Why Do Restaurants Fail?

Why Do Restaurants Fail?
Sam Mustafa, CEO of Charleston Hospitality Group shares his perspective on what he believes to be the number one reason for restaurants failures- location. Read further to gain insight on his personal experience and how he carefully and cautiously chooses restaurant locations for his Toast All Day Franchise and Charleston Hospitality Group Restaurants.


The Hospitality is NOT for the Faint of Heart- or Stomach
The hospitality industry is one that has always been near to my heart. As many of you know, when I immigrated to the United States from Jordan, I came with zero assets and was solely equipped with a “hustle” mindset to improve my life and that of my family. It was when I was accepted into South Illinois University for Engineering that my hospitality career began. To pay for the high expenses of university, I worked endless days at local restaurants in positions from front of house to the back of the house, learning all the hard and soft skills necessary for an efficient restaurant operation. It was during this time, my passion for the industry came to fruition. I loved that each day provided me with a new challenge and opportunity to learn. While years as a restaurateur have been my greatest strength, they also have not been the easiest. I have been through many restaurant openings, and unfortunately many closings as well. While closing restaurants can be difficult, they offered me important business lessons, especially as it comes to property. That is, location is everything and can be the difference between success and failure.


Location. Is This The Difference Between Failure and Success?
Location is not the only reason why many restaurants fail, but does play a large role in the longevity and prosperity of your restaurant.


5 Traits of Poor Restaurant Location1
  1. Minimal Foot Traffic
  2. Area is oversaturated with similar restaurant concepts
  3. Targeting the wrong demographic
  4. Not near public transportation
  5. Area is not known for being a “hub” for restaurants


When understanding these traits and how they affect your restaurant operations, it becomes easier to scout a prospective location. According to an article published by SAGE journals, 60% of restaurants do not make it past their first year in business and 80% close within 5 years of opening.2 Those are some steep numbers to take into consideration, especially when restaurant profit margins are slim. It’s important to recognize that every move you make costs money.


“Sam, My Restaurant Has a Great Location, Why Is My Restaurant Still Failing?”


If it’s not the reason for the poor location, what can it be? Cornell University describes the reasons for restaurant failures as falling under the following three categories.


Reasons Restaurants Fail Based On Studies by Cornell University
1) Economic Perspective
2) Marketing Perspective
3) Managerial Perspective
Let’s break down what the following perspectives include.
Economic Perspective: To put simply this category includes failure due to not having enough revenue to cover expenses. This ties in directly with poor location.5


Marketing Perspective: This includes failure due to not targeting your specified market accurately, or over marketing, causing confusion to the consumer. Markets should be niched and aligned with your brands portfolio.5


Managerial Perspective: This category includes the result of incompetence from managers and misalignment with operations. This can consist of loss of motivation, burnout and increased stress exhibited by owners, managers and staff members resulting in unsuccessful internal operations. This also leads to inconsistencies with the guest experience in relation to food, service and atmosphere.5


Experience Makes A Stronger Future
By understanding the circumstances that increase the likelihood of restaurants failing, you are already five steps ahead of the game! By acquiring the knowledge of these hard-learned lessons, you are able to take action by thinking ahead and addressing these issues before they negatively impact your restaurant business.


Sam Mustafa is the the CEO of Charleston Hospitality Group and Toast! All Day Franchise. Named one of the nation’s 100 most influential CEOs by Nation’s Restaurant News and frequent speaker on Joe Pardavila’s Podcast on ForbesBooks Radio. He has also been featured on Medium, Authority Magazine, describing his version of the American Dream. Sam is one of the leading voices in the Restaurant Industry.




1) ChefHero. “10 Reasons Why Restaurants Fail & How to Avoid Them [Infographic].” Notch, Notch, 31 Mar. 2021, https://www.notchordering.com/blog/why-restaurants-fail.


2) H. G. Parsa, John T. Self. “Why Restaurants Fail – H. G. Parsa, John T. Self, David Njite, Tiffany King, 2005.” SAGE Journals, https://journals.sagepub.com/doi/abs/10.1177/0010880405275598.


3) Lightspeed 2019-10-15, et al. “Why Do Restaurants Fail? Avoid These 12 Mistakes.” Lightspeed, 9 Nov. 2020, https://www.lightspeedhq.com/blog/why-do-restaurants-fail/.

4) JarrettBellini. “The No. 1 Thing to Consider before Opening a Restaurant.” CNBC, CNBC, 6 July 2016, https://www.cnbc.com/2016/01/20/heres-the-real-reason-why-most-restaurants-fail.html.


5) Parsa, H.G, et al. 46th ed., vol. 3, Cornell University, pp. 304–322, Why Restaurants Fail, https://daniels.du.edu/assets/research-hg-parsa-part-1-2015.pdf.