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Established restaurant brands are fiercely competing with new concepts for market share while ingredient costs are rising, according to the 24th edition of the Chain Restaurant Industry Review, published by GE Capital. And although diners are spending more during each visit, consumer traffic declined over the past year. Despite these challenges, the overall health of the restaurant industry remains strong.
Nominal restaurant sales rose 3.1 percent to $440.2 billion in 2013. Moreover, sales are expected to continue this upward trend, with an increase of 3.6 percent anticipated in 2014. Same store sales decreased 0.1 percent, but the average amount of each visitor’s check increased 2.6 percent.
“Overall restaurant trends are improving, but we know the competitive environment is heating up and the U.S. economic situation is still challenging for some pockets of the population,” says Kimberly Savilonis, senior vice president of strategic marketing. “However, we recognize that there are strong operators who work hard every day to grow their businesses, and we’re pleased to continue building long-standing relationships with the middle market.”
The Chain Restaurant Industry Review includes GE Capital’s analysis of the top 100 chains in the U.S. At $218 billion, their system-wide sales represent 49.5 percent of all restaurant sales. In general, chain restaurants accounted for 44.5 percent of total U.S. restaurants—or 633,043 units—in 2013.
Sales among those on the list grew 3.5 percent year-over-year, outperforming the overall restaurant industry. Quick-service restaurants grew faster than full-service restaurants, continuing the trend seen over the past six years.
There are two new additions to the list this year—Jersey Mike’s and Taco John’s.
To generate the Chain Restaurant Industry Review, GE Capital evaluated trends and analyzed the current state of the U.S. restaurant industry using multiple tools, including more than 25,000 individual unit-level financial statements as well as the SmartChart tool, its digital solution for financial analytics and site selection targeted at middle market operators.
The top quartile of GE Capital, Franchise Finance’s quick-serve customers has an EBITDAR (earnings before interest, taxation, depreciation, amortization, and rent) margin of 17.5 percent of sales, while the bottom quartile has an EBITDAR margin of 12.6 percent of sales. If operators in the bottom quartile reached average performance, they would profit, on average, an additional $22,000 per store (assuming $1 million of sales per store). If the same operators in the bottom quartile reached top performance, they would profit, on average, an additional $49,000 per store (again assuming $1 million of sales per store).
The SmartChart tool also shows that the chicken segment continues to have the highest cost of goods sold (COGS), comparatively, although both COGS and labor costs are down for the overall chicken segment.
Meanwhile, the full-service segment has seen steadily increasing COGS for four years, and labor costs are higher than they have been in four years.