New research from DU shows Denver’s restaurant scene is robust and vibrant, but there is one common predictor of failure
New research from the University of Denver’s Daniels College of Business shows that even during the 2008-09 recession in Denver, less than 20% of restaurants failed. The national average is 30% failure in the first year. However, certain types of Denver restaurants (American, Italian, Chinese, Mexican) were more likely to fail depending on their location. In addition, health code violations was a sure predictor of restaurant failure, no matter the location or type of restaurant.
Hospitality Management Professor H.G. Parsa and his four co-authors, including fellow Hospitality Management Associate Professor Karen Xie, looked at seven years of restaurant data in the Denver metro area. Their study, titled, “Why Restaurants Fail? Part V: Role of Economic Factors, Risk, Density, Location, Cuisine, Health Code Violations and GIS Factors,” was published in the International Journal of Hospitality & Tourism Administration.
The researchers used GIS mapping to visualize where restaurants commonly fail. One of the most interesting insights is that restaurants along Federal Boulevard and Colfax Avenue have the highest failure rates in the city.
H.G. Parsa
“No matter the type of cuisine, Federal Blvd. and East Colfax had the highest case of failures,” said Parsa, the Barron Hilton professor of lodging and management for the Fritz Knoebel School of Hospitality Management. In addition, the study found that health code violations were a solid predictor of restaurant failure.
“Once restaurants had five to 10 critical violations in health department inspections, they were very likely to fail,” Parsa said. “It makes sense; because if they are not caring for sanitation, it’s a good indication they’re not on top of their operation in general. Restaurant owners would be smart to pay attention to healthy inspections.”
When the group looked at types of restaurants—American, Italian, Chinese and Mexican—they did notice a pattern. In areas of the city with lower population, the Chinese restaurants had the lowest failure rates, but they failed the most in areas with medium density.
“Chinese restaurants are known to be low-cost operators, so they can do well in areas with less traffic, but also less competition,” Parsa said. “They don’t do well in areas of higher competition.”
Moreover, during the recession, Italian restaurants performed the best compared to other cuisines. It indicates that during recessionary times, Americans tend to favor Italian cuisine.
While Denver’s restaurants overall did well in the recession, they recovered even better. In 2012, Denver had a failure rate of just 4.95%, an impressive statistic.
“That makes Denver area especially the restaurant industry so special, so vibrant and healthy,” he said.
About the Author:
Parsa holds a PhD from Virginia Tech and an MS in Food Science. He is an associate editor of the Cornell Hospitality Quarterly and the Journal of Hospitality and Tourism Research and a Fulbright Visiting Scholar (2005). His research interests include corporate social responsibility, marketing and pricing strategies, and analysis of restaurant and food trends.