Why does Restaurant Fails? Common things that you can avoid

No matter how long you have been associated with the restaurant industry, there is always something new to you, and restaurant failure is one of them. In recent years, the restaurant industry has faced significant challenges, with many struggling to stay afloat. 

Supply shortages and government-imposed shutdowns forced even the most established restaurateurs to question whether they could continue operating—and for some, the answer was “no.”

The restaurant industry faces a ton of failures and challenges throughout its tenure. However, restaurant failures are preventable and can be solved. In today’s blog, we will discuss the top reasons for a restaurant’s failure and how you can improve it.

Common Pitfalls of a Restaurant Failure in 2025

Whether you are just starting your food startup or already running an existing one, there is one thing that comes to mind: restaurant failure. Labor shortage and inflation are a few of them. 

A 2005 study by Ohio State University reported that 60% of restaurants close within their first year. In 2009, the National Restaurant Association estimated this failure rate at 30%. By 2014, research from UC Berkeley suggested that only 17% of restaurants fail within their first year.

Let’s see the other factors that are the reasons for restaurant failure.

Bad Finances

Financial Management plays a vital role in the overall restaurant operations, and a slight mismanagement can lead to a massive restaurant failure. Usually, new restaurant owners make this type of mistake, but you can eliminate these problems by implementing a financial tracker that can track all your expenses.

No-Data driven decisions

Data is the biggest asset not only for restaurants but for every industry. It offers you information on every part of the customer experience, from how frequently they are visiting your restaurant to choosing the cuisine. 

Location of the Restaurant

Location of your restaurant plays a vital role in your overall sales and revenue generation. Your restaurant can offer the best food, coolest ambiance, and the fastest and responsive customer service. However, if you are not getting customers, then it’s of no use. 

A study from 2019 revealed that most Americans are only willing to travel about three miles to dine out. Additionally, 62% of restaurant-goers rely on Google to find places to eat—an option that usually ranks results based on the user’s current location.

So, in this situation, moving your restaurant to a different location is not a solution. Instead, go for good marketing and loyalty programs that encourage your customers to come back to your restaurant using loyalty programs. They play an important role in retaining your existing customers and encouraging new customers to your restaurant.

Grabeasy has a built-in loyalty program for your restaurant to retain loyal customers. Moreover, Customers enrolled in loyalty programs often spend more per visit to unlock rewards or reach the next tier. Get your loyalty program today.

Also read: Strategies for Enhancing Customer Loyalty with Your Restaurant Phone App

High Staff Turnover  

One of the factors of a restaurant’s failure is high staff turnover. The restaurant industry has one of the highest staff turnover rates, on average, staff work for 3-4 months and leave. This phenomenon in the restaurant industry is happening on a larger scale. On top, there is a global shortage of workers that is making the situation difficult for the restaurant industry.

The restaurant can solve this problem by offering them better salaries and benefits, as most of the staff leave the job for better salary so if you are already providing them better wages or salary, they are less likely to switch. 

Negative Reviews

A bad review can take away your customers and is one of the reasons for a restaurant’s failure. 

A recent survey showed that consumers are unlikely to trust businesses that have an average rating below four stars on online review platforms.

Take feedback from your customers by sending post-meal surveys, actively reading and replying to reviews, and putting their feedback into action.

Less Effective Marketing

One thing that is most important that the restaurant market is highly saturated, but you can still excel and get spotlight with sufficient marketing. Therefore, you need to expand your budget and marketing efforts to attract more customers and always stay on top of mind.

Also read: How you can do Restaurant Marketing in 2025

Poor Customer Service

One of the top reasons restaurants fail is poor service. Incorrect orders, long delays, and unprofessional or inattentive staff can drive customers away. A bad service experience not only prevents repeat visits but also leads customers to discourage others, either through word of mouth or online reviews.

Low-Quality food 

Excellent service and a great atmosphere won’t save your restaurant if the food is bland, inconsistent, or just plain bad. Serving low-quality dishes will quickly lead to a high failure rate for restaurants, as customers will eventually stop coming. 

Pay close attention to online reviews and actively seek feedback from guests during their visit. If you notice recurring complaints about specific menu items, revise the recipes or remove those dishes from the menu. Consider hiring a recipe consultant to help improve certain dishes or even revamp your entire menu to avoid restaurant failure.

Bonus Tip: Get a Mobile App

Customer are now using their phones like crazy and you can make the most from this opportunity. Building your custom app can help in front of your customer every moment they pick up their device. Moreover, you can utilize push notifications to keep on reminding your customer about your business.

GrabEasy has everything you need for your restaurant. a dashboard, a custom mobile app and a website. On top, all these come with loyalty program, push notifications, zero platform commission and toast integration.

Also read: Toast Integration is the next Big Thing for Restaurants

Frequently Asked Questions

Do restaurants have a high failure rate?

While tracking the exact restaurant failure rate nationwide is challenging, the National Restaurant Association estimates that around 30% of restaurants fail within the industry.

Do 90% of restaurants fail?

Is it true that 90% of restaurants fail? No, that’s a myth! Although you may have heard that figure, the truth is far less alarming. Studies reveal that only around 17% of restaurants shut down in their first year.

What are the signs of a failing Restaurant?

Bad reviews, lack of data, outdated technology, and high staff turnover are of the reasons and signs of failing of a restaurant.

Conclusion

Overall, the restaurant industry is a good place to start, but there are chances of failure. Therefore, if you are facing some problems and getting signs of restaurant failure, you have to take steps to make things better. If you are facing issues with staff, try to increase their wages and provide benefits, most importantly, spend good amounts of money on marketing. Provide high-quality food, good customer service to build trust among your customers.