Deals shake up top 10 company ranksDeals shake up top 10 company ranks

The foodservice industry’s largest companies saw two new faces join the upper echelon in the Latest Year, as Roark Capital Group and JAB Holding Co. vaulted into the top 10.

Roark took the No. 6 spot in U.S. foodservice revenue rankings, up from No. 12 in the Preceding Year, while JAB Holding came in at No. 7, up from No. 15 a year earlier. In both cases, the gains were largely driven by acquisitions, a trend seen throughout this year’s report.

In fact, deal making — whether through Latest-Year acquisitions and mergers, or full-year revenue contributions from earlier purchases — clearly drove the gains of the top companies ranked by growth in Latest-Year U.S. revenue. 

Here’s a closer look at those deals, plus other key takeaways from NRN’s Top 100 Companies report, part of the annual NRN Top 200 data series.

Revenue growth accelerates for top companies

The 100 largest companies tracked by NRN saw their collective U.S. revenue from company operations and franchising and licensing income rise by 9.2%, to $171.3 billion, in their Latest Years. Their Preceding-Year total U.S. revenue of $156.9 billion was up 6.7% from the Prior Year.

The top 5 held a comfortable lead

The foodservice industry’s five largest companies by U.S. revenue all maintained their spots in the Latest Year. Contract feeder Compass Group PLC, as it has been for years, was No. 1 in U.S. revenue, with an estimated Latest-Year total of $15.0 billion, an increase of 9.4%. It was followed once again by Starbucks Corp., Darden Restaurants Inc., Aramark and Sodexo. And while organic growth fueled much of the incremental gains of the top four, Compass benefited in the Latest Year from its December 2017 acquisition of Boston-based Unidine Corp. Sodexo did likewise through its January 2018 acquisition of Centerplate Inc. from Olympus Partners. 

Roark and JAB break into the top 10

While the top of the list held steady, companies ranked No. 6 through No. 10 felt the heat. Roark Capital Group leapfrogged such long-standing industry names as Brinker International Inc., Bloomin’ Brands Inc. and McDonald’s Corp. as it moved up to the No. 6 spot. Roark benefited from upticks in revenue at some of its established brands, including Arby’s and Miller’s Ale House, but it was its Latest-Year purchase of the Buffalo Wild Wings casual-dining chain — and its estimated post-acquisition U.S. revenue of $1.8 billion — that most helped Roark realize year-over-year growth of 64.3%, to $5.0 billion. 

German investor JAB Holding Co.’s revenue growth of more than 77%, to $4.8 billion, was helped by its purchase of Panera LLC and its Panera Bread and Au Bon Pain banners as well as its Pret A Manger and Insomnia Cookies buys.

JAB Holding Co., which jumped eight spots to the No. 7 rank, realized most of its 77.3% Latest-Year improvement in revenue, to an estimated $4.8 billion, from the $3.2 billion full-year U.S. revenue from Panera Bread Co. and Au Bon Pain-parent Panera LLC, which it acquired in the second half of the Preceding Year. Also contributing to JAB’s Latest-Year revenue bump were sales from second-half purchases of bakery-cafe chain Pret A Manger and delivery specialist Insomnia Cookies.

Selloffs shuffle the rankings

On the flip side, Latest-Year deals also engineered declines for other companies. Olympus Partners, for example, fell out of the Latest-Year rankings as the result of two notable sales. Ranked No. 20 in Preceding-Year revenue, with estimated U.S. top line of $2.2 billion, Olympus saw a 93.5% decrease in estimated Latest-Year U.S. foodservice revenue, to $140.8 million, that caused its exit from the Top 100, as a result of the sale of Pizza Hut and Wendy’s operator NPC International to Eldridge Industries as well as Centerplate to Sodexo. NPC’s new owner, Eldridge Industries, joined the list at No. 32 with $1.4 billion in post-acquisition revenue.

Similarly, two of the companies with the greatest decreases in Latest-Year revenue — Jack in the Box Inc. and Kelso and Co. L.P., with downturns of 38.4% and 9.1%, respectively — sold chains during the year. Jack in the Box in March 2018 sold the Qdoba Mexican Eats system to an affiliate of Apollo Global Management LLC, while a Kelso affiliate sold Logan’s Roadhouse to a holding of Centerbridge Partners L.P. in November 2018. 

Flynn Restaurant Group: Big and getting bigger

Flynn Restaurant Group LLC’s nearly $2.0 billion in domestic revenue, up 8.7% in the Latest Year, earned it the No. 24 revenue ranking, up from No. 27 in the Preceding Year, and let it continue to claim the title of largest U.S. franchised-restaurant operator by revenue. And those results do not fully reflect Flynn Restaurant Group LLC’s December 2018 purchase of 368 Arby’s restaurants from United States Beef Corp., which because of the timing of the deal contributed relatively little to Flynn’s Latest-Year revenue total.

Shake Shack, Raising Cane’s lead organic growth

Among companies ranked by Latest-Year revenue growth, look to No. 12 Shake Shack Inc. as a prime example of growth through development of company or franchised locations, as opposed to through acquisitions. Shake Shack had Latest- and Preceding-Year increases in estimated U.S. revenue of 28.6% and 33.5%, respectively. There were several other companies with double-digit organic revenue growth in the Latest and Preceding Years as well, including: Raising Cane’s Restaurants LLC, The Habit Restaurants Inc., Chick-fil-A Inc., Dave & Buster’s Entertainment Inc. and Texas Roadhouse Inc.

Refranchising dents results for major QSR players

Refranchising played significant roles in the revenue shrinkage of several companies, including all five of the organizations with the greatest decreases in reported or estimated Latest-Year U.S. revenue. Those companies were Sonic Corp., McDonald’s Corp., Papa John’s International Inc., Yum! Brands Inc. and Jack in the Box Inc. All saw double-digit declines in the Latest Year. Yum is a particularly good example of the practice, as it reduced its U.S. company-store presence for all three of its brands — Taco Bell, Pizza Hut and KFC — through refranchising and some closures by a net 857 units, or 61.3%, over a two-year period.

Look past M&A swings for a nuanced picture

The 99 companies that had both Latest and Preceding Year revenue had an average Latest-Year growth rate of 16.1%. That compares with a 44.6% average from a year earlier but may not be the slowdown it appears to be. If you eliminate the extreme revenue gain and loss figures — often the result of the timing of a change in ownership or unusual circumstance, such as bankruptcy — the Latest-Year and Preceding-Year average revenue growth becomes 10.2% and 10%, respectively. In the Latest-Year, 83 companies grew their revenue, compared with 73 that did so in the Preceding Year. 

Keep an eye on these growing companies

There were a number of strong performers that don’t currently have the revenue totals to qualify for the Top 100 but nonetheless are worth keeping an eye on. In fact, 10 of these growing entities reported double-digit average annual domestic revenue growth across the Latest and Preceding Years. Those companies, their Latest-Year U.S. revenue and two-year-average revenue growth rates are:

• MOD Super-Fast Pizza Holdings LLC, $311.8 million, 69.9%.
• Garnett Station Partners (Burger King, Popeyes Louisiana Kitchen), $294.0 million, 78.1%.
• Cooper’s Hawk Intermediate Holding LLC, $282.3 million, 26.1%.
• Front Burner Restaurants L.P. (Twin Peaks, other brands), $259.3 million, 27.5%.
• American Franchise Capital (Applebee’s, Taco Bell), $215.2 million, 20.9%.
• Carlisle Corp. (Wendy’s), $205.1 million, 19.1%.
• JGD Management/York Capital Management (Houlihan’s, other brands), $164.3 million, 23.5%.
• Southern Rock Restaurants LLC (McAlister’s Deli), $135.8 million, 21.0%.
• Black Bear Diners Inc., $116.6 million, 38.9%
• Good Times Restaurants Inc. (Good Times, Bad Daddy’s Burger Bar), $99.2 million, 27.0%.

Contact Alan J. Liddle at [email protected]

Follow him on Twitter: @AJ_NRN