Restaurant supply is outpacing demand, NPD finds, but operators offer ways to attract consumers
March 30, 2017
It’s one of the big questions industry experts have been asking for several years now: Are there just too many restaurants in the U.S.? New data from market research firm The NPD Group offers an answer.
“We still have — even though supply has declined — more supply than we do demand,” said NPD analyst Bonnie Riggs. “There are more seats than there are bodies to fill them.”
According to NPD ReCount, a tally of U.S. commercial restaurant locations compiled each spring and fall, the total number of U.S. restaurants decreased 2 percent from September 2015 to September 2016, to 620,807 units.
It’s the most significant drop in U.S. restaurant counts since the recession in 2008, Riggs said.
Additionally, with the decline in restaurant units, restaurant density (units per million population) is at its lowest level in the past nine years, sliding from 1,992 units per million in fall 2007 to 1,924 units per million in fall 2016, according to NPD’s Fall 2016 ReCount data.
Independent restaurants have had the most difficulty thriving in the stormy climate, NPD found. Independent restaurant units fell 4 percent, and density declined from 1,132 units per million in fall 2007 to 1,002 units per million in fall 2016.
A big reason that the demand is not there is that consumers, many of them among the industry’s heaviest users, just don’t see what’s out there as worth it, Riggs said. So it’s not necessarily that there are too many restaurants, she said, but that “we have too many restaurants providing a mediocre experience.”
The overall decline in restaurant units has definitely had an impact on restaurant traffic. In the year ended December 2016, total restaurant visits fell slightly, according to NPD’s Crest data. Visits to independent restaurants declined 2 percent, and restaurant chain visits rose 1 percent.
“Operators are just not making it compelling enough to get [consumers] out of the home and into the restaurant,” Riggs said. “Until demand meets up with the supply, we’re in for a rough ride.”
Demand generators
While restaurant supply still exceeds consumer demand, some operators have managed to create serious demand for their brand. Executives from two chains, Bruster’s Real Ice Cream and PDQ, share strategies for creating demand, growing locations and generating positive same-store sales.
Bruster’s Real Ice Cream
Four years ago, following a run of negative same-store sales and unit closures, Pittsburgh-based Bruster’s embarked on a turnaround strategy focused on stealing market share.
“We knew we had the best ice cream. We just had to improve the environment and service,” said CEO Jim Sahene. “[Creating demand] starts at the local store with quality of operations and service.”
As a result, the chain redesigned all of its interiors and outdoor seating areas, and re-trained “scoopers,” as it brand calls ice cream servers, to ensure all were consistently delivering the same positive message to customers.
Today, the more than 200-unit chain is in its 16th quarter of consecutive positive same-store sales, with the metric rising 22 percent in the first two months of 2017.
Additionally, with unit performance markedly improved, the chain has begun adding locations. Most recently, the primarily East Coast chain began expanding west, opening five locations in the Los Angeles area.
“Our strategy to go out west is based on density of population, average household income and lack of ice cream competition,” Sahene said. He noted that LA is full of frozen yogurt shops, but fewer ice cream outlets.
PDQ
Created out of a desire to enter the chicken market and do it better in terms of food quality and service, the team behind Tampa, Fla.-based PDQ, which stands for People Dedicated to Quality, believes it already has what today’s consumers demand.
“We feel like our offerings of fresh food made from scratch, and served fast to meet people's hectic lifestyle, at our price point, is spot on for what a large part of the population wants and demands," said Nick Reader, PDQ co-founder and CEO.
Consumers seem to agree, flocking to the chain, which opened in 2011, and now has more than 55 stores in eight states, for items such as fresh fried or grilled chicken tenders, freshly cut French fries, and made-to-order chicken and turkey sandwiches. PDQ opened four locations last year, and has an estimated 12 to 15 openings planned for 2017, including in four new states.
"I think the great brands are being challenged, but also thrive in this environment,” Reader said. “People want great chicken and food made from scratch, with clean labels, so the competition helps makes us better."
