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Investing in Restaurants - Successes and Failures

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  • Investing in Restaurants - Successes and Failures

    There are a few success stories involving investing in restaurants that tantalize potential investors who dream about owning their own restaurant, or at least a small share. One such story is of a man who invested $16,000 for a 1.7% share in a new restaurant opening up in Washington. The restaurant took off and earned over $2.8 million in the first year it was open. For eight years following the investment, the man received a quarterly dividend check for $2,000. This means he earned $64,000 on this $16,000 investment. These are the kinds of stories that get investors involved, but they are far from the average results.

    The investor in this particular story admits to having failed miserably in his very first time investing in restaurants when a start-up Miami restaurant failed miserably in about eight months. Therefore, if there are two specific lessons to be learned from this example, they are that success does not always come the first time around and the restaurant industry certainly possesses potential for growth that cannot be ignored by investors. Any industry that can prove its growth potential should be considered by serious investors.

    It may surprise you to learn that the restaurant business represent one of the biggest industries in the world. The American sector of the industry employees over 12 million people, thus serving as the largest industry for private employment in the nation. Hundreds of billions of dollars in sales are made every year, representing about 4% of the nation's products. An astounding figure is that the average American family spends about half of the money they use to buy food in restaurants. In 1955, that figure was only 25% of the money used to buy food. Clearly, as far as growth potential is concerned, it appears that investing in restaurants could be a fairly safe decision as long as you do your research.

    While failures are not tracked by the National Restaurant Association, it estimated that 870,000 restaurants existed at the end of 2002, an increase of 12,000 from the year before. Every investor who looked seriously into investing in one of the restaurants that ended up succeeding are now making a residual profit from the initial finances they provided the up-start restaurant with. If you are seriously considering investing in restaurants, you should know that fast food and take-out establishments are very prevalent today. In fact, about 58% of the industry caters to this category of restaurants.

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