In the past few years, New York City has experienced a very interesting fragmentation of fast-food (McDonald's, Wendy's, etc.) and quick-food (Subway, Pizza Hut, etc.). For example, we now have five or six different sandwich-shop chains - each catering to a slightly different customer-base.
This fragmentation and thus greater choice has been good to the quick-food connoisseur like myself. But it has left me pondering at what point does this niche-ification become unsustainable - i.e. when is the target market too small to maintain profitability?
The answer probably depends most heavily on population density - which can be easily measured. But there also seems to be a fair amount of chance involved. This uncertainty stems from overall food trends. The smaller the niche, the more susceptible these new establishments are to the whims of the crowds. A restaurant serving only vegetarian sandwiches has a smaller chance of surviving a meat-loving cuisine trend than a multi-ethnic Diner. I'm not so sure that new restaurant entrepreneurs consider or even understand this added risk.