Restaurant Development Leads to Fear of Oversaturation

Experts say there is an oversaturation of restaurants across the country. Rachel Abrams and Robert Gebeloff, writing for The New York Times, featured a stretch of Highway 59 in suburban Chicago, Illinois, as a prime example of the type of sprawling development attracting the overbuilding of restaurants in the United States. 

Driven by Wall Street investment, restaurants are now opening at twice the rate of population growth, according to the Bureau of Labor Services (BLS). Americans spend 44 cents of every food dollar on restaurants, a figure that is increasing. While restaurant spending is still increasing, its overall growth rate is slowing, creating a glut of restaurants.

Investors such as private equity firms and large banks receive a steady stream of franchise fees and royalty payments while franchisees shoulder much of the risk by having to a actually run the restaurants. There is increased pressure to open more restaurants, as buying a single restaurant may come with a development agreement to open several more.