33 Restaurant Failure Rate Statistics to Make You Think Twice


Restaurant Failure Statistics

So, you’re thinking about opening your own restaurant. Congratulations! You’re about to embark on a journey that will be full of highs and lows, successes and failures, and all the good, bad, and ugly in between.

But before you get too far down that road, we need to talk about something: the odds of your restaurant failing. And they’re not great.

You’ve probably heard it said that restaurants fail at a rate of more than 90%. That’s a lot of failures, and it can be hard to take in. But what if we told you that wasn’t the full picture? What if there were other statistics—about restaurant failure rates—that didn’t make their way into the mainstream media?

We did some digging and put together this list of restaurant failure rate statistics—and we’re sharing them with you today because we want to help you succeed!

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Restaurant Failure Rate Statistics (The Highlights)

  • 17% of independently-owned, full-service restaurants fail during their first year of operation.
  • 61% of independently operated restaurants close within their first three years.
  • 80% of restaurants close within the first five years of operation.
  • The median lifespan of restaurants with five or fewer employees stands at 3.75 years.
  • The average annual number of food and drink establishment closures between 2011 and 2019 stood at 81,000.
  • 80% of restaurants that didn’t receive Restaurant Revitalization Fund support are at risk of permanent closure.
  • 54% of restaurant operators had to turn to their own savings to stay afloat in 2021.
  • 62% of restauranteurs report accumulating additional debt since the beginning of the pandemic. 

General Restaurant Failure Statistics

1. 17% of independently-owned, full-service restaurants fail during their first year of operation.

The above figure falls only two percentage points short of the one for service businesses in general, 19% of which fail during their first year of operation.

What’s more, standing at 4.5 years, the average lifespan of restaurants is slightly longer than the one of other businesses, which stands at 4.25 years.

(BLS, Forbes)

 

2. 61% of independently operated restaurants fail within the first three years.

(Time, Ohio State University)

Only about 39% of independently operated restaurants survive for more than three years.

That’s a pretty scary statistic.

The reason for this high failure rate is simple: most of the time, people just don’t know what they’re getting into—they don’t understand the hard work and dedication that’s needed to make a restaurant successful. So many people open up restaurants without realizing how much work goes into it and without understanding what it takes to be successful when you’re working on your own.

But there’s good news! That doesn’t mean that you shouldn’t try—it just means that if you’re going to do it, you need to be prepared for all of the things that might stand in your way.

 

3. 80% of restaurants close within five years of opening.

(CNBC)

If you’ve ever opened a restaurant, you know how difficult it is to keep your doors open. Not only do you have to compete with other restaurants in the area, but you also have to deal with all of the day-to-day challenges that come with running any business. So it’s no surprise that 80% of restaurants close before reaching five years of operation.

The statistics don’t lie: if you want to be successful in this industry, you have to be willing to work hard and put in long hours—and that’s not even including all of the research and planning that goes into starting up a new restaurant!

 

4. Each year, nearly 40,000 jobs are lost due to failed restaurants, along with $3.2 billion in lost capital investment.

(University of Central Florida, Statista)

Restaurants are a significant part of the American economy. There are more than 600,000 restaurants in operation today, and they employ about 11.2 million workers. That’s an enormous number of jobs!

A restaurant’s success depends on its ability to create an environment where guests feel welcome and comfortable, making it easy for them to relax, enjoy great food and beverages, and enjoy the company of family and friends.

But what happens when things go wrong?

Restaurant failures lead to the loss of nearly 40,000 jobs per year—and that’s just the tip of the iceberg. Not only do failed restaurants cause job losses, but they also result in lost capital investment of approximately $3.2 billion per year.

The financial distress caused by these losses has a lasting impact on the economy. Furthermore, investors and restaurant employees are left with a lot of financial distress on their hands.

 

5. The median lifespan of restaurants with five or fewer employees stands at 3.75 years.

The above figure is slightly smaller than the one for other service businesses with the same employee count, which stands at four years.

When it comes to restaurants with 20 or fewer employees, their median lifespan is around three months shorter than other service businesses with the same employee count.

However, restaurants with 21 or more employees boast a median lifespan of around nine months longer than businesses in the service industry with the same number of employees.

(BLS, ResearchGate)

 

6. The average annual number of food and drink establishment closures between 2011 and 2019 stood at 81,000.

A year later, in 2020, the total number of closures stood at 159,000, nearly double the nine-year average. In Q2 2020 alone, the number of food and drink establishment closures stood at 72,500, nearly three times higher than the quarterly average of around 20,300.

In the first three quarters of 2021, however, the average number of quarterly closures dropped to 19,500, which is even lower than pre-pandemic averages.

(The Washington Post)

 

7. 80% of restaurants that didn’t receive Restaurant Revitalization Fund support are at risk of permanent closure.

As of January 2022, 42% of businesses that didn’t receive RFF support are in danger of or have filed for bankruptcy. This compares to 20% of those who did receive RRF support. The corresponding figures in April 2022 stood at 40% and 25%, respectively.

(Independent Restaurant Coalition)

 

Stats on Restaurants’ Most Common Challenges

8. 96% of restaurants faced supply delays or shortages of key food or beverage items in 2021.

What’s more, over 50% of restauranteurs think that business conditions won’t be back to normal for at least a year. On the other side of the spectrum, 51% of adults agree they’re not eating out at restaurants as often as they’d like.

(National Restaurant Association)

 

9. Inventory costs were the greatest cause of strain for 33% of restaurants in 2021.

For equal portions of 30%, the greatest cause of strain were rent and labor costs. 1% of restaurants cited other causes of strain as their greatest, while 7% cited none.

(Touch Bistro)

 

10. 54% of restaurant operators had to turn to their own savings to stay afloat in 2021.

38% opted to seek help from banks or take out small business loans, while 30% relied on their friends and family for support.

Online lenders and/or SBA-guaranteed loans were the way to go for 21% of businesses, while 20% opted for grants and 18% for Paycheck Protection Program loans.

14% relied on Employee Retention Tax Credits, while 9% opted for crowdfunding.

Only 2% of restaurant operators didn’t need any financial help staying afloat in 2021.

(Touch Bistro)

 

11. 5% of restauranteurs would like to but can’t cut down on labor costs.

Among those who do manage to cut down on labor costs, 44% opt for increased productivity, while 33% reduce their hours of operation. Equal 32%-portions of restauranteurs increase staff retention and create labor targets as methods of cutting down labor costs.

29% use restaurant scheduling software, 23% rely on POS sales data to predict scheduling needs, while 19% cross-train and/or repurpose staff as a way to cut down on labor costs.

(Touch Bistro)

 

12. 26% of restaurants are 3-4 positions short in staff.

Equal 19%-portions are either 1-2 or 5-6 positions short. 12% of restaurants are 7-10 positions short, while 4% say the same for 11-15 positions. Only 1% of restaurants are over 15 positions short in staff.

(Touch Bistro)

 

13. 30% of restaurants are short on servers.

Dishwashers rank second with 27% of restaurants being short on them, followed by chefs with 22% and bartenders with 19%. 18% of restaurants are short on managers, and 17% on hosts. Line and prep cooks round the list, with 16% and 13% of restaurants being short on them, respectively.

(Touch Bistro)

 

14. 40% of restauranteurs can afford a 3%-4% minimum wage increase.

33% of restauranteurs can afford a 1%-2% minimum wage increase, while 19% can afford as much as a 5%-6% increase. Only 7% can afford a minimum wage increase of 7% or more, while 4% can afford an increase of up to 1%.

(Touch Bistro)

 

COVID-19’s Impact on the Restaurant Industry

15. 62% of restauranteurs report accumulating additional debt since the beginning of the pandemic.

Another 57% say their restaurants have fallen back on expenses. 41% of restaurant operators who didn’t receive a portion of the Restaurant Revitalization Fund report taking out personal loans to support their businesses, which compares to 19% of those who did.

(Restaurant Dive, Independent Restaurant Coalition)

 

16. As of April 2022, 48% of restaurants that didn’t receive Restaurant Revitalization Fund support are on the verge of defaulting on a loan.

Another 28% are on the verge of eviction. When it comes to restaurants that did receive RRF support, 22% are on the verge of defaulting on a loan, and 20% are close to being evicted.

(Independent Restaurant Coalition)

 

17. Between February 2020 and January 2022, 41% of restauranteurs that didn’t receive RRF support have taken out personal loans to support their businesses.

Another 26% of restauranteurs report selling a personal asset to support their business, while 11% took on new investors. The corresponding figures for restauranteurs are twice lower, at 19%, 10%, and 5%, respectively.

(Independent Restaurant Coalition)

 

18. Food and beverage sales in the restaurant and food service industry in 2020 were 23.8% less than the sales in 2019.

Namely, food and beverage sales in the restaurant and food service industry totaled $864.3 billion in 2019, dropping to $659 billion in 2020. By the end of 2022, however, sales are expected to reach $898 billion, exceeding the pre-pandemic figure by nearly 4%.

(National Restaurant Association)

 

19. The average profit margin for restaurants with 20 seats or less dropped by three percentage points between 2019 and 2021.

In 2019, the average profit margin for restaurants with 20 seats or less stood at 10%, while in 2021, it was 7%. These restaurants, however, were actually making more in revenue in 2021, at an average of $635,417, which compares to the $500,000 in 2019.

At 10%, the average profit margin for restaurants with 21-40 seats was the same in 2019 and 2021. The average revenue for these restaurants was $972,222 in 2019 and $1,229,665 in 2021.

On average, restaurants with 41-80 seats made $1,223,958 in revenue against a 10% profit margin in 2019. The corresponding figures for 2021 stood at $1,670,233 and 11%.

At 10%, the average profit margin for restaurants with 81-120 seats was the same in 2019 and 2021. The average revenue for these restaurants was $1,435,484 in 2019 and $1,821,721 in 2021.

On average, restaurants with 120 or more seats made $1,698,864 in revenue against a 14% profit margin in 2019. The corresponding figures for 2021 stood at $2,453,125 and 13%.

(Touch Bistro)

 

20. 35% of restauranteurs say most of their suppliers increased pricing during the COVID-19 pandemic.

26% report the same for half of their suppliers, while 18% say that only some of their suppliers increased pricing during the pandemic.

15% of restauranteurs say that all of their suppliers increased pricing during COVID-19, while 9% say that none of their suppliers increased pricing during the same period.

(Touch Bistro)

 

21. The number of employees in the restaurant and food service industry dropped by 46% between March and April 2020.

The restaurant and food service industry employed 6.3 million people in April 2020. Standing at 11.7 million, March’s figure was also the result of a near 5% drop from the number of employees in the restaurant and food service industry in February of the same year.

Gradually increasing from April onward, this figure reached 11.3 million in July 2021, which is 8% lower than the one of 11.7 million recorded in February 2020.

(National Restaurant Association)

 

22. 81% of restaurants reduced their staff during the COVID-19 pandemic.

Among them, 29% had to let go of most of their staff, and 24% did so with a few of them. Another 19% had to let go of half of their staff, while an equal portion didn’t do any staff cuts at all.

On the other side of the spectrum, 15% of restaurants had to let go of all of their staff during the COVID-19 pandemic.

(Touch Bistro)

 

23. 49% of restaurants that didn’t receive Restaurant Revitalization Fund support had to lay off staff due to the surge in the omicron variant.

This compares to 33% of restaurants that did receive RRF support. During the pandemic and up to January 2022, restaurants with no RRF support had to lay off 30% of their staff, on average, compared to 21% of those who received RRF support.

(Independent Restaurant Coalition)

 

24. 75% of restaurant operators considered recruiting and retaining staff their top challenge in June 2021.

19% of restaurant operators considered recruiting and retaining staff their top challenge in March 2020.
Just one month later, in April 2020, no restaurants had recruiting and retaining staff on their list of challenges. Even though this figure indicates an immense month-to-month difference, it’s still 61% lower than the one recorded at the beginning of the same year, in January 2020, standing at 49%.

In May 2020, only 1% of restaurant operators considered recruiting and retaining staff their top challenge. This figure fluctuated since then, peaking at 75% in June 2021.

(National Restaurant Association)

 

25. Equal 41%-portions of restauranteurs cite the fear of COVID restriction reinforcement and the fear of working with the public due to COVID as the main reasons for labor shortage in the restaurant industry.

The lack of skills ranks second, as agreed by 35% of restauranteurs. Equal 33%-portions of restauranteurs cite the competition from COVID benefits and the one of other restaurants as the main reasons for labor shortage. An overall smaller labor pool follows with 32%, along with the lack of interest in the industry with 31%.

The list is rounded by the competition by other industries with 27% and high turnover with 25%. 3% of restauranteurs cited other reasons for the recent labor shortage in their industry.

(Touch Bistro)

 

26. 90% of restaurant operators who expanded outdoor seating as a result of the COVID-19 pandemic plan to continue doing so post-pandemic if their jurisdiction allows.

By September 2020, 67% of restaurants offered outdoor dining. Dropping ever since, this figure resurfaced at 57% in April 2021. What’s more, 84% of adults are in favor of restaurants permanently setting up tables on sidewalks, parking lots, or streets.

(National Restaurant Association)

 

27. 19% of adults stopped dining at restaurants due to the rise of the delta variant.

As a result of the rise of the delta variant, 60% of adults changed their restaurant use, and 37% ordered in instead of eating out. Another 20% chose to sit outdoors if dining out, while 9% canceled restaurant plans.

(National Restaurant Association)

 

28. Due to the omicron variant surge, 88% of restaurants faced a demand decline when it comes to indoor premises.

For the same reason, in January 2022, 26% of restauranteurs reduced seating capacity, while 10% switched to an off-premise offer only.

(National Restaurant Association)

 

29. 44% of restaurants added takeout/delivery options to their menu offering during the pandemic.

Another 42% expanded their existing takeout/delivery options, while 30% added grocery/pantry items. Equal 28%-portions added a subscription service and meal kits, while 14% made no changes to their menu offering during the pandemic.

(Touch Bistro)

 

30. 71% of restaurants introduced mobile payment options during the pandemic.

Another 70% opted for QR codes, while 54% introduced a tap-to-pay option. Only 6% of restaurants didn’t introduce any contactless payment methods.

(Touch Bistro)

 

31. 95% of restauranteurs report using one or more online ordering platforms.

Of them, 75% had some online ordering system in place prior to the pandemic. Among those, 42% had all platforms implemented prior to the pandemic, 35% used some platforms before the pandemic but introduced more after it, and 23% only implemented online ordering platforms after the pandemic.

(Touch Bistro)

 

32. 80% of restaurants had to modify their operating hours due to the omicron variant surge in December 2021.

46% of restaurants report that their business hours were modified for more than ten days during the same month. When it comes to the ways restaurants had to modify their hours, 51% reduced hours of operations on days they were open, while 34% closed on days they would otherwise be open.

Moreover, 58% of restaurants report a sales decline of over 50% in December 2021.

(Independent Restaurant Coalition, National Restaurant Association)

 

33. 49% of restaurants report that their ability to do business has been affected by the cost and availability of COVID tests.

About 66% of restaurants report needing COVID tests, and nearly 65% of them report trouble purchasing them. What’s more, 38% of restaurants report that the cost of COVID tests has increased during December 2021.

(Independent Restaurant Coalition)

 

Conclusion

Restaurants fail for a lot of reasons. It’s not because they aren’t good enough or because they don’t have high-quality food—it’s because they don’t take the time to plan ahead and prepare themselves for potential problems.

The most promising way to avoid the restaurant failure rate is by planning ahead, which means making sure you have all the resources you need and that your staff members are trained properly. You also want to make sure that your staff members are happy, so that they will stick around long enough for you to build up a strong customer base.

With all these restaurant failure stats, you may be wondering whether or not you should even start a restaurant. Although there are many challenges that come with running a restaurant, the rewards of owning your own business and being your own boss can’t be beat.

We hope you found this post helpful and that it has given you some ideas for success! If you have any questions or would like to share your experiences, please don’t hesitate to reach out. We’d love to hear from you.

Thanks for reading, and have a great day!

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