for soft traffic, chains have been aggressively taking price increases to shore up
revenues and same-store sales. Last year,
menu price inflation for Top 500 chains
was 4. 3 percent, while the industry as a
whole came in at 2.6 percent. Over time,
these bold price increases have caused
chains to stray from their value proposition that they are known for. We are now
starting to see this in fast casual, where
menu pricing may be reaching the brink
of consumer disapproval.
Secondly, competition is becoming more
intense and fragmented. Today, consumers
have more and more competent options
for their food and beverage selections than
ever before. Individually, these segments
may not be large, but in aggregate, they
present a major thorn in the side of the res-
taurant industry. Supermarkets have taken
their game up a few notches on selection,
value and quality in their prepared foods
areas. Meal kit providers offer an addi-
tional consumer opportunity for preparing
easy-to-make gourmet quality foods in the
comfort of their own homes. Even c-stores
are slowly turning around their “roller grill
food” image to be an acceptable food-
away-home source, especially among Gen
Zers and young Millennials.
You’ll notice that I omitted retail gro-
cery foods in the above discussion as the
key restaurant competitor. Yes, deflation
within retail grocery and inflation in res-
taurants has widened the price gap, mak-
ing the former appear even more afford-
able to consumers. I’d be naïve to say that
foodservice has not been hurt from this.
However, I reject the idea that consumers
are eschewing restaurants en masse and
now preparing significantly more meals
at home. When did consumers suddenly
find time to cook on a regular basis or
even learn how to cook? Recent supermar-
ket results suggest softness in that sector
as well and frozen prepared foods, which
often are viewed as convenient at-home
substitutes for restaurant meals, have
been flat for many years.
Going back to even before the 2009
recession, full-service chains have battled for sustainable growth. Ubiquity,
especially among varied menu chains,
has been a long-standing problem that
haunts the segment. Lack of differentiation in menus, decor, positioning and
atmosphere coupled with assertive price
bumps have been restraints on traffic and
sales growth. These chains no longer offer
the value proposition they once did in the
1990s, when double-digit growth rates
were the norm.
Lastly, the chain business may have outkicked its coverage. In 2016, the Top 500
chain unit count totaled almost 226,000.
Since 2011, this group added units at a
nearly 2 percent pace, while population
grew only at 0.7 percent. Simply put, the
U. S. has too many restaurants to service its
set of 325 million potential patrons.
WHAT DOES THIS MEAN?
Without change, however, the same
trends are expected to continue for the
foreseeable future. Local chains and independents will outshine major chains and
consumers will gravitate to other options.
The chain market is primed for a shake
out, as too many restaurants are chasing a
finite set of customers.
But let’s put some of this in perspective. Industry sources say the average consumer eats about 190 meals in restaurants
annually, or about 16 meals per month.
Take away one of these meals every two
months (six per year) and this equates to
a real industry decline of about 3 percent.
Add in population growth of approximately 1 percent and you still have a
decline of 2 percent. That’s all it takes: one
average consumer occasion every two
With all that is happening from competitive, structural umer perspectives, perhaps
it is surprising that the industry is not performing worse. Therefore, gaining back
consumers requires winning the small skir-mishes, not necessarily the entire battle.
Local chains and independents will outshine major
chains and consumers will gravitate to other options.
The chain market is primed for a shake out, as too
many restaurants are chasing a finite set of customers.