The restaurant industry is massive, with roughly more than 1 million restaurants across the country ringing up $799 billion in sales each year, according to 2017 figures from the National Restaurant Association. Opening a new restaurant has its challenges, particularly for independent restaurants and small chains, but the ones that do make it past the first few years will most likely thrive for a long time.

Average Life Span

Both Perry Group International and The Restaurant Brokers have completed studies on the average life span of restaurants. Their results are slightly different but show the same trend. The Perry Group study concluded that most restaurants close during their first year of operation. Seventy percent of those that make it past the first year close their doors in the next three to five years. Ninety percent of the restaurants that are still operating past the five-year mark will stay in business for a minimum of 10 years. The Restaurant Brokers’ study, the only one to make a distinction between chain and independent restaurants, concluded that up to 90 percent of independent establishments close during the first year, and the remaining restaurants will have an average five-year life span.

Chains vs. Independents

The NPD Group reports that its fall 2017 ReCount census showed the number of independent restaurants declined by nearly 11,000 establishments from the year before, while restaurant chains increased by 982 establishments. Sheer numbers favor major chains, which represent 64 percent of total industry traffic compared to the 22 percent if industry visits to independents. Also, consumer spending at major chains increased by 3 percent and was flat at independents. The data suggests chain restaurants experiencing longer life spans and overall stability than independents.

Year One Failures

Many restaurants, particularly independent establishments, fail during their first year because they are undercapitalized. Many restaurant owners don’t have contingency plans in place for construction overruns or other unexpected opening expenses, and this leaves them short on money before they even open their doors. Of those that make it to the formal launch, many do not have sufficient funds to cover their operating costs. To have enough money to operate properly, fledgling restaurants should have enough money in the bank to cover their immediate costs plus an additional food and beverage reorder, two payroll cycles and six months of rent.

Other Reasons for Restaurant Failure

Researchers at Cornell University have identified several other reasons why restaurants fail to thrive. The area’s competitive environment can have a huge impact on a restaurant’s success or failure, particularly if the owner is unable to differentiate her establishment from the competition, particularly where the restaurant population is dense. Larger restaurants, especially chains owned by corporations, tend to be open longer and have a higher success rate than smaller restaurants. Restaurants that are able to identify trends and change rapidly to meet consumers’ needs tend to thrive, as do those with solid management and accounting.