We’ve spent a lot of time on this website over the past year talking about restaurant closures and for good reason: A lot of restaurant chains closed a lot of locations.
There were a huge number of chain bankruptcies, including big chains like Red Lobster and TGI Fridays, small chains like Rubio’s Coastal Grill and Tijuana Flats, and everything in between.
Many chains closed locations without bankruptcy, either because they were struggling like MOD Pizza or for strategic reasons like Wendy’s and Denny’s.
Plenty of reasons existed for these closures. For one thing, restaurants close all the time because there are a lot of restaurants and there is at least some churn all the time. For another, consumers were cutting back on dining, which hurt a lot of companies. Inflation, the reason many of those consumers were cutting back, also hammered restaurant profit margins.
Many restaurants also paid the price for overly aggressive moves a decade ago, which left them with too much debt, too many expensive leases, or both. And some companies just did stupid stuff and it hurt them.
But we’ll add another reason: There were too many restaurants.
(Check out my podcast on closures with Jim Balis here.)
In 2019, you may recall, we spent a lot of time talking about an oversupply of restaurants, which was hurting sales and traffic. The industry had built too many locations, especially in the full-service sectors, and needed some sort of reconciliation.
That came to an extent in 2018 and 2019, as casual-dining restaurants closed more locations than they opened that year.
The pandemic reconciled it even further, as closures of dine-in restaurants and a lack of workers led to mass closures.
But sales returned quickly by late 2020 and into 2021 and restaurants opened a lot of locations.
To wit: Casual-dining chains on average opened 5% more locations in 2023, according to data from Restaurant Business sister company Technomic. Family-dining chains opened nearly 3% more units on average.
Both sectors are down compared with 2019, but not as much as you think. Casual-dining chains on the Technomic Top 500 had 2.5% fewer restaurants than they did in 2019. Family dining had 4% fewer.
I know what you’re thinking: That’s not much of a problem and it hardly suggests an oversupply.
Sure. But the limited-service sectors have grown aggressively.
Quick-service restaurant unit count increased more than 1% between 2019 and 2023, about 2,000 more restaurants.
Fast-casual restaurants, meanwhile, have increased unit count by 15%, or 4,500 locations.
In other words, total location count on the Top 500—our representation for the chain universe—is up 2.5% since 2019. The full-service sectors have closed only about 800 locations since 2019.
That’s not including competition from independent restaurants, which have resumed their unit growth. Nor does it include competition from convenience stores that have more or less turned into pseudorestaurants in recent years.
Consumers have shifted their dining habits, moving from full-service to limited service, which is why we’ve seen a lot more development in the latter than in the former. But that still suggests that the industry has generally returned to the days when we had too many locations.
All that helps explain the closures last year, and why we may get more in 2025. Restaurants responded to the increased, post-pandemic demand for dining by opening or reopening more locations. But now that demand has normalized, many of them are left holding the bag.