What Does Rapid Restaurant Turnover Mean?
I'm trying to make sense of something I'm noticing in my neighborhood. I've noticed lately that a lot of restaurants are going out of business. They're quickly replaced, after a flurry of renovation and redecoration, by new restaurants that are quite similar to the old ones. These then quickly go out of business. The turnover is so rapid that when I see one opening, I think to myself, "Better try it quickly, it probably won't be there for long."
Now what could account for that? You'd think entrepreneurs would grasp what the market is saying: There's not a lot of money to be made by opening that kind of restaurant in this neighborhood. Try something else.
I'd understand if the restaurants went out of business to be replaced by nothing, a very different kind of restaurant, or a different kind of business. But they're replaced by enterprises that seem to be trying to fill the same market niche. They just have a slightly different facade.
I'm sure there's a good explanation, but I can't think of one. Anyone have a guess?
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Oct '10
Re: What Does Rapid Restaurant Turnover Mean?
Most aspiring restauranteurs are not particularly good business people. Wait for one to succeed and inside you'll find a business person/restauranteur.
May '10
Re: What Does Rapid Restaurant Turnover Mean?
If it's a "one-off" (not a chain) which I suppose is likely, the new restaurants represent somebody's dream. They figure that for whatever reason they can make it where the previous owner failed.
The basic restaurant setup is already in the building (layout, equipment maybe, bribe circuit for the local inspectors, gangs, and gendarmes, etc.) so it's easier than starting from a vacant lot or even existing non-restaurant structure.
I see this cycle where I live in a Chicago suburb all the time. One restaurant turned over maybe 6 times in 20 years until it was torn down for a Walgreen's.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
Hope springs eternal?
I am sure there are business people getting advanced degrees and writing papers on this sort of thing, but it's no different really than in shopping malls in the US, where a bunch of stores will close, usually early in the year after disappointing Christmas sales, to be replaced, a few months later, by a similar store, e.g. a different chain maybe but selling the same type of clothing as the previous one. Same goes for food outlets in the Mall food courts.
Re: What Does Rapid Restaurant Turnover Mean?
Nick, are you saying that the dream of opening a restaurant is so powerful for people that they become quite irrational about it? It's possible, I suppose, but I wonder if there's some kind of market distortion that's escaping me? What could it be?
May '11
Re: What Does Rapid Restaurant Turnover Mean?
Ha, ha, ha... funny close! But Nick's entire comment makes me glad I live in the Southern US. Sure, restaurants here go through the same cycle. But for reasons other than the Mafia, corrupt officials and corrupt cops. Sure, we got 'em down here, but not as bad as up north. Mostly, 'The Sopranos' are entertainment here, not a way of life.
Dec '10
Re: What Does Rapid Restaurant Turnover Mean?
I suspect that the hopeful entrepreneurs have decent experience working for other restaurants that were previously successful and want to apply their efforts on their own behalf. However, with food prices escalating, they find themselves with both higher costs and lower traffic, as would be customers have less disposable income.
It's not that they didn't have reasonable expectations, based upon experience, but that they are facing an entirely new relationship between expenses and revenues.
That would be my guess.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
I think that the desire to own one's business and to be one's own boss often obscure the facts. So people rather than accept that it may be the location, or market saturation or the bad economy that caused the demise of previous restaurants, instead come to think that it was poor management and they, because they are smarter or more hard working or more capable than the previous owners, will be successful where others before them have failed. I was reading recently that in the US 80% or 90% (can't recall which) of new restaurants close within two years without ever making any money, yet new restaurants crop up all the time. Since these numbers are not secret one would think that they would discourage people from entering the restaurant business, which is tough enough in good times never mind during a recession, but obviously they don't.
Jul '10
Re: What Does Rapid Restaurant Turnover Mean?
Most people who want to own their own restaurants are incurable romantics. A new show opens every day and there they are, the producer, director and star of it all.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
A big problem is starting capital. To become profitable one usually has to have enough capital to not make a profit for at lest a year if not two. Even then one is not guarantied to succeed. So I think they don’t realize how long it takes to make a profit so they don’t keep enough money in reserve before starting the business.
I had some friends who bought a coffee shop that had been around for a few year. They tried for about 3 or 4 years to make a profit. They never lost money other than the lost opportunity cost for all the time they spent, so they ended up selling it. Starting a restaurant is one of the most difficult small business to start.
Nov '10
Re: What Does Rapid Restaurant Turnover Mean?
The above explanations all make sense.
But a heard a rumor that in London recently, firms are deliberately setting up temporary restaurants in fashionable places, turning a profit from the newness and chic of it all, and then closing it down in short order and transplanting somewhere else. The gustatory equivalent of an instant camera, if you will.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
I agree with everyone who posted. It's the fantasy of anyone who's ever entertained successfully at home that they could do it on a larger scale and actually get paid for it. The truth is that it's an incredibly challenging business to pull off. Profit margins run to five cents on the dollar and then only if you are extremely diligent.
When I sold my business in the late 90's, I had the same crazy idea. A friend gave me the best advice I've ever received: "Find someone who's already doing it well and work for him for two years. Play with someone else's money..."
The work was challenging, but while I learned that I could run a successful restaurant if I set my mind to it, my dream had a fatal flaw: I despised the general public when I met them up close. ;-)
Re: What Does Rapid Restaurant Turnover Mean?
Okay, suppose we go with this hypothesis--that it's just exuberant bad judgment. What might account for a flurry of it in a particular neighborhood at a given time? Does it happen especially at particular stages of economic development? Does it signify something culturally?
May '10
Re: What Does Rapid Restaurant Turnover Mean?
Yeah, such leads to many boutiques, antique stores and pet grooming emporia. Nobody has a dream to open a Kinko's franchise.
Surely, though, someone in the restaurant business can chime in on this with something a bit more substantial and less hand-wavy.
Re: What Does Rapid Restaurant Turnover Mean?
Aodhan: The above explanations all make sense.
But a heard a rumor that in London recently, firms are deliberately setting up temporary restaurants in fashionable places, turning a profit from the newness and chic of it all, and then closing it down in short order and transplanting somewhere else. The gustatory equivalent of an instant camera, if you will. · May 13 at 5:57am
I wonder if that's what's going on? That rapid obsolescence is built into the business model? Because you'd have to be incredibly unobservant not to notice that most of these restaurants don't last long.
Re: What Does Rapid Restaurant Turnover Mean?
That's the odd part, though--I'm not seeing new boutiques and pet grooming emporia. It's restaurants. No new small business ideas. Same thing, over and over.
Aug '10
Re: What Does Rapid Restaurant Turnover Mean?
Nick Stuart: If it's a "one-off" (not a chain) which I suppose is likely, the new restaurants represent somebody's dream. They figure that for whatever reason they can make it where the previous owner failed.
The basic restaurant setup is already in the building (layout, equipment maybe, bribe circuit for the local inspectors, gangs, and gendarmes, etc.) so it's easier than starting from a vacant lot or even existing non-restaurant structure.
I see this cycle where I live in a Chicago suburb all the time. One restaurant turned over maybe 6 times in 20 years until it was torn down for a Walgreen's.
Good points. And occasionally, after a restaurant turns over umpteen times, there comes along a new owner who makes it last.
Restaurants are a risky business. Most won't make it through their first few years. But it doesn't always follow that if the previous establishments weren't able to tempt people's palates in an economical fashion, that there is no market there for an establishment that can. So people keep trying.
Nothing wrong with this, as long as they know the risks.
Edited on May 13, 2011 at 6:50amJan '11
Re: What Does Rapid Restaurant Turnover Mean?
Wanna-be business owner with little capital can't afford to buy a thriving restaurant or even lease an empty space and install kitchen equipment. They need to lease an existing out-of-business restaurant. The only good news is they can negotiate a cheaper rent from landlord whose previous tenants all went out of business.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
All the explanations given are on the money. But there is something else to consider:
Most restaurants in NYC fold as soon as a special tax/rent break for new restaurants expires.
It reminds me of a "break" in Israel for decades: buildings under construction would not be assessed to taxes. Companies rapidly learned it was cheaper to keep a crane on site than to finish the building.
Goverment incentives may quite easily make it easier to survive with a new restaurant than with an old one. When the free market appears to be acting irrationally, look to the government to show how the irrational becomes the smart way to do business.
Mar '11
Re: What Does Rapid Restaurant Turnover Mean?
There may be an underworld connection as well. It may be easier to launder money in a new restaurant that cannot be audited 6 months later.
Sep '10
Re: What Does Rapid Restaurant Turnover Mean?
All of these explanations make sense. Here's another: "The people who failed before me are idiots. I can do better." Chefs can have pretty big egos.