Why Are So Many Restaurants Closing?

April 30, 2025    Reading Time: 10 minutes
Why Are So Many Restaurants Closing?

Introduction

If you’re a restaurant owner, you’ve probably felt it, too.

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The rising food costs. The shrinking profit margins. The unpredictable foot traffic. And that nagging question at the back of your mind: “How long can we really keep this going?”

You’re not alone.

Across cities and small towns alike, a wave of restaurant closures is making headlines — and it’s not just the small players. Even iconic names like ,Red Lobster, Applebee’s , TGI Fridays and Smith & Wollensky— brands once considered untouchable — are struggling to survive in this new era of dining.

Even for new restaurant businesses, 60% of them do not make it past their first year. And that up to 80% close up within five years of operation – as per Ohio State University. 

What’s causing these beloved restaurants, some with decades of success, to suddenly disappear? Why are both legacy brands and small neighborhood gems finding it harder than ever to stay afloat — often barely making it past their first or second year? 

This blog dives into the harsh reality behind this unsettling trend and what restaurant businesses can do to tackle it like a pro(such as adopting the right technologies like AI) and set their business for long-term success. 

Let’s get to it.

Also Read: How Livelytics Can Help Restaurants Boost Revenue

What Experts Are Saying About The Wave of Restaurant Closures?

Industry experts agree — the current wave of restaurant closures isn’t just a coincidence. It’s the result of multiple pressures building up over time, creating a tipping point for both small independent restaurants and large chains.

Jonathan Maze, Editor-in-Chief at Restaurant Business, points out that the industry was already overcrowded long before the pandemic hit. “We simply have too many restaurants,” he says. In fact, post-pandemic expansions made things worse — with many brands aggressively opening new locations to recapture lost revenue, only to find themselves battling for a shrinking pool of customers.

Kevin O’Leary, investor and Shark Tank star, sums it up perfectly:

“This is the most difficult time in modern history to run a restaurant. Rising inflation, labor shortages, and changing consumer habits are killing traditional dining models.”

In short, experts agree that the closures we’re seeing are less about individual failure and more about an industry struggling to keep up with a new economic reality.

Also Read: How Restaurants Can Predict Trends With Analytics

Is There Any Way Artificial Intelligence Can Help Restaurants Keep Up? 

Yes, you heard it right. In these tough times for restaurant businesses, AI can be a game-changer for restaurants. 

With rising costs, staffing struggles, and changing customer habits, running a restaurant today isn’t what it used to be. But this is exactly where Artificial Intelligence (AI) is stepping in — helping restaurants work smarter and grow. 

In fact, a 2024 report by Popmenu found that 79% of U.S. restaurant operators are already using AI in some way — and nearly half of the rest are planning to adopt it soon. Why? Because AI isn’t just about robots or fancy tech — it’s about solving everyday problems restaurant owners face.  

As Marc Benioff, CEO of Salesforce, puts it: AI isn’t just another technology trend — it’s becoming the most important tool for businesses to survive and grow.

Well, if you are in the same boat or maybe not(but want to increase your margins, power up your growth, ensure long-term success) – then keep on reading. 

In the next section, we’ll break down some of the biggest problems restaurant owners face today — and exactly how AI can offer practical, real-world solutions to help prevent closures and boost long-term success.

Also Read: Business Intelligence for Restaurants

Why So Many Restaurants Are Closing & How AI Can Help?

Why Are So Many Restaurants Closing Why So Many Restaurants Are Closing How AI Can Help

1. Rising Operational Costs:

The Problem:

Running a restaurant has never been cheap — but over the last few years, costs have skyrocketed. From food inflation to wage hikes, utilities, rent, and supply chain disruptions — everything adds up. 

The National Restaurant Association reports that 92% of restaurant operators identify food expenses as a significant challenge. ​And restaurants operate on avery thin profit margins, so when expenses go up but sales stay flat (or drop), staying profitable becomes almost impossible. 

Many restaurant owners are now stuck between two difficult choices:
 → Raise menu prices and risk losing customers.
 → Absorb the cost and eat away their already-thin margins.

Both choices are hurting businesses.

How AI Can Help: Well, restaurants can’t do much about rising operational costs, but here’s what they can do and how AI can help: 

AI saves money and gives restaurant owners better control over their businesses, even when costs are rising.

Also Read: How Livelytics Retailers Help Reduce Costs

2. Changing Customer Expectations & Digital Fatigue:

Today’s customers want everything — speed, personalization, and convenience. And, they want something different – every time. But, at the same time, they are done with bad digital experiences. Slow apps, boring loyalty points, generic marketing — it just doesn’t work anymore.   

And customers aren’t afraid to move on. In fact, 71% of consumers say they are more likely to visit restaurants that offer personalized deals or suggestions based on their preferences.

What if a restaurant can’t keep up with this new digital behavior? Someone else will.

How AI Steps In & Saves The Day:

This means:

Like:

Also Read: How AI revolutionizes Customer Experience in Restaurant Industry

3. Staffing Shortages & Employee Burnout:

One of the biggest reasons behind so many restaurant closures today is inefficient staff management. Staff accounts for a considerable amount of total expenses, and when the expenses start piling without the required results, closure is inevitable. 

Restaurant operators say they don’t have enough employees to meet customer demand. Training new staff repeatedly drains both time and money. Let’s face it — tired employees, long working hours, and staff shortages directly hurt customer service and overall operations. 

At the same time, when you have more staff, you are draining your restaurant’s profit margins, making sustainability and growth difficult. 

How AI Can Help Restaurants Deal With the Staffing Crisis?

For example, rainy evenings slow deliveries but boost dine-ins, so AI recommends cutting 1 delivery rider, adding 2 servers inside.

For example, finish this 10-minute AI quiz to learn top-sellers and smart ways to pitch them.

For example, it’s likely to be a slow Monday — run with a leaner team without hurting service.

For example, Sarah’s been working overtime for 3 weeks — maybe offer her a day off or reward.”

Also Read: How Can Data Analytics Improve the Measurement of Employee Performance

4. Losing Customers Without Even Knowing Why:

Some customers leave silently — without complaining, without a bad review — they just never come back. And honestly, that’s way scarier than a 1-star review. Because now you don’t even know what went wrong.

Restaurants most of the time face this problem, which makes stability and long-term growth, and future success a bit difficult. Because of this, retention becomes expensive, and acquiring new ones is already difficult. 

Most restaurants are flying blind when it comes to this question: “Why aren’t people returning? And just keep on retarging without the proper data. 

How Does AI Step In & Save The Day? 

Also Read: AI for Expanding Restaurant Customer Base

5. The Struggle to Stay Consistent Across Locations:

The struggle of one restaurant and multiple restaurants are quite different. So, if you are running multiple restaurants across different – it sure looks existing and all profitable. But it is quite a challenge. Running different locations can lead to inconsistent service, different quality levels, and misaligned customer experience.

What’s worse? Owners rarely have real-time visibility into what’s going wrong at which location. Even if they have, it is quite scattered, making it difficult to manage operations seamlessly across locations. 

How Does AI Step In & Save The Day? 

Also Read: How to Set Up Key Performance Indicators KPIS for your Business 

6. Menu Decisions Based on Gut Feeling? That’s Risky:

Most restaurant menus are built on intuition. Chef’s favourites, Owner’s recommendations, Competitors Menu, Few Customer Reviews and Market Trends. 

But in this fast-paced world, where customer preferences and market trends are changing rapidly, this is not enough. 

But the real danger lies in what you don’t see. 

When these patterns go unnoticed, restaurants end up with bloated menus, confused customers, wasted inventory, and lost profits.

How AI Steps In & Saves The Day:

Also Read: Leveraging AI to Collect Customer Insights

7. Stuck In Present, But What About Future:

Most restaurants are stuck in react mode.

Deal with today’s rush. Fix today’s staff issue. Handle today’s angry customer. And in all this chaos, future planning takes a backseat.

The problem?
 When you’re always reacting, you never really grow. You miss trends. You guess your next menu. You open new outlets based on gut feeling, not data.

And that’s exactly where many restaurants start falling behind — not because they’re bad today, but because they’re not ready for tomorrow. 

How Does AI Step In & Save The Day? 

Also Read: Real-Time Analytics Why Does Your Business Need it?

8. Reacting Too Late to Problems:

Most restaurants don’t realize something’s wrong until it’s already causing damage — whether it’s a dip in foot traffic, a surge in customer complaints, or vanishing repeat customers. By the time these issues become visible, the negative impact has already hit revenue, staff morale, or reputation. 

The real problem? Traditional systems don’t flag early warning signs. 

So, managers are often stuck reacting after the fact instead of proactively fixing things. In a market where diners have endless options and high expectations, that delay can cost more than just a few bad reviews — it can cost you your future.

How AI Steps In & Saves the Day:

Like: “Reduce wait times by adding 1 server from 1 PM–2 PM on weekdays. This slot has the highest complaint rate, or maybe training workers in that particular shift by understanding their problem and finding a solution. 

Also Read: Improved Decisions Through Decision Intelligence 

9. Struggling to Scale Without Losing Quality:

Growth sounds exciting — more customers, more outlets, more revenue. But in reality, scaling a restaurant is where many stumble. The processes that worked when you had one location often fall apart when you try to expand. Training new staff becomes harder, ensuring consistent food quality gets tricky, and customer experience starts to vary from one outlet to another.  

What once felt personal and well-run starts to feel chaotic and inconsistent. And when that happens, loyal customers notice — and slowly drift away. 

It’s not just about growing, it’s about growing without losing what made your restaurant great in the first place. That’s where many restaurants get stuck — and start slipping.

How AI Steps In & Saves The Day:

Final Thoughts: Use the Right Tools, Stay in the Game

Yes, it’s true — many restaurants are struggling. But some are thriving as well. 

What sets them apart? They’re coping up with the future, using the right tech and are using data wisely. They’re not guessing — they’re planning. They’ve embraced AI and automation to run leaner operations, understand their customers better, and act fast when challenges arise.

If you’re serious about future-proofing your restaurant and staying ahead of the competition, choose the right tools — and let technology help you lead.

Looking for a powerful AI platform built just for restaurant businesses?

Check out Livelytics — a smart, easy-to-use platform packed with automation, predictive insights, and real-time analytics. It’s built to help restaurant owners make data-driven decisions, reduce losses, and scale profitably. Whether you run a single outlet or a growing chain, Livelytics gives you the edge you need — at the right price and with zero complexity. 

Ready to Get Started? Book a free demo now and find it for yourself.

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