Newly developed data reveal that the growth-oriented restaurant chains comprising the industry’s Second 100 universe have suffered the same fate as Top 100-ranked counterparts, with the second-tier brands’ aggregate domestic sales slowing for a second straight year.
Nation’s Restaurant News’ new Second 100 database paints a statistical picture of chains and corporations, those ranked Nos. 101-200 on the basis of U.S. sales and foodservice revenues, whose softness in their latest full fiscal years only set the stage for a now-deepening malaise in the consumer economy.
“Discretionary and disposable consumer income levels are under pressure, and restaurant sales, especially in full-service sectors, are reflecting these headwinds,” Joe Buckley, restaurant stock analyst at Banc of America Securities LLC, stated this month. “In recent years, there has been a sector market share shift within the industry with the quick-service sector generating positive same-store sales growth and gaining share while the casual-dining sector has been an underperformer with negative same-store sales comparisons and an even more meaningful loss of customer traffic.”
ALPHABETIC INDEX OF SECOND 100 COMPANIES(Use numeric rankings below to locate Latest Year results in corresponding Second 100 Companies tables, pages 52-53 and 61)
| COMPANY | COMPANY HEADQUARTERS | FOODSERVICE REVENUE | REVENUE GROWTH RATE |
| ABP Corp. | Boston | 131 | 24 |
| AFC Enterprises Inc. | Atlanta | 163 | 22 |
| American Restaurant Group Inc. | Los Altos, Calif. | 128 | 91 |
| Anheuser-Busch Cos. | St. Louis | 143 | 50 |
| Apax Partners Worldwide LLP | New York | 130 | 25 |
| Applegrove Restaurants LLC | Atlanta | 122 | 65 |
| Apple-Metro Inc. | Harrison, N.Y. | 195 | 68 |
| Argonne Capital Group LLC | Atlanta | 172 | 6 |
| Ark Restaurants Corp. | New York | 191 | 47 |
| B.F. Operations Holdings LLC | Anaheim, Calif. | 138 | 1 |
| Back Bay Restaurant Group Inc. | Boston | 167 | 81 |
| Benihana Inc. | Miami | 107 | 26 |
| Berkshire Hathaway Inc. | Omaha, Neb. | 164 | 34 |
| BF Companies | Louisville, Ky. | 139 | 42 |
| Blackstone Group LP | New York | 114 | 7 |
| Border Foods Inc. | Minneapolis | 157 | 90 |
| Borders Group Inc. | Ann Arbor, Mich | 180 | 14 |
| BR Associates Inc. | Jasper, Ind. | 188 | 48 |
| Bravo Development Inc. | Columbus, Ohio | 115 | 23 |
| Brockway Moran Partners | Boca Raton, Fla. | 190 | 63 |
| Bubba Gump Shrimp Co. | San Clemente, Calif. | 165 | 12 |
| Buca Inc. | Minneapolis | 124 | 95 |
| Buffet Partners | LP Plano, Texas | 194 | 87 |
| Bunker Hill Capital LP | Boston | 127 | 58 |
| Carlisle Corp. | Memphis, Tenn. | 179 | 72 |
| Carolina Restaurant Group Inc. | Charlotte, N.C. | 180 | 73 |
| Casey’s General Stores Inc. | Ankeny, Iowa | 105 | 19 |
| Caspers Co. | Tampa, Fla. | 170 | 94 |
| Cedar Enterprises Inc. | Columbus, Ohio | 150 | 82 |
| Centre Partners Management LLC | New York | 110 | 62 |
| Consolidated Restaurant Operations Inc. | Dallas | 152 | 96 |
| Così Inc. | Deerfield, Ill. | 178 | 27 |
| DavCo Restaurants Inc. | Crofton, Md. | 133 | 46 |
| Deli Management Inc. | Beaumont, Texas | 116 | 16 |
| DineEquity Inc. | Glendale, Calif. | 126 | 3 |
| Donatos Pizzeria LLC | Columbus, Ohio | 182 | 88 |
| F&H Acquisition Corp. | Wichita, Kan. | 139 | 9 |
| Famous Dave’s of America Inc. | Eden Prairie, Minn. | 187 | 31 |
| Fired Up Inc. | Spicewood, Texas | 149 | 84 |
| Flying J Inc. | Brigham City, Utah | 111 | 70 |
| Frisch’s Restaurants Inc. | Cincinnati | 112 | 67 |
| Fugate Enterprises | Wichita, Kan. | 146 | 29 |
| gategroup | Zurich, Switzerland | 135 | — |
| Gordon Biersch Brewery Restaurant Group Inc. | Chattanooga, Tenn. | 177 | 13 |
| GSO Capital Partners | New York | 108 | — |
| Guest Services Inc. | Fairfax, Va. | 188 | 51 |
| Holm Restaurants LLC | Orlando, Fla. | 182 | 76 |
| Houlihan’s Restaurants Inc. | Leawood, Kan. | 174 | 80 |
| Interfoods of America Inc. | Miami | 160 | 86 |
| J. Alexander’s Corp. | Nashville, Tenn. | 173 | 57 |
| Jacobson Partners | New York | 125 | 28 |
| The Jan Cos. | Cranston, R.I. | 171 | 61 |
| Kimpton Group Holding LLC | San Francisco | 166 | 45 |
| Krispy Kreme Doughnuts Inc. | Winston-Salem, N.C. | 103 | 93 |
| The Krystal Co. | Chattanooga, Tenn. | 106 | 59 |
| La Madeleine Inc. | Dallas | 185 | 66 |
| Legal Sea Foods Inc. | Allston, Mass. | 132 | 41 |
| Leonard Green & Partners LP | Los Angeles | 108 | 36 |
| Loews Corp. | New York | 198 | 30 |
| LRI Holdings Inc. | New York | 102 | — |
| Magic Restaurants LLC | Austin, Texas | 144 | 73 |
| Max & Erma’s Restaurants Inc. | Columbus, Ohio | 154 | 89 |
| Mazzio’s Corp. | Tulsa, Okla. | 196 | 68 |
| Merritt Group | Las Cruces, N.M. | 145 | 71 |
| Nordstrom Inc. | Seattle | 153 | 60 |
| Pacific Equity Partners | Queensland, Australia | 192 | 77 |
| Palladium Equity Partners LLC | New York | 155 | 40 |
| Palm Management Corp. | Washington, D.C. | 168 | 77 |
| Patina Restaurant Group LLC | New York | 141 | 5 |
| Pilot Travel Centers LLC | Knoxville, Tenn. | 121 | 43 |
| The Portillo Restaurant Group | Oak Brook, Ill. | 137 | 37 |
| Potbelly Corp. | Chicago | 151 | 10 |
| Prime Hospitality | Fairfield, N.J. | 184 | 39 |
| Quality Dining Inc. | Mishawaka, Ind. | 119 | 44 |
| Riese Organization | New York | 176 | 11 |
| Rock Bottom Restaurants Inc. | Louisville, Colo. | 101 | 38 |
| The Rose Group | Newton, Pa. | 161 | 18 |
| Royal Capital Corp. | Atlanta | 156 | 4 |
| RPM Pizza Inc. | Gulfport, Miss. | 200 | 64 |
| Rubio’s Restaurants Inc. | Carlsbad, Calif. | 159 | 21 |
| Sears Holdings Corp. | Hoffman Estates, Ill. | 175 | 92 |
| Seminole Tribe of Florida | Hollywood, Fla. | 147 | 2 |
| Shari’s Management Corp. | Beaverton, Ore. | 158 | 54 |
| Sheetz Inc. | Altoona, Pa. | 104 | 52 |
| Simmonds Restaurant Management | Omaha, Neb. | 197 | 17 |
| Six Flags Inc. | New York | 118 | 49 |
| Specialty Restaurants Corp. | Anaheim, Calif. | 198 | 56 |
| Tacala LLC | Birmingham, Ala. | 162 | 83 |
| Texas Pacific Group | Fort Worth, Texas | 135 | 97 |
| Thomas & King Inc. | Lexington, Ky. | 117 | 55 |
| TRT Holdings Inc. | Corpus Christi, Texas | 193 | 32 |
| United States Beef Corp. | Tulsa, Okla. | 123 | 53 |
| Valenti Management Inc. | Tampa, Fla. | 142 | 33 |
| Valley Services Inc. | Flowood, Miss. | 147 | 20 |
| W.H. Braum Inc. | Oklahoma City | 134 | 75 |
| Wisconsin Hospitality Group LLC | Wauwatosa, Wis. | 169 | 85 |
| Wynn Resorts Ltd. | Las Vegas | 120 | 35 |
| Yucaipa Cos. | Los Angeles | 129 | 77 |
| Zaxby’s Franchising Inc. | Athens, Ga. | 186 | 15 |
| Zensho Co. Ltd. | Tokyo | 113 | 8 |
Data from the NRN Second 100 study place the aggregate sales of the qualifying chains at $29.29 billion, up from the preceding year’s collective total of $28.11 billion. However, the rate of sales growth slowed to a 4.19- percent pace in the latest year, down from 5.08 percent a year earlier.
A big drag on the overall growth rate was exerted by the slumping casual-dining sector. The 35 casual chains that qualified for rankings in this year’s Second 100 represented 33.93 percent of its entire chain universe. Eliminating from the overall data those 35 chains’ results – which included latest-year sales growth of 2.81 percent, half the casual group’s 5.59-percent clip of a year earlier—the remaining 65 Second 100 chains would have posted a slight year-to-year uptick in sales growth percentage.
Excluding the casual-dining sector, those 65 other brands’ sales rose by a collective 4.91-percent rate in the latest year, up from 4.82 percent a year earlier.
Driving that growth were sectors that posted sales increases higher than inflation rates, suggesting real gains in same-store sales. Bakery-cafe chains in the Second 100 led the way with segment sales growth of 11.70 percent, up from 7.98 percent a year earlier. The bump was aided by strong results from first-time Second 100 qualifier Bruegger’s as well as the Tim Hortons and Corner Bakery chains.
SECOND 100 CHAINS RANKED BY GROWTH IN U.S. FRANCHISED UNITS(Year-to-year percentage change)
| GROWTH IN FRANCHISED UNITS* | |||||
| LATEST- YEAR RANK | PRECEDING- YEAR RANK | CHAINS | FISCAL YEAR-END | LATEST VS. PRECEDING | PRECEDING VS. PRIOR |
| 1 | 5 | Corner Bakery | Dec. ’07 | 150.00 | 33.33 |
| 2 | 1 | Taco Bueno | Dec. ’07 | 144.44 | 350.00 |
| 3 | 3 | Caribou Coffee | Dec. ’07 | 71.43 | 40.00 |
| 4 | 4 | Einstein Bros. Bagels | Dec. ’07 | 30.11 | 38.81 |
| 5 | 9 | Tim Hortons | Dec. ’07 | 29.45 | 21.68 |
| 6 | 14 | Old Chicago | Dec. ’07 | 28.00 | 13.64 |
| 7 | 6 | Qdoba Mexican Grill | Oct. ’07 | 22.98 | 28.50 |
| 8 | 8 | On the Border Mexican Grill & Cantina | June ’08 | 19.23 | 23.81 |
| 9 | 10 | Moe’s Southwest Grill | Dec. ’07 | 17.96 | 21.43 |
| 10 | 15 | Wingstop | Dec. ’07 | 17.58 | 13.28 |
| 11 | 11 | Famous Dave’s | Dec. ’07 | 15.38 | 18.18 |
| 12 | 19 | Jason’s Deli | Dec. ’07 | 14.93 | 9.84 |
| 13 | 7 | McAlister’s Deli | Dec. ’07 | 14.80 | 24.05 |
| 14 | 51 | Max & Erma’s | Oct. ’07 | 14.29 | -8.70 |
| 15 | 13 | Beef ‘O’ Brady’s Family Sports Pub | Dec. ’07 | 12.44 | 16.11 |
| 16 | 29 | Johnny Rockets | April ’08 | 10.57 | 2.50 |
| 17 | 18 | Wyndham Hotels & Resorts | Dec. ’07 | 9.09 | 10.00 |
| 18 | 57 | Checkers | Dec. ’07 | 8.88 | -17.52 |
| 19 | 16 | Bruegger’s Bagel Bakery | Dec. ’07 | 5.83 | 10.75 |
| 20 | 23 | Westin Hotels & Resorts | Dec. ’07 | 5.00 | 5.26 |
| 21 | 56 | Johnny Carino’s Italian/Carino’s Italian Grill | June ’08 | 4.94 | -16.49 |
| 22 | 22 | Hungry Howie’s Pizza | Dec. ’07 | 4.17 | 5.35 |
| 23 | 54 | Fuddruckers | Sept. ’07 | 3.77 | -12.40 |
| 24 | 21 | Circle K | June ’08 | 3.19 | 7.56 |
| 25 | 46 | Round Table Pizza | Dec. ’07 | 3.10 | -4.05 |
| 26 | 26 | Auntie Anne’s Hand-Rolled Soft Pretzels | Dec. ’07 | 0.95 | 3.53 |
| 27 | 17 | Huddle House | April ’08 | 0.73 | 10.72 |
| 28 | 25 | Taco John’s | Dec. ’07 | 0.48 | 5.00 |
| 29 | 27 | Wienerschnitzel | Dec. ’07 | 0.28 | 3.20 |
| 30 | 55 | Benihana of Tokyo | March ’08 | 0.00 | -15.38 |
| 30 | 32 | Big Boy Restaurant & Bakery | Dec. ’07 | 0.00 | 0.83 |
| 30 | 33 | BJ’s Restaurant & Brewery/Brewhouse/Pizza & Grill | Dec. ’07 | 0.00 | 0.00 |
| 30 | 49 | Champps Americana | June ’08 | 0.00 | -7.69 |
| 30 | 42 | DoubleTree, Club & Guest Suites hotels | Dec. ’07 | 0.00 | -1.96 |
| 30 | 12 | Flying J Travel Plaza | Jan. ’08 | 0.00 | 16.67 |
| 30 | 24 | Houlihan’s | Sept. ’07 | 0.00 | 5.17 |
| 30 | 33 | Lone Star Steakhouse & Saloon | Dec. ’07 | 0.00 | 0.00 |
| 30 | 31 | Sizzler | April ’08 | 0.00 | 1.15 |
| 30 | 59 | Taco Cabana | Dec. ’07 | 0.00 | -25.00 |
| 40 | 37 | Godfather’s Pizza | May ’08 | -0.21 | -0.41 |
| 41 | 40 | Rally’s Hamburgers | Dec. ’07 | -0.71 | -1.75 |
| 42 | 38 | Village Inn | Oct. ’07 | -2.11 | -1.04 |
| 43 | 45 | Fazoli’s | March ’08 | -3.35 | -3.76 |
| 44 | 43 | Marie Callender’s Restaurant & Bakery | Dec. ’07 | -4.44 | -2.17 |
| 45 | 44 | Sonny’s Real Pit Bar-B-Q | Dec. ’07 | -4.65 | -3.01 |
| 46 | 41 | Baja Fresh Mexican Grill | Dec. ’07 | -5.19 | -1.91 |
| 47 | 53 | Western Sizzlin’ | Dec. ’07 | -5.93 | -9.23 |
| 48 | 58 | Casey’s General Stores | April ’08 | -6.67 | -21.05 |
| 49 | 20 | Shoney’s | Oct. ’07 | -6.96 | 8.49 |
| 50 | 52 | A&W All American Food | Dec. ’07 | -7.56 | -8.94 |
| 51 | 47 | Krystal | Dec. ’07 | -7.65 | -5.03 |
| 52 | 50 | Coco’s | Dec. ’07 | -9.09 | -8.33 |
| 53 | 30 | Schlotzsky’s Deli | Dec. ’07 | -9.49 | 1.93 |
| 54 | 33 | HomeTown Buffet | June ’08 | -11.11 | 0.00 |
| 55 | 39 | Au Bon Pain | Aug. ’07 | -13.33 | -1.32 |
| 56 | 2 | Bonefish Grill | Dec. ’07 | -14.29 | 75.00 |
| 57 | 28 | Chevys Fresh Mex | Dec. ’07 | -14.71 | 3.03 |
| 58 | 48 | Blimpie Subs & Salads | Dec. ’07 | -20.14 | -5.41 |
| 59 | 33 | Harrah’s | Dec. ’07 | -25.00 | 0.00 |
As fast-casual brands, those hybrids—combining casual-dining-type ambiance and menu items along with quick-service-type speed and pricing—appear to have hit a sweet spot with the consumer. Among the top five chains ranked by largest sales growth, four were fast-casual brands, led by Pei Wei Asian Diner and including Qdoba Mexican Grill.
“Fast-casual is where the industry is leading to,” said Shawn Foster, president and chief executive of Foster’s Franchise Concepts in Haymarket, Va., operator and franchisor of 22-unit Foster’s Grille. “There are parents out there wanting to feed their children quickly and at a reasonable price. With fast-casual concepts, they can get in and out for under $10 per person and not have to tip the server.”
The success of fast-casual formats, especially during harsh economic times, has made that category a target for competitors in all restaurant segments. Quick-service chains have upgraded menu items to compete with fast-casual offerings, and casual-dining chains have worked to increase speed of service and offer lower-priced entrées, especially during lunch.
“Competition is getting tougher within this segment,” said foodservice researcher Darren Tristano, executive vice president of Chicago-based Technomic Information Services. “New chains are constantly emerging. … Meanwhile, quickservice chains are trying to lure customers back by revamping their offerings and sometimes their decor to compete with fast-casual concepts. To continue competing successfully, fastcasual chains must align themselves even more closely with the needs of their target customers.”
A newcomer to the Second 100 chain universe, Wingstop, a chicken wing specialty concept, said its focus on customer needs helped drive a sales surge of 34.61 percent in fiscal 2007. This month the chain also posted its 20th consecutive quarterly same-store sales increase. Wingstop’s same-store sales rose 6.8 percent in the period, following an 8.9-percent increase in this year’s first quarter and an 11.8-percent increase in the fourth quarter of 2007.
Wingstop officials cited as sales drivers a new onlineordering system and bundled meals that include wings with such sides as potato salad, French fries or cole slaw.
“We’ve done everything we can to make ordering fast and simple,” Wingstop president and chief executive James A. Flynn said. “Also, our concept is inherently more recession-proof because of our low price points and the fast-casual counter service, which doesn’t require tipping. A large percentage of our business is take-home, and our value really stacks up against everything, including buying the groceries and cooking.”
Value has been a buzzword for years now, as restaurant brands seek to give today’s consumer a high-quality product for appetizing prices. But that goal has grown tougher this year as commodity and labor costs have continued to rise.
Among restaurant sectors that were unable to boost customer traffic in their latest fiscal years were family dining and buffet. Two of the largest parent companies in those segments have filed for bankruptcy protection: Vicorp Restaurants Inc., which operates or franchises two Second 100 chains, Bakers Square and Village Inn; and Buffets Holdings Inc., which operates or franchises two other Second 100 players, HomeTown Buffet and Old Country Buffet. Both HomeTown and Old Country qualified a year earlier as Top 100 chains, but fell to the Second 100 amid location closures and declining sales.
Despite the inherent challenges in the restaurant sector today, merger-and-acquisition activity among the second-tier chains and companies remained robust. All of the top five companies ranked by U.S. foodservice revenue growth saw their top lines rise as a result of acquisitions. The deals spanned the gamut of restaurant segments, too, from B.F. Operations Holdings’ purchase of fast-casual La Salsa Fresh Mexican Grill to DineEquity Inc.’s purchase of casual-dining giant Applebee’s to Royal Capital Corp.’s deal to buy family-dining chain Shoney’s. Royal Capital is a long-time Church’s Chicken franchisee.
While those transactions showcased strategic buyers, or restaurant operators purchasing other restaurant operators, the presence of private-equity owners among this year’s Second 100 companies remained forceful. In the latest year gauged by Second 100, 15 private-equity groups qualified for company rankings, up from 11 such outfits a year earlier.
“Private-equity firms continue to possess significant liquidity and are poised to be opportunistic in this marketplace,” according to Denver-based investment bank The Cypress Group, which focuses on middle-market franchise and multiunit restaurant deals. “Smaller middle-market transactions have been less affected by current economic and financing dynamics resulting in a more predictable deal environment for the lower middle-market.”
Indeed, newcomers to this year’s Second 100 company universe included private-equity firms GSO Capital Partners, which has since been acquired by Blackstone Group LP, and Argonne Capital Group, which through numerous transactions has become one of the largest IHOP franchisees.
Among Second 100 companies that posted the highest organic growth, or revenue growth without the aide of acquisitions, were Pot Belly Corp., Bubba Gump Shrimp Co. and Gordon Biersch Brewery Restaurant Group Inc.
Slowed overall growth spurs casual chains to test new initiatives
In-store feeders offer value bundles, branded fare to sate shoppers
Hotels utilize celebrity chefs, nostalgic dishes to grab travel dollars
Sandwich players’ latest promotions pitch value, health, loyalty
On-site players fight sales contraction by streamlining labor, ops
Mindful of outside competitors, family feeders update menus, images
Faced with cost pressures, pizza chains test new media marketing
Bakery-cafes rise in Second 100 rankings despite higher food costs
C-stores pursue sales gains with fresh, value-driven food offerings