Data

• U.S. chain systemwide sales
• U.S. units

Foodservice chains in the 2013 Nation’s Restaurant News Second 100 saw aggregate U.S. systemwide sales and store counts grow significantly in their latest completed fiscal years, but could not match the pace of improvement set by larger Top 100 rivals.

Squeezed by both bigger and smaller competitors, the chains ranked Nos. 101 through 200 in the second leg of NRN’s annual Top 200 census had aggregate Latest-Year domestic system sales of $22.7 billion. That total represented a 2.9-percent increase from the roster’s sales tally for the Preceding Year, which had risen about 2 percent compared with the Prior Year.

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SECOND 100

Analysis:

• Editor's letter
• 10 newcomers
• Market share trends
• Unit-level trends
• Company analysis
• Limited-Service segment
• Casual-Dining segment
• LSR/Specialty segment
• Pizza segment
• Family-Dining segment
• Beverage-Snack segment
• Bakery-Cafe segment

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In comparison, the Top 100 chains chronicled in the June 24 issue of NRN and online at NRN.com, with aggregate system sales of $213.7 billion, realized Latest-Year sales growth of 5.3 percent and Preceding-Year improvement of 4.6 percent.

Second 100 chains, by virtue of their size, faced unrelenting pressure from above — Top 100 chains had average Latest-Year system sales of $2.1 billion versus the Second 100’s average of $226.5 million — and below, as well as continuing challenges from the crawling economic recovery.

“The [sales] pie, overall, is really the same size or maybe even a little smaller, so even though we’ve been seeing some better macroeconomic data, they really are not translating into a big rebound for restaurant sales,” noted Andrew Barish, managing director and senior equity research analyst at Jefferies & Co. Inc.

“You have large advertising budgets and promotional calendars and innovation from the big guys, and then you have some of the smaller chains outside the Second 100 that are growing in various categories, like fast casual, and that points to a maturing industry with market share battles,” he said. “Some of the Second 100 chains will grow their way out of it, and others will innovate to compete, but some will get stuck in the middle of those scissors.”

Consumers who continue to be spending sensitive also fuel the market share rumbles, said Malcolm Knapp, president of Malcolm M. Knapp Inc., which produces the Knapp-Track report of business trends in casual dining.

He pointed to hourly wage earners — a “fairly big chunk of the economy” — who are being forced to prioritize their monthly spending as slowly rising incomes are challenged by rising or fluctuating costs of such essential expenditures as rents, utilities, health insurance premiums, gasoline and “must-have” items such as smartphones.

“It really does explain why we have a kind of volatility” in restaurant spending, Knapp said.

Growth metrics

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Among 2013 Second 100 chains, the average rate of growth in U.S. systemwide sales fell slightly to 4.1 percent in the Latest Year from 4.2 percent in the Preceding Year. Within the roster, 69 chains showed growth in Latest-Year system sales, one was flat, and 30 suffered erosion, while in the Preceding Year 72 grew sales, one was flat, and 27 had declining estimated or reported top lines.

Of the 69 Second 100 chains that grew sales in the Latest Year, the average rate of growth was 9.3 percent, versus an average growth rate of 8.4 percent among the 72 chains that boosted sales in the Preceding Year.

Data

• U.S. franchise unit growth
• U.S. unit growth rates

On an aggregate net-domestic-units basis, Second 100 chains managed 1.8-percent growth in the Latest Year to 19,194 total locations, which compares to the Preceding Year’s growth of 0.2 percent. The base of company-operated restaurants increased by 0.8 percent in the Latest Year to 8,981 sites after two years of declining counts, while the rate of growth in total franchised outlets was a more robust 2.7 percent, with Second 100 chains ending the Latest Year with 10,213 franchised stores. That compares to franchise store growth of 1.2 percent in the Preceding Year.

The average rate of net new store growth among all Second 100 chains in the Latest Year was 2.5 percent, versus 1.6 percent in the Preceding Year. Among the 46 chains that grew their net domestic store counts in the Latest Year, the average rate of growth was 10.9 percent, which compares to the Preceding Year’s average improvement of 6.7 percent among 38 growth chains.

But such improving rates of growth can’t hide the fact that more than half of the Second 100 chains had flat or declining net store counts in both the Latest and Preceding years.

Among Top 100 chains in the Latest Year, 72 added locations, three had flat store counts, and 25 experienced net declines, ending the period up 1.9 percent over the Preceding Year in aggregate units to 184,595 U.S. sites, or nearly 10 times the Second 100’s base of domestic outlets.

Data

• Estimated sales per unit
• Growth in estimated sales
per unit

“It is much tougher to get real estate [these days], and the big guys have better credit ratings when dealing with developers, more personnel, site-selection models with years of refinements and networks of brokers,” consultant Knapp said of the advantages large chains have over smaller competitors in finding and securing good locations. “And they have the cash to act.”

The good news for Second 100 chains is that even if they must battle larger chains for locations, the number or quality of such sites appears to be on the rise.

“Malls are being redone even if there are not a lot of big, brand-new centers coming out of the ground, and there is certainly more refurbishment of older real estate than we saw in the recession,” Barish of Jefferies & Co. said.

Such mall revitalization projects are benefiting Second 100 chains, including Buca di Beppo, the Italian casual-dining chain that increased its net domestic unit count by seven, or 8.1 percent, to 93 locations in its Latest Year. Most of those net new locations resulted from a deal between Buca di Beppo and General Growth Properties Inc. to open restaurants in 10 GGP-portfolio malls.

When it came to the average estimated sales per unit, or ESPU, across all 100 qualifying chains, the Second 100, with a Latest-Year average of $2.4 million, clearly outperformed the Top 100 and its $1.9 million average. Much of the difference resulted from the Second 100 having a combined total of 48 full-service chains with an average ESPU of $3.7 million, compared to the Top 100’s 35 full-service chains with an average ESPU of $3.2 million.

As a group, Second 100 chains saw their average rate of growth in ESPU slow to 2.2 percent in the Latest Year from 3.1 percent in the Preceding Year. The average rate of growth among the 78 chains that increased their ESPU in the Latest Year, 4.1 percent, represented a retreat from  the Preceding-Year average boost of 4.7 percent among 80 growth chains.

Data

• Segment market share

The Second 100’s top chain ranked by Latest-Year U.S. systemwide sales, No. 101 Round Table Pizza with $363 million in sales, rebounded with higher ESPU following a Preceding-Year bankruptcy and reorganization that ultimately saw it close or sell to franchisees about one-third of the restaurants previously operated by parent Round Table Franchise Corp.

Runner-up Noodles & Company jumped 12 spots up the roster to No. 102 by increasing Latest-Year sales 19.7 percent compared with the Preceding Year to $355.5 million. It achieved that increase through a combination of 5.6-percent growth in ESPU and 15.1 percent more year-end locations.

The top five Second 100 chains ranked by growth in Latest-Year U.S. systemwide sales — Dickey’s Barbecue Pit, Smashburger, Marco’s Pizza, Chuy’s and Raising Cane’s Chicken Fingers — had an average growth rate of 38.4 percent.

On average, Dickey’s, Seasons 52, Smashburger, Bar Louie and Quaker Steak & Lube — the Second 100’s top five chains ranked by Latest-Year growth in net new U.S. units — increased their domestic system store bases by 38 percent.

By the numbers

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Alan J. Liddle, managing editor of special projects, is senior data analyst and database manager for the NRN market data products.

Contact Alan J. Liddle at [email protected].
Follow him on Twitter: @AJ_NRN.