Restaurant Investor Report Shines Light on Popular Industry Myths



Restaurant Investor Report Shines Light on Popular Industry MythsRestaurant Investor Report Shines Light on Popular Industry MythsBust that myth! Independent restaurant* startups have a first year success rate over 80%, and approximately 90% each year thereafter.

Although many experts predict over 30% of new restaurants will not survive their first year in business, Joe Dunbar, director of data intelligence for RestaurantData.com, found the closing rate is much lower. Combating bogus claims of restaurant success, RestaurantData.com takes a corner to corner, comprehensive approach to real survival and closing rates.

The New York Metro area restaurants fared better than the national average in the second half of 2014. Almost 97% of the restaurants open on June 30, 2014 remained open on December 31, 2014 (see table below). If the current trend continues in the metro area, only 6.5% of all restaurants would close in a year.

Restaurant Investor Report Shines Light on Popular Industry MythsThe closing rate is higher for new restaurants. In the NYC metro area, we found 94.27% of restaurants opened in the most recent 3 year period (2011 to 2014) were still open in the second half of 2014. We would expect between 11 and 12% (twice the 6 month rate) would close in a one year period. The closing rate is 3% lower than the national average of 14 to 15% for restaurants opened in the most recent three year period. The NYC metro restaurants opened in the same period have a success rate which is 3% higher.

Focusing on restaurants opened in the 2011 to 2014 period, RestaurantData.com looked at the Top 10 metro areas in the US to see how the NYC metro area compares. San Francisco had the highest closing rate in the second half of 2014. Over 11% closed in the 6 month period. We’d expect between 21% and 23% would close in a 12 month period.

The table below shows the Top 10 metro area closing and open percentages for restaurants opened in the most recent 3 year period. Atlanta has the best success rate – 95.74%. We’d expect a full 12 month success rate of over 90% in Atlanta.

Restaurant Investor Report Shines Light on Popular Industry MythsSince 1997, RestaurantData.com has tracked restaurant openings in the NYC metro area and the rest of the country. Our research includes scouring information** from government sources, newspaper articles and industry news. As of December 31, we found 36,038 restaurants in the New York Metro Area – DMA 501 were open for business.

The 1,238 restaurants that closed in the second half of 2014 included 502 locations we reported in our restaurant openings reports. These 502 locations represent roughly 4.3% of the restaurants whose openings were covered in our reports.

Independent restaurant annual closing rate in all US regions, cities and towns was over 9% (using twice the half year rate). In contrast, the NYC metro area shows a rate of 6.64%.

The new Restaurant Investor Report will include summaries by cuisine, service style and check average. These summaries will include recaps by state, zip code, DMA and for 25 major metro areas in addition to the national statistics.

RIR Method: In late May, we began our process of cleaning, sorting and normalizing our April 30, 2014 restaurant unit locator (RUL) database. At that time, we removed a large number of closed locations from years of database entries, legal filings and directories. At mid-year, the RIR benchmark process produced a clean, 100% open, locations database. The net number of locations at mid-year was 403,335.

Six months later, using the RUL database from 10/31/2014, we found 18,428 closed locations (4.57%). Our staff makes over 2 million phone calls and internet searches each year in validating each location.  We will continue to report on success rates twice a year.

*  For purposes of the study, we count an independent location as having less than 19 same name concept units. Concepts with 20 locations or more will be reported on in our chains report May 2015.

**  New startups are followed from their original legal filing date. Legal filings come from alcohol licenses, DBA filings, State Incorporation filings and LLC filings.

For additional information, please contact:

Keith Gellman
RestaurantData.com
914-591-4297
keith@foodservicereport.com