Private vs institutional foodservice 

• Private: more product and customer driven 

• Institutional: more cost driven - they attempt to keep costs as low as possible whilst creating
product. They have huge fixed costs and so they need to produce even bigger volumes
 (economies of scale). Variable costs stay while fixed costs are reducing. Ex: reducing wages.

Fragmented vs Concentrated

Fixed means constant turnover.

• too much difference and no single enterprise has enough share of a market to be able to
influence it 
Concentared is dominated by a few large companies.
• Oligopoly - the market is dominated by a few companies and no new company has a chance of
survival 

Why restaurants fail:

• Economic perspective - restaurants that fail because of deceased profits, voluntary and
involuntary bankruptcies, takeover from creditors etc 
• Marketing perspective - strategic choice of location change, adapting to changing
demographics and accommodating the unrealised demand for a new product. 
• Managerial perspective - failure due to managerial incompetencies, stress in managers life and
loss of motivation. 

An Amex study showed that about 90% of restaurants fail within the first year; however, this
was an over exaggeration since they couldn’t prove any written evidence to back up their
statement. Moreover, a simulation done using 1500 restaurants indicated that if that was the case
then within 20 years there would already be a decrease of 84% in restaurants. More realistically,
it is about 30% of restaurants that fail within the first year.  => banks have low trust in landing
money for start ups as statistics shows that restaurants have the highest probability to fail
At the early stages, restaurants are at their most vulnerable since they have the ‘Liability of
newness’ and have limited resources at their disposal. After 7 years their likelihood of failure
drops drastically. 

1. Competition: 
• Some competitive aspects which cause restaurants to fail are its physical location, speed of
growth and how it differentiates itself from the others. 
• New managers to lack the experience to adapt to fast-changing markets, the resources required
and sometimes plan incorrectly. 
• Chain restaurants also have the possibility to outspend independent restaurants due to their
economies of scale. 

2. Firm size
• The bigger the firm is, the safer it usually is 
• Small firm = more growth opportunity. But fast growth can lead to financial stresses e.g. high
cost of good sold, which in turn can result to failure

3. Density 
• Restaurants are sometimes placed in a 'restaurant row’ to attract traffic but if it cannot
differentiate itself from the others, then it will fail. 

4. External factors 
• Failure to adapt to market trends 
• Failure to understand them e.g. the Atkin’s low carb diet 

5. Internal factors 
• Poor management 
• Incompetencies 
• poor product
• internal relationships 
• financial volatility 

The highest average checks – Fine dining as well as high costs for wages as they have
specialised workforce (sommelier).