Top Chains' Sales Were Down 0.8% in '09

Bennigan's sign Sales for the 500 largest U.S. restaurant chains declined by 0.8% last year, to an estimated $230 billion, according to the newly released 2010 edition of Technomic, Inc.'s annual report on these largest chains.

That decline might sound slight to the uninitiated, but it represented a loss of nearly $2 billion versus 2008. Moreover, "the top 500 have seen gains year after year after year, so this decline speaks to the severity of the economy's impact on the restaurant industry," points out Ron Paul, president of Technomic, a leading foodservice industry consultancy.

In part, the sales performance reflected many chains having pulled back on their U.S. restaurant-unit expansion plans and shuttered under-performing locations in response to declines in consumer out-of-home dining and cost pressures: Store units grew by just 0.3% in '09, compared with 1.8% in 2008, according to the report.



Technomic also noted a small increase in the percentage of newly opened units that are franchised, as opposed to company-owned, last year -- reflecting chains' turning increasingly toward franchising rather than corporate investment for expansion within the U.S., Paul tells Marketing Daily. Technomic expects to see that trend accelerate this year, he adds.

Only 40% of the top 500 restaurant chains posted at least nominal sales increases last year, and 283 of these chains experienced sales declines in 2009, compared to only 213 in 2008.

Every segment and menu category had both winners and losers, and while the top 500 chains posted a decline in sales in the aggregate, individual results varied dramatically, with sales ranging from Yogurtland's 157.7% growth to Bennigan's Grill & Tavern's 71.8% sales drop.

This demonstrates the intensely competitive environment for the overall industry and the need for operators and suppliers to identify and focus on the winners, Technomic's analysts point out.

Paul notes that as a general observation, chains and units that succeeded offered value -- in the dining experience, as well as in pricing -- plus strong differentiating factors that convinced consumers to choose them over the plethora of competing options.

Full-service chains within the top 500 were particularly hard-hit, reflecting their generally higher prices and cost per meal for the consumer. As a whole, this group saw sales decline 2.9%.

Steak category chains saw a severe, 6.4% sales drop, as even more moderately priced steakhouses saw traffic and average check expenditures decline, forcing unit closures and slowed expansion. Seafood and Mexican full-service chains also posted below-average results (with sales declines of 4.2% and 4%, respectively).

Within full-service, Asian was the only subsegment with positive sales growth (up 2.9%). That growth was driven by several mid-sized brands that saw double-digit sales gains, including RA Sushi Bar Restaurant, Stir Crazy Asian Grill and MuHot Mongolian Grill.

Growth came from limited-service formats (which encompass fast casual, QSRs and cafeteria/buffet). Limited-service chains within the top 500 accounted for 85% of all U.S. "fast food" restaurant sales. As a whole, this group grew at a rate of 0.1%.

Fast-casual formats continued to be the biggest growth-driver. The Mexican category was led once again by Chipotle Mexican Grill and Qdoba Mexican Grill, posting U.S. system-wide sales growth of 13.9% and an estimated 6.5%, respectively. Standouts in the hamburger segment included Five Guys Burgers and Fries and The Counter, with estimated sales growth of 50.2% and 67.3%, respectively.

In addition to Mexican, growth-leading limited-service categories included bakery café and donut: Panera Bread and Dunkin' Donuts posted estimated growth of 7.1% and 3.7%, respectively.

The Asian limited-service subsegment also showed notable growth (up 5.9%). Within this group, Panda Express grew 8.8% to realize sales of $1.2 billion.

McDonald's, the largest U.S. restaurant chain, grew 2.9%, with sales estimated at $30.9 billion.

Subway continued to dominate the growing "other sandwich" segment, with 4.2% sales growth and total sales of $10 billion (considerably outperforming the 0.8% average growth seen by the rest of the "other sandwich" chains). Subway continues as the second-largest restaurant chain in the U.S., followed by Burger King, Wendy's Old Fashioned Hamburgers and Starbucks.

In total, the top 10 fastest-growing chains' sales accounted for $5.9 billion, a 19% increase over 2008. Unit counts for these chains grew 16%.

Among chains with $200 million or more in sales, the top 10 fastest-growing, by dollar sales percentage gains, were: Five Guys Burgers and Fries (50%), Tim Hortons (23%), Buffalo Wild Wings Grill & Bar (22%), Jimmy John's Gourmet Sandwich Shop (21%), Wingstop (20%), Noodles & Company (15%), BJ's Restaurant & Brewhouse (14%), Chipotle Mexican Grill (14%), Firehouse Subs (10%) and Potbelly Sandwich Works (10%).

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