“Restaurants Burned by Oversupply” is the Business section headline from the October 17, 2016 Wall Street Journal. The visual is a (Halloween themed) cemetery with numerous headstones for restaurant chains having closed multiple units and having filed for bankruptcy.
While there are a number of reasons given for the change in demand, the overriding reason is there have been, and are, too many restaurants. It’s called saturation.
And I will add that there isn’t a big difference between a lot of chain restaurants and therefore:
Most of them don’t have a competitive advantage.
The restaurant industry has low barriers to entry. The chain restaurant industry has even lower barriers, especially if using OPM, i.e. other people’s money, as in private equity funds or franchisees money.
But it’s not just chains. Many years ago I knew the owners of a restaurant design business. When I asked them about the future of their business, one of them replied, “There will always be someone stupid enough to start another restaurant.”
This is not limited to restaurants, by any stretch of the imagination. Drive around and see all the same things in every strip center: yoga, frozen yogurt, nails, hair, massage, pet services, etc.
You grow a business by leveraging your competitive advantage. If you don’t have one, or it’s extremely limited, it’s tough to grow. Just ask the owners of hundreds of closed restaurants mentioned in the WSJ.
“There will always be someone stupid enough to start another restaurant.” Restaurant designer