Chains vs. Independents

Along with the 90% failure rate, another widely accepted myth is that franchise restaurants are much safer bets than independent restaurants. However, definitive research at Ohio State University found that the three-year success rate for franchised restaurants is about 43% – only a few percentage points higher than it is for independents.

That's a far cry from the 90% or higher success rates claimed by many franchise organizations, but there is no doubt that the chains are becoming the dominant format for US restaurants.

In the 1970’s, independent restaurants held a commanding 85% of the market share. During the 1980’s, however, chains operators perfected their marketing strategies, developed detailed operating systems and mastered their ability to identify with consumer demand. Fueled by deep pockets, often from public stock offerings, they expanded at a rapid pace. Today, restaurant chains claim an 88% share of the domestic restaurant market.

This does not mean that independent restaurants are an endangered species. For better or worse, the restaurant business still offers an amazing ease of entry. The harder question is whether a new independent venture will capture a following and survive long enough to get organized to the point where it can grow successfully. The odds are that it won’t ... and therein lies the opportunity.

Independent restaurant operators represent the American Dream at its finest. The individual creativity, character and energy that the independent restaurant brings to the American dining scene can never be matched by the national chains. In fact, every national restaurant chain grew from a cohesive concept created by an independent operator. Without successful independents there will be no new national chains ... and nobody to give the national chains new ideas!

The job of any business is to grow, so the evolution from single unit to multiple units is appropriate, but the farther a restaurant concept gets from its entrepreneurial roots, the more the priorities of the management seem to shift from taking care of its patrons to serving the needs of owners and stockholders. It is the difference between being in the hospitality business and being in the business of hospitality.

The result is that national chain restaurants have increasingly become a sterile array of similar restaurants serving similar food to similar audiences at similar prices – predictable places where you can be efficiently processed but seldom feel well-served. As Time magazine noted after the Bennigan's chain announced bankruptcy:

"Americans who want to peruse oversize menus for oversize portions of unremarkable food in unremarkable settings may have to check out Applebee's or Chili's or Ruby Tuesday or T.G.I.Friday's or the scores of other family-style restaurants serving deep-fried mozzarella sticks beneath hypnotically rotating ceiling fans.”

Even though few are enjoying the sales volume they are could be generating, chain restaurants – and most dining establishments for that matter -- do a good enough job to stay in business and provide a living for the owners. But good food and friendly service are the price of admission, not a competitive edge. It takes something more to really stand out in a crowded market.

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