Why So Many Restaurants Close

Why restaurants have high failure rates, including high fixed costs, competition and low barriers to entry, and what successful restaurants do differently.

Many restaurants close within a few years of opening.

Why failure is common

Low entry barriers: many people open restaurants, creating fierce competition.
High fixed costs: rent and staff must be paid even when business is slow.
Thin margins leave little buffer.
Location mistakes.
Changing tastes and trends.
Inexperience: passion for food doesn’t equal business skill.

Perfect competition?

Restaurants resemble monopolistic competition: many sellers with slightly different products. Profits attract entry until they fall back towards normal levels.

Pandemic shock

During COVID-19 lockdowns in 2020, many restaurants closed permanently, while cloud kitchens and delivery grew.

What works

Clear concept and target customers.
Tight cost control.
Consistent quality.
Repeat customers.
Multiple channels: dine-in, delivery and catering.

Survivorship bias

We notice famous restaurants that last for decades but not the many that closed quickly.

The trendy café

A new themed café opens with long queues. Six months later, novelty fades, rent remains high and it closes.

Thinking a busy launch means lasting success

Many restaurants close after early novelty fades.

Key takeaways

Restaurants have high failure rates.
Low entry barriers and high fixed costs drive closures.
Restaurants resemble monopolistic competition.
Cost control and repeat customers help survival.