing. Fast food franchises are often owned by people with no hospitality experience, but dentists and real estate agents who have identified that there are enough customers at the intersection of Main Street and Offramp Boulevard to support a Pizza Hut or a Wendy’s. They’re a much less risky investment. It’s worth it to first-timers to pay the upfront franchise fees and 5 percent of gross sales to buy a proven successful concept. The result of this, however, is a market saturation by chains and franchises that makes the odds so stacked against the kind of independent restaurateurs we love to champion.
“When I look out at suburbia,” restaurant consultant Nycci Safier Nellis said, “I see these massive new real estate city centers, every 5 feet.”
While Nellis doesn’t believe that all chains are a threat to independent restaurants, one segment of the market is.
