This is part of Nation’s Restaurant News’ annual Top 100 report, a proprietary census ranking the foodservice industry’s largest restaurant chains and companies by sales and unit data, among other metrics.
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New store development picked up, but average gains in unit-level performance declined, causing America’s largest restaurant brands to experience slower collective growth in systemwide sales in the Latest Year, Nation’s Restaurant News Top 100 research found.
The 2014 NRN Top 100 tallied aggregate sales of $222.1 billion, representing a 3.2-percent increase compared with Preceding-Year sales, which had increased 5.6 percent to $215.2 billion. This NRN Top 100 benchmarking report, now in its 41st year, ranks chains by reported or estimated U.S. systemwide foodservice sales for fiscal years ended closest to December 2013, or the Latest Year. (See FAQs and Explanation of Terms.)
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Analysis:
• Editor's Letter
• Infographic: Top 100 universe at a glance
• Top 10 growth chains
• Market share trends
• Unit-level trends
• Company analysis
• Limited Service segment
• Casual segment
• Chicken segment
• Pizza segment
• Family segment
• Beverage-Snack segment
• 5 facts about chain sales growth
• 5 facts about chain unit growth
The two-plus-point retreat in Latest-Year aggregate sales growth reflects the challenges restaurants faced in 2013.
“The beginning of the year was OK, but June, July, August and September had negative [comparable sales],” said Malcolm M. Knapp, president of Malcolm M. Knapp Inc. Knapp’s comments were specific to 2013 same-store sales for the Casual-Dining segment, but he said these factors affected all other segments as well.
“October was slightly positive, but then November, adjusted for [a later] Thanksgiving, and December were negative, so we had a pretty poor last half last year,” Knapp said.
He added that one of the major business thwarters in 2013 was “Congress going haywire and ultimately shutting down government for 19 days.”
“It created enormous uncertainty and upset a lot of people,” he explained. “We had an [economic] slowdown, and what happened was reflected in restaurant sales in virtually all categories.”
While Top 100 chains as a group were challenged to maintain the pace of sales growth, they built on earlier momentum in new store development to achieve their highest rate of growth in total units since before the recession. A total of 74 chains in the Top 100 increased unit counts in the Latest Year, compared with 72 in the Preceding Year.
Top 100 chains added a net 4,259 new locations in the Latest Year, bringing their collective unit count to 188,817 for year-over-year growth of 2.3 percent. This represents the best collective performance since the 2008 Top 100 roster — primarily reflecting calendar 2007 efforts — bumped its domestic locations base by 2.2 percent.
Overall, Top 100 chains had average growth in U.S. units in the Latest and Preceding years of 3.07 percent and 3.13 percent, respectively.
• Estimated Sales Per Unit
• Growth in Estimated Sales Per Unit
However, in terms of unit-level sales output, as measured by NRN’s proprietary estimated sales per unit, or ESPU, metric, Top 100 chains had average improvement of 1.1 percent, versus the Preceding Year’s average increase of 3.7 percent.
Though NRN’s ESPU measurement is not perfectly equivalent to same-store sales numbers reported by many companies, some factors that influence same-store sales impact ESPU as well, including guest traffic trends.
The restaurant industry “suffered through its third consecutive year of deteriorating same-store traffic growth” in 2013, said Victor Fernandez, executive director of insights and knowledge for TDn2K. TDn2K is the parent company of Black Box Intelligence, a financial performance benchmarking company that provides insights on sales and traffic data from more than 100 restaurant brands covering more than 180 marketing areas and 18,000 restaurant locations.
The industry’s negative traffic trends continued into the first four months of 2014, according to Black Box and other research and benchmarking groups, including the NRN-MillerPulse survey that showed six consecutive months of declining guest traffic through April.
If there is good news in recent restaurant trends, MillerPulse founder Larry Miller told NRN, it is that operator survey respondents indicated that customers are spending more when they do go out, adding to their check averages with more soft drink, alcohol, appetizer and dessert purchases.
“This shows consumers are feeling better about their financial situation and the U.S. economy, but growth in average check is less healthy than growth in traffic,” Miller noted.
Knapp suggested the chains that outperform rivals are those that manage overall traffic levels and also work to understand the consumer groups they should be targeting.
“About 33 percent of households, or those with $70,000-plus incomes, spent 57.5 percent of all dollars spent personally on meals away from home in 2012 — those are U.S. Bureau of Labor Statistics numbers,” Knapp said. “If you are not getting a piece of that group, you’re missing more than half of the market.” Concepts that do not appeal to higher-income consumers may be leaving potential sales on the table as a result.
Top 100 chains have not been immune to traffic challenges, despite their size and marketing muscle.
• U.S. Chain Systemwide Sales
• U.S. Company Foodservice Revenue
• Segment Market Share
McDonald’s, the Top 100 No. 1-ranked chain by domestic systemwide sales, saw that number expand just 0.7 percent in the Latest Year, to $35.9 billion, marking the smallest increase in at least three decades. That stunted growth came as comparable guest counts dropped into negative territory after two years of shrinking year-over-year increases.
The mega chain’s inability to fully counter the 1.6-percent reduction in U.S. comparable guest counts in 2013 through price increases or menu and marketing strategies resulted in a 0.2-percent decrease in full-year domestic same-store sales. In 2012 same-store sales rose 3.3 percent. McDonald’s last experienced full-year erosion in its U.S. comparable sales in 2002, when they contracted by 1.5 percent amid the consumer and economic uncertainty that followed the events of Sept. 11, 2001.
In response to its latest traffic and same-store sales challenges, the Oak Brook, Ill.-based chain has embarked on a reset. McDonald’s officials said this effort involves new staffing practices; the rollout of High Density Kitchen equipment to improve operations; new marketing for breakfast and core offerings; and a continued effort to balance the menu among value platforms, core menu items and premium products.
Concept differentiation can help win the battle for share of stomach that is being fought most intensely in mature segments. Top 100 newcomer Noodles & Company was among the chains to claim bragging rights in the Latest-Year performance. The LSR/Noodle concept said its 3-percent same-store sales growth resulted from “both increases in per-person spend and traffic.”
Top 100 chains grew their Latest-Year domestic systemwide sales by an average of 4.3 percent, compared with an average of 6.8 percent in the year-earlier period. However, underlying such full-universe averages are the more specific findings that in the Latest Year, 77 chains generated higher sales, with 6.8-percent average growth, while one chain had flat sales, and 22 lost sales at an average clip of 4.4 percent. This compares to the Preceding Year, when 86 chains grew their U.S. systemwide sales by an average of 8.8 percent, while 14 chains had lower sales, with the decrease averaging 5.7 percent.
The top five sales growth leaders in the Latest Year — Top 100 newcomers Jersey Mike’s Subs and Yard House, along with veterans Wingstop, Chipotle Mexican Grill and Casey’s General Stores — had average growth of 18.9 percent. The quintet had average growth in U.S. units of 13.2 percent and averaged 6-percent improvement in ESPU.
Jersey Mike’s and Yard House also were among the top five chains in unit growth, which averaged 19.6 percent in Latest-Year restaurant expansion. The other three brands contributing to that average were Firehouse Subs, Cheddar’s and Noodles & Company.
• U.S. Franchise Unit Growth
• U.S. Units
• U.S. Unit Growth Rates
Top 100 chains have long depended on their franchisees to shoulder much of the responsibility for system growth, and the Latest Year, when 82 of the chains franchised their concepts to others, was no exception. A total of 80.2 percent of the net new units added were opened by franchisees. As a group, in the Latest Year, Top 100 chain franchisees grew their unit base by 2.5 percent, or a net 3,417 units, to 142,440 locations. They added 2.9 percent more sites in the Preceding Year.
Subway, 7-Eleven, Dunkin’ Donuts, Jimmy John’s Gourmet Sandwiches and Little Caesars Pizza led the pack in terms of the number of net new franchised units opened. Collectively, these top five opened a net 1,968 U.S. franchised locations, or 45.9 percent of the 4,284 net new franchised restaurants opened by the 50 chains that grew their franchised-store base during the Latest Year.
The top five chains in terms of the greatest number of net new company-operated locations added in the Latest Year were 7-Eleven, Starbucks Coffee, Chipotle, Five Guys Burgers and Fries, and Panera Bread. Combined, they opened a net 890 domestic units, or 55.7 percent of the total net 1,597 company sites added during the period by the 57 chains that expanded their corporate-store footprint.
7-Eleven alone added a net 404 company stores in its Latest Year, bumping up its base of corporate locations by 43.9 percent in what may be a glimpse of expansion to come. Toshifumi Suzuki, chief executive of the C-Store chain’s parent Seven & i Holdings Co. Ltd. of Tokyo, told Bloomberg News last year that 7-Eleven’s North American market, which had about 8,300 locations at the end of fiscal 2013, ultimately might host close to 30,000 of the brand’s outlets.
Overall, Top 100 chains grew their United States company-store base by 1.9 percent in the Latest Year, to 46,377 total locations, ending a multiyear string of declining numbers that began with the class of 2009. This positive development was due in part to the completion of or significant slowdown in several major refranchising initiatives, including those of Applebee’s Neighborhood Grill & Bar, Burger King and Jack in the Box.
• Growth in Company Foodservice Revenue
• Growth in Chain Systemwide Sales
Among this year’s most notable ranking jumps within the systemwide sales top 20 was Chipotle, which leapfrogged Dairy Queen, Arby’s, Little Caesars and Jack in the Box to climb from No. 21 to No. 17 in the Latest Year. The burrito chain boasted a 17.3-percent increase in systemwide sales, to $3.2 billion, fueled by a 12.5-percent increase in the number of U.S. units and a 3.6-percent jump in ESPU.
The U.S. restaurant industry experience in 2014 that will largely determine the performance of the next Top 100 group is shaping up to be similar to that of 2013, though the timing of the ebbs and flows are reversed, Knapp indicated.
Because of extreme weather and natural disasters in some regions, among other factors, “the first half of the year was not particularly good,” he said. “The second half will be better because we’re starting to see some economic indicators going up,” such as those related to jobs growth and consumer confidence, he said.
“We don’t have the income growth yet, except in spot markets, so we’re certainly not in takeoff mode,” Knapp said. “The good news is we’re growing. The bad news is that we’re growing slowly.”
Contact Alan J. Liddle at [email protected].
Follow him on Twitter: @AJ_NRN.
