A new study by researchers from Dublin Institute of Technology (DIT ) shows that the average failure rate for Irish restaurants in the first year is just 15 per cent.
The researchers believe this is well below the popular perception that the majority of restaurants fail in the first year and they hope it will encourage greater confidence and participation in the industry by restaurateurs and financiers.
The study calculates restaurant failure rates in Ireland, for the first time, using longitudinal census data. JJ Healy, a PhD student in DIT who is leading the project, highlights the significance for the industry, “Research on failure rates in Irish restaurants has been sparse and rudimentary to date.
Poor perception of the industry is a major barrier for new entrants who wish to secure financial support, or for existing restaurateurs who wish to expand or grow their business, because the financial industry views investment in restaurants as high risk.
“The findings may help to ensure that those who are contemplating opening a new venture are more reliably informed about risks. We hope it will create a more favourable atmosphere among financial investors and government-funded enterprise boards by demonstrating that the failure rate in the sector is much lower than commonly perceived.”
Dr Máirtin Mac Con Iomaire, Lecturer in DIT and co-author of the study, highlights the significance of this research for the greater Irish economy, saying Bord Bia figures show that the Irish food and drink sector was worth approximately €7.8 billion to the Irish economy in 2017.
“There is a need for factual data on the failure rates for businesses. The results may assist in ensuring that future policy decisions made by governments, financial institutions and other restaurant and hospitality industry groups are more empirically based and better informed, ultimately building confidence in the restaurant industry.
“The study, published in the Journal of Culinary Science and Technology, analyses census data from a seven-year period, 2008-2014. The findings show that following three years in business, the failure rate is 37%, rising to 53% after five years in business. We use the term ‘failure rate’ in line with the international literature and research on the food and drinks industry and, therefore, these figures encompass all restaurants that closed during the seven-year period in question, including those which changed ownership or closed their premises while still making a profit,” says Mr Healy.
When compared with data from the USA for the same sector, failure rates in Irish restaurants are significantly lower, particularly in the first few years. Compared with other sectors in Ireland such as construction and manufacturing, researchers found that failure rates in the restaurant industry are only marginally higher. Of additional note for budding restaurateurs and entrepreneurs, the study provides a list of pointers on why restaurants succeed, including long-term strategic planning, creative thinking, and the ability to incorporate new technologies.