Established restaurant brands are fiercely competing with new concepts for market share while ingredient costs are rising, said GE Capital, Franchise Finance. 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, according to the 24th edition of the Chain Restaurant Industry Review, published by GE Capital.
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%.
“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,” said 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.”
Top 100 U.S. Chains
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% 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 (QSRs) grew faster than full service restaurants (FSRs), 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.
SmartChart™ Tool Analyzes Restaurant Performance
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 QSR customers has an EBITDAR (earnings before interest, taxation, depreciation, amortization and rent) margin of 17.5% of sales, while the bottom quartile has an EBITDAR margin of 12.6% 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 FSR segment has seen steadily increasing COGS for four years, and labor costs are higher than they have been in four years.
The data provided herein are excerpted from the 2014 annual Chain Restaurant Industry Review, where specific citations are provided, and subject to the limitations and disclaimers contained therein.