Why do restaurants fail?

For a few years I’ve been mulling over whether to start a restaurant deadpool because there are obvious signs that places will fail before they have torn the butcher’s paper down from their windows to reveal their fresh circus-themed French diner fitout. The most obvious is if a string of restaurants have already failed in the same location.

Outside of the obvious (having poor operations management and a lack of financial knowledge), Parsa et al look at the demographic reasons behind restaurant failure in Boulder, Colorado and specifically looked at what they call “the phenomenon of “fatal attraction””: where restaranteurs move in to a previously failed property. Their findings:

Our data from Boulder indicate that the fatal attraction limit is reached after the third ownership turnover, and restaurants are no longer considered for the fourth ownership turnover. Thus, one can conclude that restaurant ownership turnover at a particular site could happen up to a maximum of three times, after which it is likely that the location would cease to function as a choice for restaurateurs and be converted to a non-restaurant business site.

As for success factors: being located near transient university students, apartment dwellers, the well-educated and low- to middle income families. Maybe this explains the longevity of venues on Lygon St?

Parsa, H.G., van der Rest, J.P.I., Smith, S.R., Parsa, R.A. and Bujisic, M., 2015. Why Restaurants Fail? Part IV The Relationship between Restaurant Failures and Demographic Factors. Cornell Hospitality Quarterly, 56(1), pp.80-90.