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Lifestyle

Actually, 90% of Restaurants Don’t Fail In The First Year

This article is written by a student writer from the Spoon University at UNT chapter.

You turn the corner of the block, just footsteps away, and you see it – the line. You assemble behind your fellow foodies, Instagramers, and the random few that just happened to walk by; anxiously waiting to take part in the trendiest thing in town. On the cusp on being an early adapter of the future of food.

Whether it’s the new hot coffee shop or the chill ice cream joint, we’ve all been guilty of playing into the hands of the new restaurant craze. I’m literally a culprit right now; sipping an iced lavender chai latte from “La La Land Cafe” after being swarmed with picture perfect posts from all my favorite Dallas Instagram influencers. Putting my full faith into the likes of a few people with a few thousand followers, I feel like I’m a regular here despite the fact that the cafe only opened its doors last month.

Which begs the question: in today’s economy and demand for quenching the thirst for something new, how successful are restaurants in their first year?

The facts

Ever since I can remember, the act of opening a restaurant seemed like an insane risk. From credit card commercials to random conversations with my fellow foodies, the fact that 90% of restaurants fail in the first year was just that, a fact. However, this is anything but true. In 2014,  economists Tian Luo and Philip Stark put this piece of conventional wisdom to rest using data from the US Bureau of Labor Statistics.

What the report found was that only 17% of restaurants shut down in the first year, nowhere near the presumed 90%. In fact, the restaurant industry has a lower failure rate than other service providing businesses, where 19% fail in the first year. Additionally, these independent restaurants have a median lifespan of 4.5 years, compared to the service industry standard of 4.25. All of these numbers are in regard to independently owned startups, which currently make up 68% of the total US market, with chain restaurants composing the other 32%. 

All in all, these stats are promising for hopeful entrepreneurs, but how did we get here? From an unquestioned and false 90% failure rate to a tried and tested percentage of only 17%, the hospitality industry has become an economic priority for Americans over the course of the past half-century and has only been electrified by the digital wave of social media.

The effect

With the trend of social media influencers shifting to “micro-influencers,” typically accounts with less than 5,000 followers, it’s unclear if the intimate, trustworthy relationship between influencers and their audience will have a substantial statistical impact on the restaurant industry as a whole. However, the way today’s average customer approaches food is wildly different than even just 10 years ago. 

Now you scroll through Instagram, see a cute coffee shop or a drool-worthy dessert and send it to your friend. Or maybe add it to a list. Or perhaps turn the car around and get in on the trend as soon as possible. Either way, it’s undeniable that social media has a significant role in how and where we eat.

So what does this all mean for new restaurants? I believe only time will tell.

Social media shifts the marketing chain from word of mouth to the word of our fingers. With the press of a button, our approval, or disapproval, is made public. On one hand, this power leads to a culture of fads and trends. Hyping up an establishment only for it to be too “mainstream” or not in the trend just a few visits later.

However, on the other, the more significant hand, this shift in the power dynamic enables customers to become ambassadors for businesses. Social media has allowed people to find the hard-to-find and explore the previously unexplorable. By leveraging this digital wave within the restaurant industry, people have been able to discover a home away from home, and in turn, forced businesses to turn their brand into a lifestyle.

Coffee shops don’t just serve coffee, they serve a workspace. Brunch hotspots don’t just provide pancakes and eggs, they provide an ambiance to reminisce with old friends and catch up with new ones. And while this sense of a third space may have been common in the days before Facebook and Instagram, social media has opened the doors to a field of endless possibilities and thus practically mandate this unique position of belonging.

Yes, new restaurants will continue to die. There is virtually an infinite list of reasons why a business can fail. But with the incorporation of social media and shift in the power dynamic between customers and their community, I believe the industry will slowly but surely begin to see a decline in failure rates for new restaurants. 

Sure, I’m no economist. But I am a foodie. And as I sit in the hottest new coffee shop in town, virtually every customer equipped with a phone within sight, there’s a sense of belonging.

The bar overlooking the playful baristas hard at work is their new family table. The microwave and mini oven heating up pastries is their new kitchen. The outdoor patio overlooking those who pass by is their new bedroom window. 

The coffee shop is their new home away from home. And it’s not going away anytime soon.

A lover of all things food, exploring the world one plate at a time.