Failure in the restaurant industry was studied by Parsa et
al. (2005). They stated that the following three key factors
contribute to restaurant failures: size and type of operation,
competition (or concentration of competitors), and restaurant
concept or segment. Size is based on the number of
units owned. Parsa et al. (2005) found that there was a difference
in failure rates between independent operators (with
two or fewer units) and franchised ownership (greater than
three units). Results show that independent owners had a
three-year failure rate of 61.4 percent as compared with
57.2 percent for franchise owners. The second factor, restaurant
concentration, emerged from Parsa et al.’s (2005)
finding that restaurant failure rates are higher in U.S. Postal
ZIP codes where there is a high concentration of restaurants.
This extended to downtown locations, which had far
higher restaurant failure rates compared with suburban
locations. The third factor was an inappropriate segment or
type of food served for the market. In this study, Mexicanstyle
restaurants reported the highest failure rate, followed
by sub shops, bakeries, coffee shops, and pizza restaurants.
In contrast, cafeterias and seafood restaurants had the lowest
cumulative failure rates.