Why Restaurants Fail? Part II - The Impact of Affiliation, Location, and Size on Restaurant Failures: Results from a Survival Analysis

Abstract

It has been suggested that changes in organizational populations are shaped by a natural (biological) selection process. Industries and businesses evolve through standard and identifiable phases throughout their lifespan. This study analyzed organizational mortality in the restaurant sector based on restaurant location, affiliation (presence/no presence of multi-unit locations of restaurants in a given geographical area), and size. Objectives of this study are to understand organizational failure from a population ecology perspective and, specifically, to identify the influences of location, competitive density, and organizational size on restaurant failure. The analyses indicated all three variables-location, affiliation, and size-are significant influences on restaurants' mortality. Chain restaurants were found to have significantly lower failure rates than independently owned restaurants. Restaurants that are smaller in size had higher failure 360 Restaurant Failures and Survival Analysis 361 rates than large sized restaurants. There is a significant effect of location, as measured by U.S. postal zip codes, on restaurant failures.

Why Restaurants Fail? Part IV

“…Most full-service restaurants tend to be larger in size and also offer lucrative alcohol service, whereas QSRs tend to be smaller in size with limited or no alcohol service. Our observation here that high restaurant failure can be attributed partially to the style of service is consistent with Parsa et al (2011). Another finding from this study that supports previous studies (International Franchise Association 2010; Khan 2014; Walker 2012) is that chain restaurants had lower failure rates (21.43%) compared with non-chain independent restaurants (33.33%).…”

“…Thus, to overcome the limitations of the many definitions of success and failure, we have used the definition that was successfully used by earlier studies on this topic, where a business failure is defined as a change in business ownership of an existing business irrespective of the reasons behind the ownership turnover. This definition was adapted from the earlier studies on this topic by Watson and Everett (1996b), Parsa et al (2005), Parsa et al (2011), and other studies where business failure was defined as change in ownership as reported in local health department records. This countenances, for example, the situation of a restaurateur who is adept at starting a business, but may not be able to run the restaurant once it is launched.…”

Owner-Manager Competencies and Performance of the Firms: Evidence from Small Restaurant Businesses in Urban Tanzania

“…Despite its economic benefit to the society, it has been documented that small restaurant businesses tend to lose customers as compared to other food related service providers like food vendors, take away food service providers, pubs, bars, and catering services (Parsa et al, 2011). As a result, small restaurant businesses performance and their survival remain questionable (Parsa et al, 2011).…”

Hospitality entrepreneurship: a link in the career chain

“…External factors include the requirement for relatively low capital investment in small hospitality businesses, less dependency on specialist knowledge, and relatively low qualification barriers (Lockyer and Morrison, 1999), but this comparatively easy access to hospitality business ownership can cause problems for those lacking experience or business acumen. The importance of size, location, competitive density, and chain affiliation for restaurants is therefore acknowledged as influential on closures (Parsa et al, 2011), as are internal factors such as the owners' characteristics (Parsa et al, 2005) and stress (Wallace, 2003).…”

“…Although there is a wealth of research on successful (e.g. Walker andBrown, 2004, Camillo et al, 2008) and unsuccessful (Watson and Everett, 1996, Parsa et al, 2005, Parsa et al, 2011 entrepreneurship in the industry, some closures are not caused by bankruptcy or retirement, but by the owners' decisions to return to paid work (Watson and Everett, 1996). Little is known about these entrepreneurial 'drop-outs', who for unknown reasons, sell successful businesses and return to paid employment.…”