If the collective sales momentum of America’s largest foodservice chains essentially stalled in their latest completed fiscal years — as chronicled in June’s Top 100 report by Nation’s Restaurant News — it should come as no surprise that their smaller rivals fared worse.
The Second 100 census data for 2010 show that, in aggregate, the chains ranked Nos. 101 through 200 based on U.S. systemwide foodservice sales in their latest fiscal years took a 3.08-percent hit to the top line. The combined domestic systemwide sales of Second 100 chains fell to $29.69 billion in the latest year from $30.63 billion in the preceding year, when that same group overcame the onset of the recession and the competition from larger rivals to achieve 0.19-percent growth.
Foodservice companies ranked Nos. 101 through 200 on the basis of latest-year U.S. foodservice revenue fared better in terms of growth than the Second 100 chains. Collectively, in their latest fiscal years, Second 100 companies generated $19.31 billion in foodservice revenue — including company-store sales, franchise sales royalties and initial franchise fees — for a 1.95-percent improvement from the preceding year when the same roster raised their aggregate revenue by 5.28 percent.
In a nutshell, Second 100 chains in their latest year were challenged not only by consumer reluctance to spend, but also by the deeper pockets for marketing and strategic initiatives enjoyed by equally desperate Top 100 chains. The Top 100 players generated on average nearly seven times more sales than the typical second-tier player.
The outcome was not pretty.
The total number of foodservice sites operated by Second 100 chains declined in the latest year by 0.09 percent, or by a net 29 restaurants, to 31,089 locations. While the number of restaurants operated by franchisors or chains that do not franchise increased by 1.44 percent, to 18,025, that growth was not enough to offset the 2.13-percent decrease in franchised units — either from failures or the sale of businesses back to franchisors — to 13,064 sites.
Second 100 chains had achieved aggregate unit growth of 1.64 percent in the preceding period.
In all, just 35 Second 100 chains achieved growth in estimated or actual latest-year systemwide sales, compared with the preceding-year total of 50.
Among Second 100 companies, 36 managed to grow actual or estimated revenue in the latest year, while four had flat results. In the preceding year, 53 registered revenue growth and one replicated the prior year’s results.
Of the 93 chains monitored for estimated sales per unit in their latest years — six contract chains and a theme park operator were excluded — 21 registered growth in that metric, versus 26 in the preceding year.
Looking at Second 100 chain segments, just nine of 23 concept categories — several cover just a single specialty chain — showed growth in aggregate segment sales in the latest year. That was down, but only slightly, from the preceding year, when just 10 segments realized sales growth.
C-stores tough opponents
In a development indicating where restaurateurs may face stronger competition in the future, the three convenience store chains that qualified for the Second 100, as a group, registered the greatest year-over-year growth in aggregate sales among segments with three or more chains. That group — Circle K, Casey’s General Stores and Sheetz — boosted average unit volumes and store counts on the way to moving up the collective top line by 8.07 percent, to $1.16 billion.
The erosion of latest-year aggregate system sales was, in large part, the result of the changing fortunes of four of the Second 100’s biggest segments: bakery-cafe, with aggregate sales of $1.61 billion from five chains; casual dining, with $9.14 billion in sales from 33 chains; contract, with $1.99 billion in sales from six chains; and sandwich, with about $5 billion in sales from 18 chains. Those four segments generated about $17.7 billion in latest-year sales, or about 60 percent of all Second 100 chain sales.
Latest-year segment sales fell by 2.38 percent for the sandwich group, which had looked recession-proof in the preceding year with 5.28-percent growth. The contract roster, which, in the preceding year, saw sales move upward by 2.17 percent, also decreased by 6.14 percent.
The bakery-cafe segment, which in recent years has been a sales growth star, notched a 4.47-percent rate of increase in the latest year. But that compared feebly with preceding-year growth of 8.11 percent.
Some of the greatest harm to the collective sales momentum of Second 100 chains in the latest year came from the massive casual-dining segment, which saw aggregate receipts drop by 4.63 percent, compared with a dip of 1.60 percent in the preceding year.
No respite for casual dining
The Second 100 casual-dining segment for much of the decade prior to 2007 had enjoyed an annual percentage growth rate typically in the mid- to high-single-digit range. Its growth reached 10.26 percent in the 2005 study. But many of the segment’s players were hampered by the recession, the rise of fast-casual chains with sit-down-restaurant-style foods at lower prices, and expanded prepared-food offerings by specialty grocers.
Only two casual-dining chains achieved a top 10 ranking in the latest year: Ruth’s Chris Steak House of Heathrow, Fla., No. 109, which backed in from the Top 100 after high-end steakhouses almost universally saw same-store sales fall by double-digit percentages in the latest year, and the BJ’s Restaurant & Brewery chain of Huntington Beach, Calif., at No. 107.
The five highest-ranking chains in order were: Ryan’s Grill Buffet & Bakery, No. 101; Captain D’s Seafood, No. 102; Einstein Bros. Bagels, No. 103; Circle K, No. 104; and Qdoba Mexican Grill, No. 105.
BJ’s realized the second-highest rate of systemwide sales growth among Second 100 chains, bumping up its preceding-year total by 13.94 percent, to $429 million, thanks to aggressive new-store development over a 24-month period.
The No. 1 ranked chain for sales growth was chicken specialist Wingstop of Richardson, Texas, which increased store counts and estimated sales per unit to push up its top line by 20.05 percent, to $306.6 million, from 448 restaurants at year-end. That and other strong sales performances by Wingstop did not go unnoticed by multiconcept owner and Second 100 company Roark Capital Group of Atlanta, which, after the close of its latest year, acquired the chain in April for an undisclosed sum from previous owner Wingstop Restaurants Inc.
Noodles & Company, the fast-casual noodle-bar chain out of Broomfield, Colo., a newcomer to the Second 100 ranks, also was among the Top 5 growth chains, with latest-year domestic systemwide sales of $227.3 million from 229 locations, up 13.31 percent from the preceding year.
Wingstop and Noodles & Company also were unit growth Top 5 chains, but the highest honors in that category were taken by another Second 100 newcomer, Yard House. The Irvine, Calif.-based chain, which features draft beers and an eclectic casual-dining menu, grew its relatively small store base by 19.05 percent, to 25 units at the end of its latest year — a meaningful improvement for a chain with estimated sales per unit of nearly $8 million.
This year’s No. 200 chain, another Second 100 newbie, was Miami-based Pollo Tropical Chicken on the Grill, which had latest-year estimated U.S. sales of $179 million from 94 restaurants.
M&A activity boosts results
Three of the companies singled out as revenue growth Top 5 organizations this year benefited from mergers or acquisitions, including No. 1, Planet Hollywood International Inc. of Orlando, Fla. Planet Hollywood enjoyed a 202.5-percent year-over-year bump in revenue, to $242 million, due in large part to its acquisition of the 86-unit Buca di Beppo casual-dining chain in the preceding year’s fourth quarter.
G&R Acquisitions Inc. of Pittsburgh grabbed the No. 4 revenue growth spot through its preceding-year acquisitions of both the Max & Erma’s and Damon’s Grill dinnerhouse chains. But G&R may be a Second 100 one-year wonder. Slowing sales and tightening credit hampered management’s plan to recoup acquisition expenses through the sell-off to franchisees of company restaurants — a complication that contributed to Chapter 11 bankruptcy filings by both Max & Erma’s and Damon’s in late 2009. A proposed reorganization plan still requiring court approval would see Max & Erma’s sold to an entity controlled by CIC II LP of Dallas and CDP Management Partners of Malibu, Calif.
Five Guys Enterprise LLC of Lorton, Va., parent of the fast-growing Top 100 Five Guys Burgers and Fries chain, itself became a Second 100 company this year and scored the No. 3 spot for revenue growth. The company’s chain more than doubled its size from 245 to 548 restaurants over the course of two years, enabling it to put together back-to-back years of revenue growth exceeding 90 percent, to bring in estimated revenue of $114 million in the latest year.
Also new among Second 100 companies this year is Fidelity Newport Holdings LLC of Denver, at No. 116, whose American Blue Ribbon Holdings LLC drove latest-year revenue of $272.1 million through the operation of the Village Inn and Bakers Square family-dining chains it acquired in its latest year.
Wynn Resorts Ltd. of Las Vegas, which goosed its latest-year estimated revenue by 29.83 percent to $309 million, jumped 22 rungs up the ranking ladder to land in the No. 102 spot. Officials credited the higher food-and-beverage sales to the first full year of operation of Encore at Wynn Las Vegas, a resort and casino with 2,034 all-suite hotel rooms and 12 food-and-beverage outlets that opened in December 2008.
Claiming king of the hill honors among Second 100 companies in the latest year, with the No. 101 ranking, was Bravo Development Holdings LLC of New York, parent of Columbus, Ohio-based casual-dining restaurant operator Bravo Brio Restaurant Group Inc., which previously was known as Bravo Development Inc. Bravo Brio recently notified the U.S. Securities & Exchange commission of its intention to make an initial public offering.
Check out Second 100 in the July 26 issue of Nation's Restaurant News. Or if you'd like to purchase to purchase the full report in PDF form, click here.
Contact Alan J. Liddle at [email protected]
