There are so many good local places in the St. louis area, so please consider supporting your local restaurant!
Spoiler alert! It is a lack of marketing!
This month I am plugging the St. Louis chapter of the AMA. To become a member, you can visit https://amasaintlouis.org/.
SOURCES
https://stlouisrestaurantreview.com/why-restaurants-fail-cause-closures/ Why Restaurants Fail by H.G. Parsa et al
Part I – https://daniels.du.edu/assets/research-hg-parsa-part-1-2015.pdf
Part II – https://daniels.du.edu/assets/research-hg-parsa-part-2-2015.pdf
Part III – https://www.researchgate.net/publication/293107223_Why_do_restaurants_fail_Part_III_An_analysis_of_macro_and_micro_factors
Part IV – https://www.researchgate.net/publication/269990249_Why_Restaurants_Fail_Part_IV_The_Relationship_between_Restaurant_Failures_and_Demographic_Factors
Part V – https://www.researchgate.net/publication/326881411_Why_Restaurants_Fail_Part_V_Role_of_Economic_Factors_Risk_Density_Location_Cuisine_Health_Code_Violations_and_GIS_Factors (Full text not available)
The Marketing Gateway is a weekly podcast hosted by Sean in St. Louis (Sean J. Jordan, President of https://www.researchplan.com/) and featuring guests from the St. Louis area and beyond.
Every week, Sean shares insights about the world of marketing and speaks to people who are working in various marketing roles – creative agencies, brand managers, MarCom professionals, PR pros, business owners, academics, entrepreneurs, researchers and more!
The goal of The Marketing Gateway is simple – we want to build a connection between all of our marketing mentors in the Midwest and learn from one another! And the best way to learn is to listen.
And the next best way is to share!
For more episodes: https://www.youtube.com/@TheMarketingGateway
Copyright 2025, The Research & Planning Group, Inc.
TRANSCRIPT:
So, myth-busting time. There’s this statistic that you hear all the time, especially if you’re thinking about starting a small business, that 90% of all restaurants fail in their first year. And it sounds like it might have a grain of truth to it because we’ve all seen restaurants come and go.
In fact, where I live in the Metro East, there are a few locations where I’ve seen a revolving door of restaurants move in, open their doors, never find a following and eventually close. It’s almost like the owners are oblivious to the fact that everyone else who’s ever tried that location has failed. Maybe the rent’s really cheap or something. It’s hard to understand why people set themselves up for failure like that.
But in reality, the evergreen statistic reported by the National Restaurant Association in 2010 is that just 30% of restaurants fail in their first year and that a cumulative total of 60% fail within three years. That’s about 9,000 restaurants total out of around 30,000 new ones that start each year to join a pool of around 1 million restaurants in the country. Average restaurant revenues are around $600,000, which of course doesn’t count waitstaff tips and doesn’t factor in margins. But the business model is not nearly as precarious as you might believe. How could it be? People have gotta eat.
And sure, there are good years and bad years; 2025 and 2026 are bad years as food prices rise and consumer spending patterns change, but there are still plenty of restaurants operating in the black and there will continue to be down the road.
But even so, it’s worth looking at why restaurants fail and why they succeed. And I’ll go ahead and give you a spoiler alert: the answer, more often than not, is marketing – not just promotion, but all those other P’s as well – product, price, place, people, process and physical evidence.
So let’s explore why so many restaurants set themselves up for failure…and why some still succeed!
I’m Sean in St. Louis, and this is the Marketing Gateway.
So the basis for what we’re going to discuss today is a paper series I came across called “Why Do Restaurants Fail?” by H.G. Parsa and various collaborators. You can find all five papers in the show notes, and you should absolutely read them if you’re interested in this topic. The first one came out in 2005, and the most recent one is from 2017.
I’ve also included a more practical piece from 2026 published on the website St. Louis Restaurant Review by Marty Smith which is… fine. His chief argument is that restaurants fail because they don’t plan well enough for cash flows, which are, of course, the #1 killer of any business in any category. He’s not wrong, but I’ve found that businesses that focus too much on cost controls and not enough on marketing tend to be miserable places to patronize as a customer.
You’ve got to find a middle ground. And that’s what the broader paper series points to.
OK, so let’s begin with why anyone would want to get into the restaurant business, because it is a hard business! A lot of times, restaurateurs are people who love to cook or bake or serve food or who’ve always dreamed about owning their own community gathering place. It’s a pretty common business for people to get into when they retire from their careers, and it’s pretty normal for people to recruit their families, close friends or colleagues to help them get started.
So, let’s start with the basics. The restaurant business involves four basic considerations:
- Who you want to serve
- Where you want to serve them
- How you want to serve them
- What returns you expect to generate
All of these considerations should help inform your style of cuisine and basic service model and will determine your marketability and success.
For example, if you’re going to open a fine dining restaurant specializing in Sri Lankan cuisine in a small town in the Midwest, good luck unless you have a large Sri Lankan population or some really open-minded Midwesterners.
But if you’re going to open a lunch buffet across the street from a busy workplace like a hospital and offer a pan-Asian selection of food that will please pretty much anyone, you will probably have a greater chance of success.
If you’re hoping to make a lot of money in the restaurant business, you need to have an approach that is going to generate a lot of revenue because the market’s ultracompetitive and it’s hard to generate high margins. This often means going into busy areas and focusing on quick service or offering extra amenities like alcohol, gambling or amusement areas or televisions dedicated to sports.
But if you’re just trying to feed your family and give a few other people a place to work, you can probably get by with lower volume and instead enjoy having more time to connect with your customers and offer a more personal experience. And that’s not nothing – for many local restaurant owners, connection to their community is actually high on the list of desired features!
The paper series suggests that while a common piece of advice for restaurant owners is that location is an all-important decision, the truth is more nuanced than that. Yes, some locations are definitely terrible, as evidenced by the revolving door restaurant locations I’ve seen near my home. But the reason those locations are terrible might be a factor that’s less obvious. Perhaps the rent’s too high for the restaurants that can fit into that space, or perhaps the traffic patterns make it too hard to reach that location, or perhaps the wrong kinds of restaurants keep going into that location and fail because there aren’t enough customers to support them.
Another myth about location is that being near a residential area will bring in customers. The research finds this is only partially true because there are different types of residents. Generally younger, more transient people like college students or those starting out in the workforce are more likely to patronize restaurants near their homes while those who are more established will drive further to restaurants they prefer… if they eat out at all, since restaurant patronage tends to decline with age and household size, particularly in suburban communities.
Restaurants in urban areas benefit from more foot traffic and repeat business since they are often serving workers who are pressed for time and buying food on meal breaks, but they also can suffer if they’re too far from other choices that draw in customers… or too near similar ones that take away their business.
In short, the research shows that location’s an important factor that can add some drag or life to a restaurant’s chances of success, but not an all-important one.
But what does impact restaurant success is marketing, and this is one reason why national chain restaurants and franchises tend to fare better than local chains or one-off restaurants. National chains tend to have given careful consideration to the who, where, what and how of the business model. Some of the more successful franchise chains also require franchisees to have enough working capital and borrowing power to be able to weather a short-term cash flow crisis so they can stay in business for the long haul.
So, what is it that these national chains do right that local chains often do wrong when it comes to marketing? More often than not, it’s about viewing the restaurant as a retail service business where the desire for an experience is the draw rather than as a product business where the food is the draw.
The notion that people dine out because they’re hungry is actually only true some of the time. Often, people dine out in anticipation of being hungry and have some other motive – they’re out and about and don’t want to go home, they’re celebrating a special event, they’re tired and want to sit and eat for a bit, they’re trying to fit a meal into a busy day or they’re just looking for some novelty because they don’t feel like cooking.
And so the service model of a restaurant needs to understand what a clientele is looking for. Busy people who just want a quick bite so they can get back to whatever they were doing aren’t looking for table service and lots of options – they’re better served by limited menus, order at the counter service and flexible options for seating.
People who want to linger, on the other hand, are more interested in the experience of dining out and shouldn’t be rushed out the door. They’re going to expect more detailed menus, a higher quality of service, amenities like free bread or a fully-stocked bar and an atmosphere that encourages them to stick around. They’re also generally willing to pay a higher price for the experience. The quality of the food needs to match the price point to some degree, but it’s really the presentation – going back to our 7 P’s framework, the physical evidence – that needs to impress the customer the most.
The bigger question, then, is how to get people in the door, especially if you’re in a location where foot traffic is low and you need to pull customers in through a promotional strategy. A lot of restaurants use coupons to do this, and coupons and special promotions are effective at bringing in consumers who want to try a place they haven’t been before or who need a justification for eating out instead of making food at home.
Promotions that offer significant discounts, unlimited servings or free food can be quite popular, but they also come with a major downside as they bring in customers who expect full service for a discounted price and who generally don’t want to be upsold or add on additional menu items.
This is one of the major reasons Groupon isn’t nearly as popular as it once was – many restaurants learned the hard way that bringing in customers with great deals was self-defeating and could actually hurt their business more than it helped it, particularly if customers felt entitled to service they weren’t paying for and decided to leave negative reviews to get back at the business.
Another promotional strategy that can work is combining outdoor advertising with prominent signage to makes consumers aware that a restaurant location is near. This tends to work best for places where visibility is low, like on the interstate, or where travel paths are really variable, like in an urban area or shopping center. Generally, outdoor advertising is used to create awareness and desire while signage is used to mark the final destination.
And of course a time-tested promotional strategy comes from generating buzz or word of mouth, often by attracting media coverage or developing a reputation for a specific dish or type of cuisine. Local restaurants tend to seek out buzz for something that makes them distinctive and unique – maybe they offer a local delicacy or have a prominent chef or have cracked the code on some sort of fusion dish that everyone’s excited about. Quite often, their focus is on quality.
National chains, by contrast, often tend to seek buzz for novelty or trendiness, perhaps offering a promotional tie-in with a popular media franchise, introducing a “you gotta try this” sort of entrée or touting one of their items as being a great choice for a fad diet.
Promotional marketing also works best if it builds up the brand image beyond the idea of a limited time offer. For example, if a restaurant is known for roast beef but it’s promoting a chicken sandwich only available for a few months, the promotional strategy might help the chain to sell chicken but won’t have strong long-term effects on building up the brand. Discounting a restaurant’s most popular or visible items better reinforces the brand, but it’s also worth asking if a discount is even necessary. Sometimes, just reminding people that a desired option is available is more than enough to bring them in the door, and good consumer research can aid in setting the right promotional strategy.
Beyond promotion, there’s one more consideration that restaurants absolutely need to have in mind if they want to be successful, and that’s service quality. Yes, food quality and safety matters a lot, as any health inspector will tell you, but the service itself also needs to be of a particular standard because the restaurant business is really a service business.
Many restaurants are still using outdated service models that don’t meet the needs of their customers, and those that don’t update how they’re doing things are the most vulnerable to failing.
For example, lunch customers generally don’t want table service or lots of choices – they want counter service or takeout so they can get in and get out. Making it easy for them to order and pick up food will not only improve sales, but help tables turn over faster so more customers can be served.
Dinner customers, by contrast, may want a place to sit and eat with more choices on the menu and waitstaff available to attend to their needs. But limited waitstaff who don’t provide personal service but who also don’t need to be tipped because they’re paid appropriately are also often greatly appreciated in lower-priced settings.
Making a restaurant design flexible enough to focus on serving the customer’s needs is vital in 2026, and that requires strong management and a willingness to listen to customers and try new things. All too often, restaurant owners decide to do things their own way and then wonder why customers stop showing up. They’ll blame a number of factors for the downturn, and yet other restaurants around them that have adjusted will be reaping the benefits of good marketing strategy.
I hope this primer into the restaurant business has been helpful, and I do encourage you to check out the papers I linked in the show notes. But I also encourage you, if you’re a restaurant owner or entrepreneur, to look at a situation where you’re failing as an opportunity to try new things and to reinvent what you’re doing! Change your portions, adjust your service model, or go out of your way to do something to stand out!
Just make sure you’re doing so with a clear marketing strategy in mind.
I’m Sean in St. Louis, and this has been The Marketing Gateway. See ya next time!
Leave a Reply