#3 for sure.
The restaurant owner expressed his situation very well...rather than just canning you on the spot. It is obvious that he was willing to try something new in the hope it work out to the benefit of both of you.

You may be right about needing more time to build the business...but when expectations are not met, owners tend to feel they are putting good money after bad.

Bill, you are a gentleman and pro. One gig isn't going to make or break you. There may be other opportunities there in the future and referrals from the owner.

#3, without a doubt.
Eddie