This is part of Nation’s Restaurant News’ annual Second 100 report, a proprietary census ranking restaurant brands Nos. 101-200 by U.S. systemwide sales and other data. This special report focuses on a smaller, more growth-oriented universe than the Top 100 report.
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Added sales from newly qualifying restaurant chains and improved unit-level metrics at a larger number of mid-sized and emerging foodservice brands helped drive aggregate growth in annual U.S. systemwide sales for the group deemed the Second 100.
The 2015 Nation’s Restaurant News Second 100 roster of chains ranked by U.S. systemwide sales saw its Latest Year aggregate top line rise 3.8 percent, to $24.5 billion. In the Preceding Year, growth hit 2.6 percent to a total sales tally of $23.6 billion. While the group achieved a higher year-over-year rate of growth — even with a 1.2-percent decrease in Latest Year total U.S. units — its rate of sales improvement lagged that of larger rivals.
NRN’s annual research into the Top 100 chains, published in June, found that in the Latest Year the larger brands increased aggregate U.S. systemwide sales by 4.6 percent, to $232.2 billion. That was up from 3.3-percent growth in the Preceding Year.
On average, the Second 100 universe saw sales increase by 5.6 percent in the Latest Year, compared with a Preceding Year average increase of 5.3 percent.
A greater number of Second 100 chains grew their U.S system sales in the Latest Year compared with the Preceding Year — 72 versus 62 — but the average rate of growth among the group slowed from 11.4 percent in the earlier period to 10.3 percent in the most recent. At the same time, 28 Second 100 chains saw Latest-Year sales decrease by an average of 6.4 percent, compared with the 38 chains that suffered sales erosion in the Preceding Year at an average rate of 4.8 percent.
Significantly aiding the Second 100’s growth were the eight chains appearing on the roster for the first time. They had average Latest-Year and Preceding-Year sales growth of 21.4 percent and 20.8 percent, respectively.
The first timer group consisted of highly differentiated concepts, and included three brands that recently completed initial public offerings: Brazilian-style steakhouse operator Fogo de Chão, No. 176; fast-casual Mediterranean concept Zoës Kitchen, No. 182; and better-burger player The Habit Burger Grill, No 185.
Also new this year was Pizza Ranch, which offers bone-in chicken and a dine-in buffet option along with carry-out and delivery, No. 167; Penn Station East Coast Subs, which stands out from many sandwich systems with its signature fries and beverages, No. 188; and Cafe Rio Mexican Grill, a fast-casual concept that offers items including tostadas, enchiladas and desserts, as well as standard segment fare like burritos and tacos, No. 191. The other newcomers were family-dining brand Black Bear Diner, No. 197, and fine-dining concept Mastro’s Steakhouse/Ocean Club, No 200.
For the Latest Year, Second 100 chains had average U.S. systemwide sales of $244.9 million. In comparison, Top 100 chains had average sales of $2.3 billion. That size difference in part, reflects the relative youthfulness of Second 100 brands.
“In general, growing brands, a la Zoës Kitchen, The Habit Burger Grill and Portillo’s, have the advantage of being something new, something that all diners — both the kitchen-replacement and socialization-oriented types — will respect,” said John Gordon, principal at Pacific Management Consulting Group.
Gordon added that while the newness factor is the primary marketing advantage for many mid-sized and emerging brands, the operators of those concepts “must be extraordinarily careful where they go and how they expand.”
Proof of that, he indicated, was illustrated by Noodles & Company, a highly regarded fast-casual chain that moved from the Second 100 into the Top 100 in last year’s report, but recently has seen same-store-sales challenges in its home market of Colorado tied to both its growth in locations and the rise of competitors.
Two previous Top 100 brands in the Latest Year contracted into the top two spots of the Second 100 — Friendly’s, No. 101, and Chuck E. Cheese’s, No 102 — while a third, Quiznos, dropped to No. 112.
The top five fastest-growing Second 100 chains, ranked by Latest-Year growth in U.S. system sales, booked an average growth rate of 40.7 percent. Those chains were The Habit Burger Grill, Marco’s Pizza, Zoës Kitchen, Freddy’s Frozen Custard & Steakburgers and Twin Peaks. Each of those chains also posted significant domestic unit growth, with an average Latest-Year improvement of 31.6 percent. The overall Second 100 average rate of unit growth was 2.8 percent.
New this year to the Second 100’s Top 10 brands ranked by Latest-Year U.S. systemwide sales totals were Corner Bakery Cafe, No. 105; Dickey’s Barbecue Pit, No. 106; Dave & Buster’s, No. 108; Taco John’s, No. 109; and Village Inn, No. 110.
The Second 100 remained challenged in terms of new-unit development, with just 48 chains, or less than half of the 2015 roster, adding to their store base in both the Latest and Preceding Years. The Latest Year did see 14 chains at least maintain their Preceding Year number of sites, up from six systems with flat counts a year earlier.
As a comparison, 75 chains within the Top 100 added units in both the Latest and Preceding Years.
Given its shrinking unit base, the Second 100’s growth in overall and average sales was driven by unit-level performance, as measured by NRN’s proprietary estimated sales per unit, or ESPU, metric. As a group, Second 100 chains had Latest-Year average growth in ESPU of 2.5 percent, up from 1.3 percent in the Preceding Year.
A detailed look at ESPU shows that 69 Second 100 chains increased unit-level output in the Latest Year by an average 4.8 percent, compared with the Preceding Year when 62 chains boosted ESPUs by an average of 4 percent. Thirty-one chains experienced a decrease in Latest-Year ESPU, with an average decrease of 2.9 percent, while 38 chains suffered an average 3.2-percent decrease in ESPU in the Preceding Year.
That Latest-Year ESPU expansion rate exceeded the overall industry’s average growth in same-store sales in 2014, which was about 2 percent, according to Larry Miller, founder of the MillerPulse restaurant sales-tracking survey. Should the average ESPU growth among Second 100 chains in the fiscal years now under way again outperform the industry’s same-store sales improvement, they will have had a good year, Miller said. He noted he is “pretty optimistic about the back half” of this year and is forecasting industry same-store sales “will be up 3 percent in 2015.”
“Unfortunately [that increase] will come mostly from ticket growth,” Miller said.
Looking at segment trends, the eight-chain Limited-Service Burger and six-chain Pizza segments led other Second 100 concept categories in terms of growth in Latest-Year aggregate sales. LSR/Burger booked an improvement of 10.4 percent, to $1.8 billion, and Pizza saw a 10.3-percent increase, to $1.7 billion. Those two categories also led other segments in growth in Latest-Year aggregate U.S. locations, but with Pizza taking the top spot in that measurement, with a 4.8-percent gain to 2,585 units, to LSR/Burger’s 3.9-percent increase to 2,160 restaurants.
With 40 chains in the Second 100 Casual Dining segment, it remains the 800-pound gorilla in terms of share of Latest-Year aggregate sales, with its 37.2 percent share of the Second 100 universe, or $9.1 billion of the $24.5 billion total universe. In terms of share of units, Casual Dining takes 13.7 percent of Second 100 locations, or 2,815 restaurants of the 20,491 total locations. The segment grew sales by 3.3 percent in the Latest Year, compared with the Preceding Year’s 3.4-percent increase, while seeing its unit base decrease by 0.6 percent in the latest period after progressing by 0.9 percent a year earlier.
Despite its healthy total sales growth and dominance within the Second 100, Casual Dining saw its growing share of aggregate Second 100 sales erode in the Latest Year, as several other segments grew their sales at a faster pace.
“Some traditional [quick-service] chains have pushed up [menus and ambience] into fast-casual territory, which has pushed up into casual dining,” MillerPulse’s Miller observed. “The industry’s upward movement is putting a lot of pressure on casual dining [particularly] the bottom of casual dining.”
This article has been revised to reflect the following correction:
Correction July 21, 2015: An earlier version of this article incorrectly cited Corner Bakery Cafe, Dickey’s Barbecue Pit, Dave & Buster’s, Taco John’s and Village Inn as among the Top 10 Second 100 chains ranked by growth in U.S. systemwide sales. Those chains were among the Top 10 Second 100 chains ranked by Latest-Year U.S. systemwide sales totals.
Contact Alan J. Liddle at [email protected].
Follow him on Twitter: @AJ_NRN
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