Information asymmetry can wreak havoc on market quality – a phenomenon economist George Akerlof famously illustrated in “The Market for Lemons,” using used cars as an example. In a “lemons” scenario, buyers can’t tell good quality from bad, so low-quality sellers drive out high-quality ones, degrading the overall market. This article explores how a similar “lemon problem” may be unfolding in the U.S. restaurant industry.
We’ll examine recent statistics on restaurant openings and closures by segment, the rise of pre-prepared foods from distributors, and how short-lived restaurants and heat-and-serve menus impact consumer perception, pricing, and quality expectations. Industry voices – from distributors to consultants – weigh in on whether dining out is suffering its own quality uncertainty crisis and how restaurateurs are responding.
High Turnover: Restaurant Openings and Closures by Segment
The U.S. restaurant landscape is enormous and constantly churning. As of August 1, 2024, there were about 786,000 restaurants operating across America. New eateries open at a rapid clip – roughly 550 to 650 new restaurant locations debut every week. At the same time, thousands shutter each quarter. In the first half of 2024 alone, around 15,977 restaurants closed nationwide.
Notably, independent restaurants (often single-location, owner-operated) account for the majority of both new openings and closures. Only about 10–12% of new openings in 2024 were chain units – down sharply from ~25–33% pre-pandemic – meaning nearly 90% were independents. Those independents are also over-represented in closures (over 13,000 of the H1 2024 closures were independents). This high turnover, especially among small operators, creates a volatile environment where concepts come and go quickly.
Table 1 – U.S. Restaurant Units and Trends by Segment (estimates for 2024):
| Segment | Approx. Number of Units | Recent Trends (Openings/Closures & Growth) |
| Quick Service (QSR) – fast food & limited-service | ~350,000+ restaurants (over half of all U.S. restaurants) | Slight net unit growth. Many QSR chains expanded through 2023–24, offsetting a dip in independent fast-food shops. QSR sales grew ~7.9% in 2023, but traffic is price-sensitive. Some major QSR brands closed underperforming stores in 2024 to cut losses. |
| Fast Casual – upscale counter-service (subset of QSR) | ~25,000+ restaurants (subset of above QSR count) | Fastest-growing segment. Five of the six largest fast-casual chains had 20%+ sales growth in 2023. Fast-casual sales grew +11.2% in 2023. Unit counts have expanded post-pandemic as consumers “trade up” from fast food for higher quality. |
| Casual Dining – full-service, moderate $$ | ~200,000 (part of full-service total) | Recovering slowly from pandemic closures. Full-service chain unit counts in 2023 remained 2.5% below 2019 for casual dining. Sales growth (+4.7% in 2023) lagged inflation. Many brands are closing weaker locations to focus on profitable stores. |
| Fine Dining – full-service, high-end $$$ | ~16,000 (rough estimate, small fraction) | High-end segment is smaller but rebounding. Upscale restaurants saw demand return as diners sought experiences. Fine dining operator purchases grew about +0.2% in 2024. This segment benefits from affluent clientele but faces high operating costs. |
| Family/Midscale – diners, family eateries | ~80,000 (est., part of full-service) | Struggling. Many midscale restaurants (think diners and family-style chains) never fully recovered – unit counts remain ~4% below 2019. Real growth was -0.7% in 2024 as budget-conscious consumers cut back on casual outings. |
| Total U.S. Restaurants (all segments) | ~786,000 as of 2024 | Openings have outpaced closures since 2021, but turnover is high. ~16k closures in H1 2024. Industry sales topped $1 trillion in 2024 for the first time, yet traffic is uneven across segments. |
Note: Full-service restaurants (including casual, fine, and family dining) totalled ~303,000 units in 2018. The breakdown by casual vs. fine vs. family dining is approximate; casual dining makes up the bulk of full-service. Precise 2024 unit figures by sub-segment are not available, but casual chains vastly outnumber true fine dining establishments.
As Table 1 shows, limited-service restaurants (quick service and fast casual) comprise roughly half of all restaurants and have led growth coming out of the pandemic, while full-service segments (casual, family, fine dining) are only inching back.
Fast-casual concepts in particular have emerged as a bright spot, with same-store sales surging and new units opening as they hit the consumer sweet spot of “quality at a lower price point”. Technomic data shows fast casual sales jumped +11.2% in 2023, outpacing quick-service (+7.9%), family dining (+5.7%), and casual dining (+4.7%). Quick-service (QSR) chains also proved resilient – many big brands grew sales and store counts, capitalizing on demand for convenient, affordable meals.
In contrast, casual dining and midscale/family dining brands are still digging out of the hole of 2020: unit counts for major casual and midscale chains in 2023 remained 2–4% below 2019 levels. These full-service segments had higher closure rates during COVID and have struggled with lower dine-in traffic since. Even in 2023–24, full-service sales growth often lagged menu price inflation, indicating actual traffic was flat or down.
Importantly, independent restaurants (across all segments) have flooded back into the market post-pandemic – driving most of the new openings, but also most closures. For every trendy new independent bistro or fried-chicken shack that opens, another may shut its doors within a year or two.
The failure rate of restaurants is a subject of lore (the oft-quoted “90% fail in the first year” is a myth), but actual data suggests about 17% of restaurants fail in a year and around 30% fail within a few years. Those odds are better than legend would have it, yet still reflect a hard reality: the restaurant business churns rapidly.
High closure rates mean many restaurants are short-lived, which can have ripple effects on consumer behavior and industry dynamics – as we’ll explore through the lens of the “lemon” problem.
The Rise of Ready-to-Serve and Pre-Processed Products
Amid labor shortages, high food costs, and tight margins, restaurants of all types are increasingly turning to pre-processed, ready-to-use ingredients from foodservice distributors. Industry giants like Sysco (with ~17% share of the $370+ billion U.S. foodservice distribution market) and US Foods supply not just raw ingredients but a growing array of value-added products: chopped and washed produce, pre-portioned and marinated meats, boil-in-bag sauces, frozen entrees and appetizers, par-baked breads, and even fully cooked meal components. These offerings, often marketed as “labor-saving” or “speed-scratch” solutions, aim to help operators save time and reduce the skill needed in the kitchen.
Restaurant operators have eagerly embraced these convenience products. In a 2023 Simplot Foods survey, 55% of restaurant operators said they were actively looking to economize on labor, and one third aimed to simplify back-of-house processes.
The use of “speed-scratch” products – partially prepared ingredients that still allow some chef customization – is now seen as a “strategic response to persistent labor issues” facing the industry. In practice, this means a higher share of the ingredients coming through the back door are pre-cut, pre-mixed, or pre-cooked.
For example, instead of peeling and cutting fresh butternut squash or carrots in-house (and paying for that prep labor and waste), a restaurant might buy them already peeled, diced, and ready to cook in a vacuum-sealed bag. Instead of simmering soup from scratch each morning, a café might heat and serve a frozen soup produced in a food manufacturing plant.
These shortcuts can significantly reduce kitchen workload and ensure consistency – but they also make it easier for a restaurant with minimally skilled staff (or low culinary creativity) to put out a menu that looks and tastes similar to many others.
Foodservice distributors have leaned into this trend by launching extensive lines of value-added products. US Foods, for instance, highlights “innovative, versatile, and labor-saving” products in its branded offerings. In spring 2024, US Foods reported that its recently launched Scoop™ line of new products surpassed $1 billion in annual sales for the first time – a milestone driven by demand for items that help restaurants “attract diners, save costs and overcome industry challenges. “We are committed to bringing our operators high-quality, innovative products that will enable them to create memorable, differentiated and profitable menu offerings,” said Stacey Kinkaid, US Foods VP of product development.
The spring 2025 Scoop lineup alone features 18 new items ranging from an authentic beef birria (slow-cooked spiced beef) to a Basque-style cheesecake – all designed to be ready to heat or serve with minimal effort. The birria, for example, comes fully cooked and “infused with smoky guajillo pepper flavor,” saving an estimated 60 minutes of labor per case compared to making it from scratch. This lets any restaurant, even one without a chef skilled in Mexican cuisine, offer trendy birria tacos or quesabirria simply by reheating the product – effectively outsourcing the cooking to a food manufacturer.
Other distributors offer similar labor-savers: pre-breaded chicken tenders and formed burgers, portioned cookie dough, microwaveable side dishes, etc. Sysco’s product catalogs tout “ready-to-serve” sous vide proteins, pre-chopped veggies, and “heat-and-serve” entrees for operators looking to cut prep time. By segment, the reliance on these products varies: Quick-service and fast-casual chains have long built their models on high-volume, consistency, and speed, which naturally means more centralized prep.
A fast-food kitchen is often more of an assembly operation – staffers griddle pre-formed frozen patties, fry frozen potatoes, and top burgers with pre-shredded lettuce and sauce from a gallon jug. Even many fast casual concepts that tout freshness use pre-cut ingredients or sauce bases to maintain speed.
Casual dining chains (like popular bar-and-grill franchises) also lean heavily on ready-made components delivered by distributors or commissary kitchens – from soups and sauces to desserts – to keep food costs low and ensure any moderately trained line cook can execute the menu.
Fine dining, on the other hand, prides itself on scratch cooking and unique recipes, but even high-end restaurants might purchase specialty bread, premium demi-glace stock, or other base components rather than make everything in-house.
Overall, the share of “ready” versus raw ingredients tends to be highest in quick-service and chain restaurants and lower in independent, chef-driven establishments – but the pressure of labor and cost is pushing everyone toward more pre-prepared inputs.
One executive of a mid-sized restaurant group candidly noted that labor-saving products are in high demand because once you train a team member on a versatile pre-made product, they can execute multiple menu items with it, simplifying operations.
From a business perspective, these convenience foods have been a lifesaver for operators grappling with staffing woes and inflation. They enable smaller kitchens and shorter prep times, and often reduce waste. However, there’s a flip side: as more restaurants use the same base products, menus across different venues can start to look and taste suspiciously similar.
Diners may not realize that the “homestyle” soup at their local pub came from the same manufacturer as the soup at a national chain, but often it does. Critics argue this widespread use of pre-processed food leads to a kind of homogenization of dining out – a loss of the distinctiveness and craftsmanship that once separated a scratch kitchen from a heat-and-serve operation.
If virtually any novice restaurateur can assemble a menu by picking items from their distributor’s catalog (mac & cheese bites, frozen wings, sous-vide ribs, etc.), it raises the question: how can consumers tell the difference between a restaurant that genuinely cooks with skill and one that’s simply reheating? This is where the “lemon problem” of quality uncertainty starts to creep in.
Quality, Perception, and the Menu “Lemon” Problem
In Akerlof’s lemons model, buyers – unsure if they’re getting a peach or a lemon – will only pay an average price, which ends up driving the good-quality sellers out of the market. Translated to restaurants: if diners cannot easily discern a restaurant’s quality, many will be unwilling to pay premium prices or try new places for fear of disappointment.
Over time, if low-quality, mediocre restaurants proliferate (and quickly close), consumers may start assuming any unknown restaurant is likely a dud – a culinary “lemon” – unless proven otherwise. This dynamic can punish the truly good operators (the “peaches”) and reward the “lemons” that manage to cut costs (by using cheaper pre-made food or low-skilled labor) and perhaps survive just long enough to make a quick profit before quality issues catch up.
Several trends in recent years illustrate aspects of this adverse selection in the foodservice market:
- Tourist Trap Restaurants: In many tourism-heavy districts, restaurants historically could get away with overpriced, low-quality offerings because first-time visitors didn’t know better. These establishments focused on flash over substance – “luring tourists in with flashy signage or promises of local cuisine, only to deliver mediocre food and service”, as hospitality consultant Doug Radkey describes. The classic tourist trap is a textbook lemons scenario: the seller knows the food is subpar, but the buyer (hungry tourist) doesn’t realize until after paying. Over time, savvy locals learn to avoid these places entirely, and even tourists have become more informed via online reviews. But the legacy of these low-value operators is a general distrust of eateries in certain areas – e.g. “It’s all tourist traps around Times Square, better to eat elsewhere.” High-quality restaurants in these areas must fight uphill to prove they’re not a rip-off. And for a long time, many legitimate restaurateurs were driven out because they couldn’t compete with trap operators on rent or marketing despite offering better food. As Akerlof noted, “the cost of dishonesty… includes the loss incurred from driving legitimate business out of existence.” In other words, short-sighted “lemon” operators can spoil the market for everyone.
- Ghost Kitchens and Virtual Brands: A more modern example emerged with the rise of delivery-only virtual restaurants. During the pandemic, thousands of “ghost kitchens” and virtual brands popped up on apps like Uber Eats – often run out of the kitchens of existing restaurants or commissaries. While some delivered quality, many others were low-effort attempts to cash in on delivery demand. It became common for the same greasy diner to appear online as five different brands (a “wing” restaurant, a “burger” restaurant, a “healthy bowls” restaurant, etc.) all serving very similar food. Customers, unable to distinguish these virtual brands from genuine standalone restaurants, often felt duped. Quality control issues were rampant – for instance, the celebrity-backed MrBeast Burger virtual brand suffered so many complaints about poor food from its ghost kitchen partners that it led to a high-profile lawsuit and brand damage. By 2023, delivery platforms themselves recognized the problem: Uber Eats removed 8,000 virtual restaurant listings that were clogging the app with duplicate menus and low ratings, after “a deluge of food quality issues” and consumer complaints about lack of transparency. Many consumers had started to assume that unknown brands on delivery apps were likely low-quality “scam” offerings. This is a clear parallel to the lemons problem – with so many dubious virtual options, the average expected quality in that market dropped, hurting consumer trust. Reputable restaurants now have to differentiate themselves on delivery platforms (with branding, higher ratings, even “verified” badges) to signal they aren’t a ghost kitchen lemon.
- Inflation and the Value Equation: During 2022–2024, menu prices jumped significantly due to inflation. By early 2024, 65% of consumers surveyed said they were shocked at how expensive fast-food meals had become. When prices rise, customers naturally heighten their expectations for quality and experience – or they cut back on dining out if they feel the value isn’t there. This has put many restaurants under the microscope. A quick-service meal that might have been an impulsive $5 purchase in 2019 could be $8–$10 now; if it arrives cold, poorly made, or no better than a frozen supermarket meal, the customer may not return. Likewise, a casual dining entree now priced at $20+ sets a high bar for taste and freshness. “Perceived value” has surged in importance for guests deciding where to eat, according to Black Box Intelligence surveys. Diners are less forgiving of mediocre quality at high prices – they vent on Yelp, they tell friends, and they choose other options next time. In economic terms, customers will only pay top dollar if they feel confident they’re getting something worth the cost. When that confidence erodes, it drags the whole market price equilibrium down. We’ve seen this in the casual dining segment’s struggle – many sit-down chains have had to deepen discounts or bundle deals to lure customers, essentially acknowledging that consumers don’t trust their $20 entree is truly worth $20 in 2025’s environment.
A crisis of differentiation and trust
These examples underscore a brewing crisis of differentiation and trust. The combination of high turnover (lots of new, untested operators) and high prevalence of ready-made food products (easier for any kitchen to put out a passable menu) means customers face an information problem: Is this restaurant actually good? Is it fresh or just frozen stuff I could microwave at home? Will it be around next year or gone by the time I fall in love with it?
When diners can’t answer these questions, many play it safe. They might stick to well-known chain brands or restaurants with lots of reviews. Indeed, one could argue that big chain franchises benefit from the lemons effect – a known brand like McDonald’s or Olive Garden carries an implicit quality guarantee (or at least predictability) that an unknown independent lacks.
Consumers often choose the familiar chain when traveling or in doubt, precisely because “at least I know what I’m getting.” This can disadvantage independent restaurants, even ones with great food, if they can’t swiftly signal their quality to overcome the trust gap.
From the restaurateur’s side, this dynamic is frustrating. A passionate chef opening a new restaurant may find consumers skeptical due to the sins of past “lemons” in the market. As one chef lamented, “We’re hand-making our sauces and our pasta, but some guests assume everything comes off a Sysco truck like at the chain down the street.”
To combat this, many quality-focused restaurants are investing in signals of authenticity: farm-to-table branding (naming local farms and producers on the menu), open kitchens visible to diners, chef’s credentials and accolades touted in marketing, and of course encouraging reviews and word-of-mouth.
Essentially, they are trying to bridge the information asymmetry by proving their quality and differentiating from the pretenders. On the flip side, some lower-quality operators attempt the opposite – masking their shortcuts to appear home-made. (There’s a running joke in the industry that many menus claim “house-made” or “grandma’s recipe” for dishes that actually arrive frozen from a distributor).
Navigating a Market Full of “Lemons” and “Peaches”
For investors and consultants evaluating the restaurant space, the implications of a lemons-like environment are significant. Concepts that can successfully signal quality and consistency have a competitive edge. This might be through strong branding (including franchise systems that enforce standards), third-party endorsements (Michelin stars, James Beard awards, high Yelp/Zomato ratings), or unique experiential factors that are hard to copy with packaged goods.
These act as proxies for the “warranties” or inspections that Akerlof suggested could counteract the lemons problem. We’ve seen tech platforms adapt by highlighting ratings and cracking down on low performers – essentially trying to weed out the lemons so the peaches can shine. Uber Eats, for example, now requires virtual brands to maintain at least a 4.3-star rating or face removal, and it mandates that each must offer something “differentiated” on the menu beyond just a copycat of an existing kitchen’s items.
For restaurateurs, the lesson is to either build trust or leverage someone else’s. New independent operators must recognize the uphill battle to convince jaded consumers of their quality. Embracing transparency (about ingredients, preparation, sourcing) can help signal that you’re not a “lemon.”
Some are taking to social media to show behind-the-scenes scratch cooking, or explicitly labeling what is made in-house versus purchased – effectively preempting the question of quality. Others choose to join franchises or well-known restaurant groups to gain an instant reputation halo.
There’s also a renewed focus on loyalty and repeat business; once you’ve proven yourself to a guest, getting them to return (and tell others) is gold. A loyal customer base that vouches for you is the best defense against being lumped in with the mediocre masses.
Consumers, for their part, are becoming more discerning and relying on collective intelligence – reviews, foodie media, and personal networks – to avoid dining disappointments. While the average diner might not think in terms of “information asymmetry,” they definitely notice when a restaurant’s price-to-quality ratio is off, and they spread the word. In today’s connected world, a lemon can be called out and shut out faster than ever.
This creates a somewhat self-correcting mechanism: truly bad restaurants tend to get exposed on social platforms and review sites (sometimes brutally so) and can’t survive long. But the system isn’t perfect – plenty of middling establishments skate by, and new ones pop up to replace each closure, keeping the cycle going.
In Conclusion
The U.S. restaurant industry does exhibit some hallmarks of a “market for lemons.” There’s a glut of options of variable quality and a persistent uncertainty for consumers about what they’ll get for their money. Short-lived operators who cut corners can leave diners and investors with a sour taste, figuratively and literally. Yet, unlike used cars, restaurants benefit from the fact that people enjoy trying new places and will always seek out the next great meal – so the good players can and do rise.
The key is that those good players find ways to signal their quality and value in an environment crowded with questionable alternatives. As Akerlof noted, without ways to distinguish quality, the bad can drive out the good.
The mission for the industry is to prevent that outcome – by elevating transparency, celebrating authentic craftsmanship, and perhaps setting standards that expose the “microwave chefs” for what they are.
Diners, meanwhile, will continue to vote with their feet (and their five-star ratings), rewarding the restaurants that deliver genuine excellence and punishing those that pretend to. In the end, an informed consumer – and an informed investor – is the best defense against buying a lemon at dinnertime.
