Top Growth Chains: Who They Are and Why They Succeed
Each year when we compile our Technomic Top 500 Chain Restaurant Report, we look for surprises and anomalies. The truth is, after watching the industry all year, we find very few. The reasons why a concept succeeds or doesn’t are always the same. All that changes is the environment in which it operates. In this small space, I will outline the consistent success drivers and frame them within today’s environment.
The basic elements I use to evaluate a concept’s viability or strength are:
• Menu—range of items, ability to customize, dayparts served, limited-time offers customization, broad menu range, day parts served, table top promotion
• Price—value for the money, bundling/combo meals, portion size
• Service format—counter ordering, table service, drive-thru, staff interaction
• Atmosphere—décor, ambiance, family friendly, contemporary feel
• Unique elements—use of technology, entertainment, self-service elements
Beyond these basics, it’s important to look at segment performance as well. Take the steakhouse segment. In 2010, the segment’s sales grew by 1.0%, bouncing back from a dismal 2009, when sales decreased by 10.1%. Unit-wise, the segment declined by 1.6% in 2010 over 2009, after 3.6% decrease the prior year. Within the overall group, however, some concepts are adding restaurants and increasing sales. LongHorn Steakhouse saw sales increase by 5.3%, to $921 million, and units increase by 5.0%, to 340; and Texas Roadhouse lifted units by 4.2%, to 345, and sales by 6.3% to $1.26 billion. The steakhouse category has witnessed declining demand, but these concepts are outpacing the segment and the industry as a whole.
In addition, comparing category leaders with the smaller regional upstarts is important to evaluate the shift in share when overall growth is limited. For example, we watched as limited-service Mexican grill chains, especially Chipotle, have raced to compete with Taco Bell. Papa Murphy’s Take ‘N’ Bake Pizza has been expanding as Pizza Hut and Domino’s have closed underperforming restaurants. The chicken segment, as well as its leaders such as KFC, Popeyes Louisiana Kitchen and Church’s Chicken, are witnessing sales and unit growth that is modest at best, and declining in some instances. Nonetheless, Chick-fil-A has been able to steal share, increasing sales by 11.4% and unit counts by 3.2%, on top of increases of 8.5% in sales and 4.6% in units the prior year. Wingstop, a chicken wing specialist, has grown its sales by 8.9% and unit count by 9.0%.
On the other hand, in the limited-service hamburger segment, giant McDonald’s not only drives the category by contributing almost half (49.5%) of the segment’s $65.4 billion in sales and 29.2% of the segment’s 48,025 units, the burger chain’s 4.4% increase in sales was greater than the 1.6% increase in the segment’s sales and its 0.3% increase in units was more than the segment’s 0.21% increase. In fact, if one were to remove McDonald’s from the segment, the segment’s sales would actually decline by 1.1% in 2010 over 2009, and its unit increase would be 0.16%. But as with the steakhouse segment, there are plenty of burger concepts (Five Guys Burgers and Fries, Smashburger, Fatburger) outpacing the segment’s growth, and another batch of them (Shake Shack, Mooyah Burgers & Fries, Freddy’s Frozen Custard & Steakburgers) gearing up to join the ranks of the Top 500 chains.
Combining the basic elements of a concept with its relative position within its segment, we get a pretty good sense of whether it will succeed. As I mentioned above, there are consistent methods that drive growth that are less dependent on operating environment. We can narrow down the effective means to success with an acronym: IDEA. Innovation, Differentiation, Evolution, Adaption.
Innovation depends on improving existing menu offerings and the quality of service. For example, menu developers that offer compelling limited-time offerings give customers a new reason to visit the restaurant. A current focus is on balancing “healthy” with “indulgent,” sometimes within the same product (such as “skinny” versions of classic cocktails or lowfat tart frozen yogurt smothered with fresh seasonal fruit), but more often side-by-side on the menu, such as the new Turkey Burgers at Carl’s Jr., which has long been unashamed of its decadent fare for “young hungry guys.”
Service is another way successful concepts improve their brands. Even quick-service concepts work on improving staff interaction, such as Chick-fil-A’s recent effort to train servers to tell customers “It’s my pleasure!” A number of quick-service chains have taken a page from fast-casual and instituted limited service in the dining room, running orders to guests, offering to refill beverages and busing tables. Within full-service, successful concepts encourage waitstaff to offer suggestions—based on customer input, not on margins.
Differentiation, distinguishing a brand’s core offerings from the competition, is key to any business but certainly within the competitive restaurant industry. It creates clarity with customers and defines for them when and how to use your product. Compare Buffalo Wild Wings and Yard House. At first glance, there are similarities: both are casual-dining restaurants with tasty food, sports on TV and a large adult-beverage business. Dig just a bit deeper, and see Buffalo Wild Wings’ family-friendly atmosphere, takeout option and value position. Yard House differentiates itself with an offering of several craft beers, classic rock music and a more upscale menu.
Evolution is about enhancing the experience, understanding the core customers and improving the offering to suit them. Jimmy John’s focuses on getting a good quality sandwich to the guest as quickly as possible: “subs so fast you’ll freak.” Its unit design, assembly method and small menu all serve that goal. Unsatisfied with those efforts, it began offering delivery in many markets with a small minimum order and the ability to save your details for a faster order next time, and a smart-phone app.
Adaptation is simply meeting today’s changing consumer demands. For example, consumers are less likely to eat according to a three-square-meals schedule. They nosh, skip meals, eat breakfast for dinner and vice versa. This has driven Wendy’s, McDonald’s and others to keep drive-thrus open all night and Subway to open for breakfast, when it sells just as many subs as breakfast sandwiches. The same consumer trend is the reason that chains from Burger King to Qdoba Mexican Grill to Morton’s the Steakhouse offer snacks, small plates and shareable dishes. Offering menus beyond traditional dayparts offers the added benefit of creating revenue at off-peak times.
Takeout is another area where successful concepts have adapted, from quick-serves making drive-thru systems faster (such as McDonald’s double lanes) to casual-dining restaurants dedicating more space for to-go and using runners so customers don’t even have to get out of their cars.
Forward-thinking chains are examining ways to enhance their emotional connection with the customer, an increasingly important strategy to build and maintain loyalty and frequency of visits. Consumers are increasingly concerned about how the companies they do business with are involved in their community, respectful of their employees and active in protecting the environment. Restaurant operators are responding by purchasing locally where they can, demanding sustainable ingredients, using greener products and practices, and getting more involved in the markets in which they operate.
We’ve found that, regardless of economic environment, operating segment or style, concepts that innovate, differentiate, evolve and adapt are those that are most likely to succeed and land at the top of our growth-chains ranking.
Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.
Table: Top 5 Growth Chains in Each Segment (sales over $200 million)
Caption: Growth in today’s environment can be quantified more accurately by reviewing unit growth rather than sales growth. This table outlines the top five concepts with sales greater than $200 million in casual dining, fast casual and quick service. The table reveals that there is no sure thing, no category or segment that is successful. Some of the chains are large national players while others are comparatively quite small. What they have in common are the attention to innovation, differentiation, evolution and adaptation outlined on this page.
Sales ($000) Units
Company name 2010 2009 % change 2010 2009 % change
Yard House 216,000 * 183,000 18.0 29 25 16.0
Cheddar’s Casual Café 309,000 * 270,000 * 14.4 92 80 15.0
Buffalo Wild Wings Grill & Bar 1,703,032 1,496,200 13.8 732 652 12.3
The Capital Grille 253,000 228,000 11.0 44 40 10.0
BJ’s Restaurant & Brewhouse 513,860 429,700 19.6 102 93 9.7
Five Guys Burgers and Fries 625,000 * 453,500 * 37.8 737 547 34.7
Chipotle Mexican Grill 1,831,922 1,517,417 20.7 1,084 955 13.5
Noodles & Company 261,000 230,000 13.5 255 229 11.4
Einstein Bros. Bagels 400,357 * 378,444 * 5.8 583 532 9.6
Wingstop 334,000 306,606 8.9 472 433 9.0
Jimmy John’s Gourmet Sandwich Shop 735,000 * 602,000 * 22.1 1,135 950 * 19.5
Firehouse Subs 235,000 206,000 14.1 401 371 8.1
Tim Hortons 443,227 414,882 6.8 602 563 6.9
Papa Murphy’s Take ‘N’ Bake Pizza 655,000 * 630,000 4.0 1,239 1,165 6.4
Dunkin’ Donuts 5,620,000 * 5,295,000 * 6.1 6,900 * 6,500 * 6.2
Source: 2011 Technomic Top 500 Chain Restaurant Report; *Technomic estimate