You restaurant analogy fails, because restaurants are at a fixed physical location and the seats are constrained. I find Ben Thompson's "Aggregation Theory" quite insightful on this topic: https://stratechery.com/2015/aggregation-theory/
That's not to say that you cannot be successfull running a small service, but it needs to be differentiated in some way and not just copy the existing ones (which works fine for a chinese restaurant if there isn't one in that part of the town).
That's fair but how about streets in any big city or town (certainly in the UK) where there is fried chicken shop after fried chicken shop after kebab shop after another kebab shop? The only thing that differentiates each of those places are usually the logos and the name of the shop (London Fried Chicken, Tasty Fried Chicken, Hackney Fried Chicken etc. - not a great deal of imagination there).
The food is almost identical, the prices too, they are of course at a fixed location (but not quite sure how that makes any difference) and there are no seat constraints. Yet these places seem to stay alive even though none of them really offer anything different to the chicken shop next door.
Multiple shops like this can survive because each has limited capacity, i.e. these two go up exponentially after a certain (quite early) point:
1. Time between walking in and paying.
2. Time between paying and receiving your food.
If one of those restaurants could maintain quality, and keep the above two metrics flat whilst a scaling to 4x, then the other 3 restaurants would lose business and eventually go out of business.
Online businesses don't usually have the same limits to scale.
Small shops multiply instead of swelling because their capacity limitations are either a high barrier to individual growth or an essential feature of their service ('coziness').
That's not to say that you cannot be successfull running a small service, but it needs to be differentiated in some way and not just copy the existing ones (which works fine for a chinese restaurant if there isn't one in that part of the town).