There’s Always Room for Another Great Restaurant

    We can root for each other’s success because there’s plenty of market share to go around.

    Outside Insights | February 5, 2021 | Don Fox
    Firehouse Subs CEO Don Fox.
    Firehouse Subs
    In any trade area, there is the opportunity for the next great restaurant to succeed.

    Congratulations to the 40 emerging brands recognized by QSR on this month’s 40/40 List! May the accolade be a harbinger of continued growth and success for each one—even the restaurants that sell sandwiches.

    Some might consider it odd that I root for my rivals. My license for the encouragement of their endeavors is derived from a fundamental truth: the success of one restaurant does not necessarily spur the demise of another. There is always room for another great restaurant, and this is a facet of our business that is rare among other industries.

    You see, the optimist in me has long believed that our industry doesn’t have to be a zero-sum game. If we did a collective job of offering a great experience with a solid value proposition, we could expand our piece of the pie that is the population’s total caloric intake. If we look at the marketplace at the most basic level, that is what we are competing for: a share of the calories consumed each day. For the average American, that’s 3,600 calories.

    Is there some invisible barrier that prevents the restaurant industry from increasing its share of the caloric pie? One would think not. I can assure you that the grocery and convenience-store industries don’t look at it that way. They are relentless in their effort to claw back sales lost to the restaurant industry over the course of many decades. 

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    Look at the history of eating from the perspective of grocers. According to the USDA, in 1960, Americans spent 17 percent of their disposable income on food, with just shy of 14 percent going toward food at home and slightly over 3 percent on food away from home. Expressed another way, four out of every five dollars were spent on food at home.      

    Fast-forward to 2019. Disposable income spent on food was 9.5 percent, divided nearly equally between food at home and away from home (4.9 percent and 4.6 percent, respectively). Over the course of six decades, the reduction in share of the consumer wallet came entirely at the expense of food at home, or food purchased from grocers. Meanwhile, spending on food away from home has remained consistent, hovering between 4–4.6 percent since 1980. And while restaurants earned nearly half of the food dollars in 2019, we delivered only 21 percent of the calories consumed by Americans (according to a pre-pandemic study conducted by Tuft University).

    Despite 79 percent of America’s caloric intake being available for the taking, there was a common sentiment before the pandemic that the restaurant industry was too saturated. Underpinning that belief was the fact that consumer spending was locked in that 4–4.6 percent range. Indeed, it seemed that increases or decreases in consumer spending on restaurants had become glacial in nature, while the addition of new eateries continued, year after year, well beyond the breathing room created by increases in population. If one viewed the development of new restaurants as a threat to the overall health of the industry, then we were guilty of self-inflicted wounds.

    Herein resides the unique nature of the restaurant industry. In any trade area, there is the opportunity for the next great restaurant to succeed.

    Unlike most industries, the restaurant consumer doesn’t commit themselves to a single brand or product. They are promiscuous. They are curious. They cherish having a variety of choices that meet the different need states they encounter day to day and during different stages of their lives. Even our most loyal guests may have love affairs with other restaurants. And that is perfectly OK. It serves as a reminder that my success does not mean the failure of one of my rivals—although it can accelerate their demise, for while there is always room for another great restaurant, the space available for an irrelevant restaurant is shrinking. The more restaurants there are, the smaller the window for irrelevance or mediocrity. If you feel your business is threatened, it is not your competition that will be your undoing. The enemy is within.

    So to QSR’s 40/40 I say, welcome to the neighborhood!

    But wait. Had I written this piece prior to COVID-19, I would have ended on that congratulatory note. As we approach the one-year anniversary of the pandemic, there has been an unraveling of two of the fundamental dynamics that have forged our industry: the overall number of restaurants and the share of consumer spending dedicated toward food away from home.

    Due to the pandemic, consumer spending at restaurants has plummeted. This, in turn, had a decisive impact on the number of restaurants. Precise data is hard to come by, but a universe of more than 700,000 restaurants in the U.S. has receded by the tens of thousands, either temporarily or permanently. Many operators in the casual-dining arena tried to hang on until the holidays, which is normally a period of favorable sales. Unfortunately, events conspired against many of them, taking away the opportunity to generate positive cash flow that could sustain them through the early weeks of the new year, which are traditionally the lowest volume. I dare say that, by the time this article goes live, restaurant closures will likely not have bottomed out.

    Yet today, the opportunity for another great restaurant remains. Consumer spending on food away from home is on the rise, and it stands to reason that it will eventually return to pre-pandemic levels in the 4–4.6 percent range. It is my belief that consumers will return to restaurants faster than restaurants will return to consumers. For concepts that are relevant, operate at a high level, and offer a great value proposition, there is opportunity for unit growth as well as strong comparable sales.

    During the years to come, the 40 emerging brands we celebrate today will rise or fall based on how well they check off those boxes. I wish them all the best in their effort to add more great restaurants to our industry. Their success will serve as a catalyst for other brands to become even better.

    Don Fox is Chief Executive Officer of Firehouse of America, LLC, in which he leads the strategic growth of Firehouse Subs, one of America’s leading fast casual restaurant brands. Under his leadership, the brand has grown to more than 1,190 restaurants in 46 states, Puerto Rico, Canada, and non-traditional locations. Don sits on various boards of influence in the business and non-profit communities, and is a respected speaker, commentator and published author. In 2013, he received the prestigious Silver Plate Award from the International Food Manufacturers Association (IFMA).