72211A Chain Restaurants in the US Industry Report

72211A Chain Restaurants in the US Industry Report - Chain...

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Unformatted text preview: Chain Restaurants in the USJuly 2015   1 WWW.IBISWORLD.COM Well done: Restaurants conform to new trends to survive in a competitive market IBISWorld Industry Report 72211a Chain Restaurants in the US July 2015 Andrew Alvarez 2 About this Industry 16 International Trade 2 Industry Definition 17 Business Locations 2 Main Activities 2 Similar Industries 19 Competitive Landscape 34 Industry Data 3 Additional Resources 19 Market Share Concentration 34 Annual Change 19 Key Success Factors 34 KeyRatios 4 Industry at a Glance 33 Industry Assistance 34 Key Statistics 19 Cost Structure Benchmarks 21 Basis of Competition 5 Industry Performance 5 Executive Summary 22 Industry Globalization 5 Key External Drivers 7 Current Performance 24 Major Companies 9 Industry Outlook 35 Jargon & Glossary 22 Barriers to Entry 24 DineEquity Inc. 11 Industry Life Cycle 25 Darden Restaurants Inc. 13 Products & Markets 30 Operating Conditions 13 Supply Chains 30 Capital Intensity 13 Products & Services 31 Technology & Systems 14 Demand Determinants 31 Revenue Volatility 15 Major Markets 32 Regulation & Policy www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com Chain Restaurants in the USJuly 2015   2 WWW.IBISWORLD.COM About this Industry Industry Definition The industry comprises chain and franchised restaurants that provide food services to patrons who order and are served while seated (i.e. waiter or waitress Main Activities The primary activities of this industry are service), and pay after eating. These establishments may provide this type of food service to patrons in combination with selling alcoholic and other beverages. Full-service restaurant operation (waiter or waitress service at tables) Chain full-service restaurant operation (directly owned and operated by owners) Franchised full-service restaurant operation (under franchise agreements with franchisers) The major products and services in this industry are American food Asian cuisine Breakfast foods Italian-American food Seafood Specialty burgers Other food Similar Industries 72211b Single Location Full-Service Restaurants in the US Businesses in this industry operate single restaurants usually run by the owner. 72232 Caterers in the US This industry includes companies that provide individual event-based food services. 72241 Bars & Nightclubs in the US Operators in this industry prepare and serve alcoholic beverages. Establishments are known as bars, taverns or nightclubs. 72221b Coffee & Snack Shops in the US Establishments in this industry provide coffee and snacks where patrons generally select items and pay before eating. 72221a Fast Food Restaurants in the US Establishments in this industry provide food services where patrons generally select items and pay before eating. Chain Restaurants in the USJuly 2015   3 WWW.IBISWORLD.COM About this Industry Additional Resources For additional information on this industry www.census.gov/econ Census Bureau Economic Statistics www.franchise.org International Franchise Association www.nrn.com Nation’s Restaurant News www.restaurant.org National Restaurant Association www.nccr.net The National Council of Chain Restaurants I  BISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go towww.ibisworld.com WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   4 Industry at a Glance Chain Restaurants in 2015 Key Statistics Snapshot Revenue Annual Growth 10-15 Annual Growth 15-20 Wages Businesses $104.4bn 3.8% 2.0% $33.4bn 786 Profit $4.5bn Consumer spending Revenue vs. employment growth Market Share 6 Darden Restaurants Inc. 6  .0% 4 4 % change 8 % change DineEquity Inc. 7  .5% 0 -4 2 0 -8 Year 07 09 11 Revenue 13 15 17 19 -2 Year 21 09 11 13 15 17 19 21 Employment SOURCE: WWW.IBISWORLD.COM p. 24 Products and services segmentation (2015) 4% Key External Drivers Specialty burgers Consumer spending 6% Healthy eating index 4% Seafood Households earning more than $100,000 Asian cuisine 9% Other food Consumer Confidence Index 51% American food 11% Italian-American food 15% p. 5 Breakfast foods SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COM Industry Structure Life Cycle Stage Regulation Level Medium Revenue Volatility Mature Low Technology Change Medium Capital Intensity Low Barriers to Entry Industry Assistance Low Industry Globalization Concentration Level Low Competition Level FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34 Low Medium High Chain Restaurants in the USJuly 2015   5 WWW.IBISWORLD.COM Industry Performance Executive Summary   |   Key External Drivers   |   Current Performance Industry Outlook   |   Life Cycle Stage Executive Summary The Chain Restaurants industry has experienced moderate growth over the past five years. Over the period, as per capita income increased and unemployment eased, consumer confidence improved, giving rise to greater spending on sit-down meals. Although the average industry profit margin remains slim, profit margins at most chains have increased over the past five years, as revenue has grown and costs have been kept under control. Over the five years to 2015, industry revenue is expected to increase at an average annual rate of 3.8% to $104.4 billion. In 2015, growth is projected to reach 2.4% as the economy continues to show signs of strength and consumers become comfortable with increasing spending. Full-service chain restaurants operate within the increasingly competitive food service sector. Major chains such as DineEquity Inc. (which operates Applebee’s and IHOP) and Cracker Barrel Old Country Store compete against independent full-service restaurants, major fast food chains and a range of other establishments that offer meals to eat in or take away. Over the past five years, consumers have been seeking greater convenience at a lower cost, to the detriment of full-service establishments, which serve sit-down meals. In response to greater competition, full-service restaurant chains have invested in labor-saving technology to cut down costs and have redesigned restaurant layouts to create a more modern ambiance. The industry’s run of steady, yet tepid, growth is projected to continue over the five years to 2020. Industry revenue is forecast to grow at an average annual rate of 2.0% to $115.2 billion over the period. Consumers will increase their spending at restaurants as the economy continues to improve and unemployment dissipates. However, the industry will be weighed down by increasing competition from a growing number of fast casual restaurants that serve high-quality food at reasonable prices and have business models that are not reliant on large overheads. This will serve to keep the average industry profit margin slim. For this reason, the major full-service restaurant chains will increasingly look abroad to emerging economies for growth. Consumer spending Factors that influence growth in consumer spending affect the industry. During a recession, any spike in unemployment generally leads to declining consumption. Conversely, when spending is high, consumers are more likely to spend money on eating at restaurants. Consumer spending is expected to increase during 2015, representing a potential opportunity for the industry. Healthy eating index Over the past five years, consumers have been more aware of issues related to weight and obesity, nutrition and food safety than they were before. Therefore, as the healthy eating index rises, demand for some restaurants with fewer healthy options will decrease. The healthy eating index is expected to increase slowly over 2015 and will remain a potential threat to the industry due to the number of restaurants that have yet to fully adapt their menus to suit the trend. T   he major full-service restaurant chains will look abroad to emerging economies for growth Key External Drivers Chain Restaurants in the USJuly 2015   6 WWW.IBISWORLD.COM Industry Performance Households earning more than $100,000 Full-service restaurants typically draw their customers from higher-income households. Because of this factor, growth in the number of households with incomes of more than $100,000 benefits the industry. The number of households earning more than $100,000 a year is expected to increase during 2015. Consumer Confidence Index Changes in consumer sentiment have a significant effect on household expenditure on discretionary items, including restaurant dining. During a recession, consumer demand for lowerpriced value products from restaurants increases. The Consumer Confidence Index is expected to increase in 2015. Healthy eating index Consumer spending 6 69 68 4 67 2 % % change Key External Drivers continued 66 0 -2 Year 65 09 11 13 15 17 19 21 64 Year 06 08 10 12 14 16 18 20 SOURCE: WWW.IBISWORLD.COM Chain Restaurants in the USJuly 2015   7 WWW.IBISWORLD.COM Industry Performance Current Performance The Chain Restaurants industry has undergone an extended period of growth over the past five years, as consumers have begun spending again, following a gloomy period during the recession. Improved economic fundamentals, such as a lower unemployment rate and higher per capita income, have given rise to a jump in consumer confidence, which has spurred overall spending. However, the industry has faced increased competition from a range of food service establishments, especially those Improved consumer spending The industry comprises chain restaurants that provide food services to patrons who order and are served while seated. As a consumer-focused industry, chain restaurants rely heavily on levels of consumer spending and confidence. Over the past five years, consumer spending has increased at an average annual rate of 2.5%; consequently, more consumers have treated themselves to restaurant trips since 2011, as the economy has improved and consumer sentiment has increased. Over the period, consumers have also been more likely to attend sit-down restaurants where the total bill is typically higher than at fast food restaurants. However, even as consumer spending has improved, many consumers have still been less willing to spend on sit-down meals. Instead, consumers have shown a preference for cheaper fast casual concepts. In fact, Darden Restaurants Inc., the industry’s biggest player, has characterized the full-service segment’s troubles over the period. In early 2014, Darden sold its struggling Red Lobster business, announced that it is halting that specialize in convenient meals at a low price. Fast casual restaurants that do not offer table service, but offer a higher quality of food and ambiance compared with a fast food restaurant, are experiencing particularly strong growth and therefore are increasingly taking market share away from fullservice chain restaurants. Nevertheless, IBISWorld expects revenue to grow at an annualized rate of 3.8% to $104.4 billion over the five years to 2015. This includes growth of 2.4% in 2015, as the economy continues its march forward. C   onsumers have shown a preference for cheaper fast casual concepts expansion of its Olive Garden brand, while also stating that it plans to make no further acquisitions for the foreseeable future. The company’s same-store sales have stagnated over the past few years as consumers have flocked to restaurants that offer convenience and quality at a low price. With the rise of fast casual restaurants, increased competition has put pressure on the profit margins of full-service chain restaurants that have had limited ability to increase menu prices. IBISWorld estimates that in 2015, the average industry operator will obtain a profit equivalent to 4.3% of revenue. Despite increased competition, margins have since increased because many chains have implemented cost cutting measures and invested in technology to reduce their reliance on labor. Chain Restaurants in the USJuly 2015   8 WWW.IBISWORLD.COM Industry Performance New health trends emerge Consolidation and profit Society’s increasing awareness of the health risks associated with a diet high in fat, salt and sugar, has encouraged chain restaurants to update their menus. For many restaurants, the health factor has become a key focus of their marketing strategy and has enabled them to target a new segment of the market. The healthy eating index, which measures the degree that the average American adheres to consumption guidelines set out by the US Department of Agriculture, is expected to increase in 2015, meaning those restaurants that do not learn to adapt to the changing American diet will likely struggle. For example, Applebee’s, a unit of DineEquity Inc., promotes its “Great Tasting and Under 550 Calories” menu. Over the past five years the chain has introduced items such as shrimp on rice and asiago peppercorn steak in response to consumer studies and focus groups that revealed guests wanted healthier choices. Many chain restaurants have also introduced gluten-free menus as consumers have become increasingly adverse to gluten. Over the past five years, the industry has undergone a period of increased merger and acquisition activity, with some chains divesting some their brands to focus on a few core brands. Private equity has played a bigger role in the industry as investment firms seek to turn around struggling brands. This has occurred as the industry comes under increased pressure to find avenues for growth amid increased levels of competition in the broader food service sector. For example, Golden Gate Capital, a private equity firm, recently purchased Red Lobster from Darden in 2014, as well as the On the Border chain from Brinker International in 2010. Industry consolidation has led to new establishments (locations) growing at a faster rate than new enterprises (companies operating those locations). As a result, the number of industry enterprises is expected to increase at an average annual rate of 1.1% to 786 over the five years to 2015. Industry employment has improved along with revenue over the past five years, as restaurants have hired to keep pace with demand. The number of industry employees has increased at an average annual rate of 2.4% to 1.8 million people over the five years to 2015. While wages as a proportion of revenue have declined as restaurants have found ways to save on labor costs, the industry remains highly labor intensive due to its service-orientated nature. Labor is required throughout every aspect of the supply chain, from front-of-house service, to waiting tables, to cooking food. This has been one of the factors behind the industry’s losing battle with fast casual restaurants that have more ability to rationalize labor costs. F   or many chains, health has become a cornerstone of marketing strategies Chain Restaurants in the USJuly 2015   9 WWW.IBISWORLD.COM Industry Performance Industry Outlook The Chain Restaurants industry will improve along with the economy over the next five years. A lower unemployment rate and rising per capita income will encourage consumers to increase their spending on small luxuries such as eating out. Consumer spending is forecast to increase at an average annual rate of 2.7% during the next five years. However, full-service chain restaurants will continue to face rising competition from fast food and fast casual restaurants that offer more value-oriented products. As a result, IBISWorld projects that industry revenue will grow at an annualized rate of 2.0% to $115.2 billion over the five years to 2020. Despite the industry’s continued growth, intense competition will likely persist throughout the next five years. Fierce price-based competition from fast food and fast casual restaurants will place increased emphasis on product development. Chain restaurants will need to continually innovate their menus to stay relevant. Most chain restaurants will expand their current product lines and further shift toward healthy menu items. For example, many operators will emphasize meals options such as fresh salads and gluten-free items as they seek to expand revenue and profit. Tech-savvy operators will thrive To cater to the increasingly digital-savvy consumer market, full-service chain restaurant operators will continue to invest in technology. Restaurateurs will use online channels such as websites and social media to communicate with customers. It has become almost mandatory for restaurant chains to have an online presence and digital marketing strategy due to the sheer amount of time people now spend on their desktops, tablets and smartphones. According to a recent National Restaurant Association (NRA) study, 20.0% of consumers use technology when choosing a full-service restaurant. For example, according to the NRA, an estimated 67.0% of consumers use smartphones to look up restaurant directions, a number that climbs higher the younger customers are. Industry remains labor intensive The long-term trend of declining wages as a share of revenue due to the automation of the food preparation process is expected to continue. Therefore, wages and employment will likely experience muted growth in the five years to 2020. The average industry wage is projected to increase slightly from $18,861 in 2015 to $18,964 by 2020. The industry mainly relies on workers that experience little real wage growth over time; however, emplyees are still necessary within this industry, as many chains still rely on wait stafff to fulfill orders and provide exemplary service. Industry employment is projected to grow at an average annual rate of 1.5% to about 1.9 million workers over the five-year period. Greater use of part-time and casual employees to meet peak customer service periods will partly inflate employee numbers. Industry revenue 8 % change 4 0 -4 -8 Year 07 09 11 13 15 17 19 21 SOURCE: WWW.IBISWORLD.COM Chain Restaurants in the USJuly 2015   10 WWW.IBISWORLD.COM Industry Performance Industry restructuring As economic activity improves, chain restaurants will place less emphasis on value offers and specials and attempt to capture higher consumer spending. However, enterprises will continue to compete ferociously for their shares of the saturated food service sector, limiting the rollout of new locations. The number of industry establishments is expected to grow just 1.9% per year on average to 35,117 over the five years to 2020. For this reason, consolidation among establishments is expected to continue. Smaller struggling operators will be acquired by the more powerful chains and integrated into their diverse portfolio of restaurants, or will be purchased and reinvented by private equity groups seeking a quick turnaround. Another result of the slow domestic growth in profit and revenue will be continued international expansion by chain restaurants. In the five years to 2020, many major restaurant chains are expected to continue their push overseas as domestic opportunities shrink. Fast food restaurants such as McDonald’s and Yum! Brands (owner of KFC and Pizza Hut) initially beat full-service restaurants to the overseas chase. However, most major M   any chains are expected to continue their push overseas as domestic opportunities shrink full-service chains now have a significant international presence and are earning a greater percentage of revenue through their overseas segments each year. For example, in September 2013, the industry’s biggest player, Darden Restaurants, signed an area-development agreement with Secret Recipe, a leading restaurant operator in Asia, to develop 13 restaurants in Malaysia under Darden’s Olive Garden and LongHorn Steakhouse brands. This follows similar agreements with other master franchisers in the Middle East and Latin America. Many of these emerging economies have huge upside potential for growth and promise long-term profitability. However, chain restaurants need to be aware of differences in tastes and cultural norms, meaning all aspects of the restaurant system, including menus, marketing, restaurant design, purchasing and training need to be tailored to local conditions. Chain Restaurants in the USJuly 2015   11 WWW.IBISWORLD.COM Industry Performance Life Cycle Stage Industry saturation is occurring in all food service industries Profit margins are low due to significant pricedbased competition on menu items Growth will occur only from garnering market share and revenue from other food service industries % Growth in share of economy The industry is growing at about the same pace as the overall economy 20 Maturity Quality Growth Company consolidation; level of economic importance stable High growth in economic importance; weaker companies close down; developed technology and markets 15 Key Features of a Mature Industry Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands 10 Quantity Growth Many new companies; minor growth in economic importance; substantial technology change 5 0 Chain Restaurants Dairy Wholesaling Coffee & Snack Shops Single Location Full-Service Restaurants Fast Food Restaurants Frozen Food Wholesaling Decline -5 Shrinking economic importance -10 -10 -5 0 5 10 15 20 % Growth in number of establishments SOURCE: WWW.IBISWORLD.COM.AU Chain Restaurants in the USJuly 2015   12 WWW.IBISWORLD.COM Industry Performance Industry Life Cycle T  his industry is Mature  The Chain Restaurants industry is in a mature phase of its life cycle as it begins to reach saturation point in the domestic market. The limits of population size within a city or town that can profitably support a franchise or other outlet are being approached, and competition for high-profile operating sites in other areas is intense. Over the 10 years to 2020, industry value added (IVA), which measures an industry’s contribution to GDP, is expected to grow at an average rate of 2.6% per year. Over the same period, GDP is expected to grow at an annualized rate of 2.5%, indicating that the industry is growing at a long-term rate in line with overall economic growth. Consolidation has been a significant factor in the industry over the past decade, with major franchise operators taking over multiestablishment or franchised stores in other full-service categories to achieve growth. Significant price-based competition is continuing as well, as operators strive to capture an increasing market share of a slow-growth domestic market. Given the state of the domestic market, major franchise operators are currently receiving most of their revenue growth from overseas expansion, particularly in emerging economies in Asia, the Middle East and South America. The industry’s growth has been stunted by competition from the broader food services sector, especially chain fast food and fast casual restaurants with significant marketing power and financial backing. There are pockets within the food services sector undergoing rapid growth, most notably the ‘fast casual’ segment, which consists of restaurants that do not offer full table service, but promise a higher quality of food and atmosphere than a fast food restaurant. Fast casual restaurants have stolen market share from full-service chain restaurants since the recession as unemployment has remained high, income growth has been stagnant and competition for a finite consumer dollar has intensified. Chain Restaurants in the USJuly 2015   13 WWW.IBISWORLD.COM Products & Markets Supply Chain  |   Products & Services  |   Demand Determinants Major Markets  |   International Trade  |   Business Locations Supply Chain KEY BUYING INDUSTRIES 9901 Consumers in the US Households are the key buyers of this industry’s products. KEY SELLING INDUSTRIES 42442 42443 Dairy Wholesaling in the US Dairy wholesalers supply dairy products to restaurants. 42444 Egg & Poultry Wholesaling in the US This industry supplies poultry products to restaurants. 42446 Fish & Seafood Wholesaling in the US This industry supplies fish and seafood products. 42447 Beef & Pork Wholesaling in the US Beef and pork wholesalers supply meat products. 42448 Fruit & Vegetable Wholesaling in the US Restaurants get fresh fruit and vegetables from this industry. 42481 Beer Wholesaling in the US Beer wholesalers supply restaurants with beer and ales. 42482 Products & Services Frozen Food Wholesaling in the US This industry supplies frozen food products to restaurants. Wine & Spirits Wholesaling in the US This industry supplies wine and distilled alcoholic and other beverages to restaurants. The Chain Restaurants industry is segmented based on the main type of food served. Licensed chain restaurants typically earn between 15.0% and 25.0% of the check value through sales of alcoholic beverages. Desserts also usually account for between 10.0% and 20.0% of the check value for those restaurants that do not specialize in dessert menus. Some operators in the industry also earn revenue through nonfood items such as apparel sales. The industry excludes food service chains such as McDonald’s where customers pay before eating and do not receive table service. American food The Chain Restaurants industry is dominated by chains that offer a menu with a wide variety of traditional American cuisine such as burgers, steaks, sandwiches, salads, fries and deserts. This type of food is heavily immersed into American culture and has therefore been the main driver of the industry’s growth over the past half-century. Major chains Applebee’s, Chili’s, Outback Steakhouse and T.G.I. Friday’s fit into this segment. American food can be further segmented into subcategories such as Tex-Mex (Chili’s Grill and Bar), BBQ (Famous Dave’s) and steak (Outback Steakhouse), based on the chain’s primary menu items. Italian-American Italian-American cuisine is a close variation on traditional Italian food, with recipes modified under the influence of American culture over the past two centuries. Modern Italian-American menu is heavily focused on pasta-based dishes and pizza and tend to include greater amounts of meat and garlic than traditional Italian dishes. ItalianAmerican dishes also tend to be characterized by large amounts of tomato sauce. Olive Garden and Carrabba’s Italian Grill are two prominent restaurant chains in this category. Chain Restaurants in the USJuly 2015   14 WWW.IBISWORLD.COM Products & Markets Products & Services continued Products and services segmentation (2015) 6% 4% Specialty burgers Seafood 9% Other food 11% 4% Asian cuisine 51% American food Italian-American food 15% Breakfast foods Total $104.4bn Breakfast foods About 17.0% of industry revenue is derived from chains that specialize in breakfast foods such as pancakes, waffles, omelets and French toast. While most chains in this segment also offer traditional lunch and dinner menus, breakfast food chains have developed a competitive advantage with in the food-service sector advertising their ‘all-day breakfast’ service. Well-known names in this category include IHOP, Denny’s and Waffle House. Other There are a huge range of chains operating in the industry, selling a wide Demand Determinants Demand for full-service restaurants is driven by a number of factors including household income, consumer confidence, attitudes to health and propensity to eat out, rather than at home. Income and expenditure This industry is sensitive to factors that affect the growth in household disposable income because disposable income is required to finance restaurant and dining expenditures. Household disposable SOURCE: WWW.IBISWORLD.COM range of cuisines. Examples include The Cheesecake Factory, which serves dinner alongside its specialty cheesecakes; P.F. Chang’s China Bistro, a ChineseAmerican chain with more than 200 locations; and Red Lobster which specializes in seafood. Chains offering healthier menu options have grown at a faster rate than more traditional restaurants over the past decade due to rising awareness of the negative impacts of obesity. Specialty sit-down burger chains (as opposed to quick-service burger chains) are also on the rise, taking advantage of changes in consumer preferences towards more gourmet cuisines. income growth is affected by changes in labor market growth (i.e. employment rates), in tax and interest rates, high and increasing gas prices, and changes in consumer confidence. The decline in industry revenue during the recession illustrates the extent to which the industry’s performance is reliant on positive income levels, high consumer confidence and a robust economy. For example, lower consumer confidence, weak levels of disposable income and Chain Restaurants in the USJuly 2015   15 WWW.IBISWORLD.COM Products & Markets Demand Determinants continued rising unemployment tightened household budgets, encouraging people to save more and spend less by cooking at home rather than eating out. Demographics The changing age structure of the population influences industry demand. Two broad demographic trends have encouraged industry growth in the past decade. Firstly, the baby-boomer generation has access to higher disposable incomes than previous generations, meaning they are more likely to spend on eating out. Also, young adults aged between 18 and 30 years old are delaying marriage and having children compared to previous generations; this allows them to spend a greater proportion of their income on eating out. Young adults in this age bracket spend more of their food budget on eating out than any other age group. Major Markets Health and lifestyle Rising health consciousness has a direct effect on dining at full-service restaurants as consumers have become increasingly concerned about fat content, fried foods and salt content, especially when dining out. As such, rising concerns regarding the nutritional content and value of restaurant meals is likely to influence the demand for certain foods on cafe menus, encouraging industry players to alter their product mix. It is also expected to affect overall performance for industry players selling unhealthy food on menus, such as fried food or hamburgers. Convenience, value for money and time are other important demand determinants. Recent social trends such as busy lifestyles, heavy workloads and long working hours have helped boost demand for our of home dining as time-poor consumers look to cut down cooking time. Major market segmentation (2015) 8.5% Lowest quintile of incomes 11.5% Second quintile of incomes 40.0% Highest quintile of incomes 16.0% Middle quintile of incomes Total $104.4bn 24.0% Fourth quintile of incomes The major markets for the Chain Restaurants industry can be segmented based on a number of factors including income, age, geographic location and family structure. Given the discretionary nature of the industry, an SOURCE: WWW.IBISWORLD.COM indication of major markets can be inferred on the basis of annual expenditure on food and beverages consumed outside the home. According to the US Census Bureau, the average consumer spends about 5.2% of their Chain Restaurants in the USJuly 2015   16 WWW.IBISWORLD.COM Products & Markets Major Markets continued annual expenditure on food and beverages consumed outside the home. An estimated 40.0% of industry demand comes from consumers in the nation’s highest income quintile. In 2012 (the latest available data), the average consumer in the highest income bracket spent $5,366 on food and beverages consumed outside the home, according to the US Census Bureau. On the other hand, those in the lowest income quintiles often need to make significant sacrifices in order to afford meals away from home. The average consumer in the lowest income quintile spent $1,086 on out-of-home food consumption in 2012. The three middle-income quintiles represent more than 50.0% of industry demand, showing how important the middle-class consumer is to the industry’s performance. While these consumers do not typically spend big on luxury food items, they contribute to steady demand for middle-of-the-range chain restaurants. The industry’s major markets distribution has not changed dramatically over time as spending patterns within income brackets are relatively established. There was some tightening of budgets during the recession, but this occurred across all demographics, so it did not influence the industry’s major markets distribution. International Trade As a retail industry, the Chain Restaurants industry is not technically engaged in importing or exporting products, so international trade is not relevant to the industry. However, a number of industry players have overseas operations and earn a significant portion of their revenue from abroad. Given the mature stage of this industry’s life cycle in the domestic market, and changes in customer profiles and tastes, many major operators are seeking to increase their growth in revenue and earnings through further global expansion. Chain Restaurants in the USJuly 2015   17 WWW.IBISWORLD.COM Products & Markets Business Locations 2015 West New England AK 0.2 Great Lakes WA ND MT 2.5 Rocky Mountains ID OR 1.7 West NV 0.7 1.6 SD 0.3 WY 0.5 MN 0.2 0.4 Plains CO 0.6 KY 0.9 9 OK 1.1 NC 3.2 TN AZ NM 1.7 0.6 Southwest TX 6.9 HI 0.5 Additional States (as marked on map) 1 VT 2 NH 3 MA SC Southeast 5 CT 6 NJ 7 DE 8 MD 1.5 0.5 2.9 2.6 0.3 0.5 1.4 0.9 MS AL 1.2 1.6 GA 3.1 0.7 LA 1.2 FL 6.3 Establishments (%) 4 RI 0.3 AR 8 0.5 1.8 12.3 7 WV VA 2.7 1.1 2.0 CA West 3.1 MO KS 2.0 OH 1.9 4.0 6 4.0 IN IL 0.6 UT PA 3.0 1.1 0.6 1 2 3 NY 8.1 5 4 MI 2.1 IA NE 0.2 WI ME MidAtlantic 9 DC 0.3 Less than 3% 3% to less than 10% 10% to less than 20% 20% or more SOURCE: WWW.IBISWORLD.COM Chain Restaurants in the USJuly 2015   18 WWW.IBISWORLD.COM Products & Markets Distribution of establishments vs. population 30 20 10 Southwest Southeast Plains New England Rocky Mountains Establishments Mid-Atlantic Great Lakes 0 West The industry’s business locations are largely distributed according to population and income per capita. Since the industry provides a locationcontingent food service to consumers, successful operators need to be located near their customer base. For this reason, the industry is heavily concentrated in the Southeast, West and Mid-Atlantic regions, mainly due to population distribution and size. Large chains can compete with other retailers for high-profile, high-rent locations due to their high turnovers. A large proportion of operators are located along major highways or in prominent inner-city locations. The high passing foot or vehicle traffic usually guarantees a high level of business for both locals and tourists. The Southeast has the highest concentration of industry establishments and a higher proportion of employment and revenue compared with its population. Southern states have traditionally been big consumers of food outside the home, with many of the industry’s chains originating from the South. For example, Darden Restaurants % Business Locations Population SOURCE: WWW.IBISWORLD.COM and Bloomin’ Brands, two of the industry’s biggest operators, are based in Florida and their restaurants are heavily concentrated in the southern states. Brinkler International, owner of Chili’s Grilll & Bar and Maggiano’s Little Italy, is based in Dallas, TX, and Cracker Barrel Old Country Store, Inc. is based in Tennessee. WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   19 Competitive Landscape Market Share Concentration  |   Key Success Factors  |   Cost Structure Benchmarks Basis of Competition  |   Barriers to Entry  |   Industry Globalization Market Share Concentration Level  Concentration in this industry is Low  Key Success Factors I  BISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: The Chain Restaurants industry has a low level of market share concentration. In 2015, the four largest industry players are estimated to account for about 21.3% of available market share. The industry is made up of a vast array of chain and franchised restaurant operators and food concepts, as well as the extensive number of sites they operate. A number of chains and franchised operators have establishments that are spread nationally and even internationally. In the past five years, the industry’s concentration level has fallen slightly because a number of conglomerates have offloaded underperforming chains to private equity firms. Most recently in 2014 Darden Restaurants offloaded its 600-plus Red Lobster restaurants to Golden Gate Capital for $2.1 billion. Another major transaction was Brinker’s 2010 sale of chains On The Border Mexican Grill and Cantina and Romano’s Macaroni Grill. Private equity firms play a significant role in the industry, often purchasing underperforming restaurant chains with the aim of quickly turning around their performance, increasing their profitability and selling the business at a profit. Franchising activity has also increased substantially over the past five years, as many chains see more of a profit to be made in collecting royalties rather than being in the business of buying and selling food and beverages. This has also added to the industry’s fragmentation. Given the industry’s nature, particularly its fragmentation by food types, the concentration is not expected to change significantly in the near future. Access to multiskilled and flexible workforce Access to suitably skilled and trained staff is required to meet peak customer demand periods. Ability to control stock on hand Controlling orders, stock and food waste, which are major cost areas, can improve profit. Fast adjustments made to changing regulations Industry players must monitor changes to government regulations in areas such as food safety and handling, otherwise they may face fines or risk losing their operating license. Proximity to key markets Being in a good location and understanding what customers’ desire from a restaurant can drive customer traffic. Cost Structure Benchmarks Ability to quickly adopt new technology Adopting new employee training and kitchen and customer-related technology can increase productivity and lower labor costs. Ability to franchise operations Franchising both in the United States and overseas is now a significant component of this industry and can provide necessary support to owners. Profit Industry profit is based on earnings before interest and taxes. Profit varies depending upon the size of the company, with larger operators generally benefiting from economies of scale. IBISWorld estimates that in 2015, the average industry operator will obtain profit equivalent to 4.3% of revenue. This represents an increase from 2010, when profit accounted for an WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   20 Competitive Landscape estimated 4.0% of industry revenue. Profit margins have increased over the past five years, as consumer spending has enabled consumers to spend more on discretionary items, such as eating out. Furthermore, over the five-year period, many chains have implemented cost cutting measures and invested in technology to reduce their reliance on labor. Wages Wages and associated labor costs represent the industry’s single biggest cost. Wages are high due to the laborintensive nature of food preparation, cooking, serving and bussing tables. These costs include wages and benefits, such as health, workers’ compensation and unemployment insurance. Menu prices and industry profitability are affected by labor intensity, since increased labor costs cannot simply be passed directly onto consumers in the form of higher prices, especially given the weak economic conditions and sustained unemployment levels. Wage costs will account for an estimated 31.6% of an average company’s revenue in 2015, down slightly from 2010. As revenue has increased over the period, operators have made an effort to keep labor costs down. Purchases Food and beverages are usually purchased from wholesalers, particularly from those that can guarantee both prompt delivery and quality foodstuffs. Fluctuations in the cost of food and liquor significantly impact industry revenue and profit. Beverages generally have higher margins than food. In the short term, many cost increases cannot be passed onto the consumer or client. Therefore, menus, portion sizes and other inputs into food service have to be continuously monitored. The other major Sector vs. Industry Costs Average Costs of all Industries in sector (2015) 80 Industry Costs (2015) 7.2 4.3 22.2 31.6 39.4 100 Percentage of revenue Cost Structure Benchmarks continued 32.1 n Profit n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other 60 40 4.0 20 8.5 16.0 2.7 2.4 12.9 2.2 14.5 0 SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   21 Competitive Landscape Cost Structure Benchmarks continued source of inefficiency is waste due to fluctuations in demand, an oversupply of meals or excess ingredients that cannot be used and subsequently spoil. IBISWorld forecasts that in 2015, purchases will account for 32.1% of an average company’s revenue. Since 2010, efficiencies in production have been found and exploited in order to save on purchase costs; however, the prices of many inputs, especially fresh meat, has increased, leading to an overall increase in purchase costs since 2010. Rent and utilities Rent and utilities expenses are high for the chain restaurants industry because of the need for locations in high traffic areas with high visibility. Many operators try to locate near a main thoroughfare or in a high foot traffic location. Rent and utilities expenses are expected to equal 12.9% of an average company’s revenue in 2015. As a percentage of revenue, rent and utilities have remained relatively constant over the past five years. Basis of Competition Level & Trend  Competition in this industry is H  ighand the trend is Increasing  The Chain Restaurants industry exhibits a high level of competition. Restaurateurs are required to compete against each other and against other industries in the broader food service sector such as single location full service restaurants, coffee shops, bars and hotels. Internal competition Chain restaurants compete with each other on the basis of price and quality. As a result of the high level of competition within the industry, profit margins are low for most industry operators, necessitating stringent cost and quality controls to maintain efficiency and minimize wastage. Operators also face strong competition based on quality. Premium ingredients and well-presented meals are highly regarded and can make the difference to Depreciation Operators in the industry are subject to capital expenditure, such as commercial kitchen equipment, store fixtures and fittings, furniture, and crockery and cutlery. Depreciation is much higher for operators that own the building in which they operate; consequently, during the past decade, the trend has been for operators to rent, rather than own, their stores. For this reason, depreciation has declined as a proportion of industry revenue and is expected to account for 2.4% of total revenue in 2015. Other Operators in the industry are subject to a range of other costs including professional fees, administrative costs and marketing or advertising. Due to the high number of franchised businesses operating in the industry, franchise royalties and other fees can account for a significant proportion of industry revenue. An additional marketing fee is sometimes paid to the franchiser as well. consumers, who often judge a restaurant by how it compares with others. Restaurants also compete on the basis of location, style, ambience, hospitality and service. More than ever, restaurants are selling and marketing a meal experience to potential customers. As a result, it is important that the operator understands the positioning of the restaurant in the marketplace and the clientele they are attracting or wanting to attract. Significantly, the restaurant must consistently deliver on customers’ product expectations. External competition External competition arises from the broader food service sector. This includes fast-food restaurants and independent restaurants that offer dining and take-out WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   22 Competitive Landscape Basis of Competition continued services, as well as other retailers that serve food, such as convenience stores and supermarkets. When economic conditions are gloomy, consumers are more likely to trade-down to cheaper food options, putting pressure on chain restaurants to lower prices. Independent restaurants can sometimes provide a more friendly Barriers to Entry Franchise agreements Entry to the industry can also occur through signing a franchise agreement, which includes outfitting and equipment, as well as training and computer systems. Franchisors also provide food and beverages and some financial and accounting functions for a proportional share of revenue from their franchisees. This lowers operational costs and can minimize some risks, especially for inexperienced persons entering the industry. However, individual franchisees still carry much of the day-to-day operational and management risks associated with their own business. Level & Trend  Barriers to Entry in this industry are L  owand Steady  dining experience, as guests are able to directly interact with the owners or the chef, something that may be missing with standardized franchised and chain operators. Other competition is derived from consumers deciding to cook more in-home meals, which occurs particularly during difficult economic times. Barriers to Entry checklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance High Low Mature Low Medium Medium Low SOURCE: WWW.IBISWORLD.COM insurmountable barriers to enter or operate in this industry. Location There is significant competition among the major franchised companies to obtain suitable sites, which has increased the cost of many prime sites. While industry regulation and licensing is significant, including health and food-service regulations, liquor licensing, and general occupational health and safety issues, these regulations do not create any Industry Globalization Concentration Industry concentration is low, with the top four players controlling less than 30.0% of the industry’s available market share in 2014. This low concentration is an indication of the array of food concepts and styles available in this industry, with no individual major player being dominant. While it takes time and significant capital to build a brand around a new food concept, especially on a national level, there are many examples of new restaurant chains successfully entering the industry. The majority of operators in the industry exhibit a low level of globalization because they are US-owned and earn the majority of their sales from domestic activity. There are, however, some large chain and franchised restaurant operators (including Brinker International and DineEquity Inc.) that have international operations. Due to significant competition and the expected subdued domestic growth opportunities, a shift toward international WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   23 Competitive Landscape Industry Globalization continued Level & Trend  Globalization in this industry is M  ediumand the trend is Increasing  operations will likely continue. There are currently no major foreign operators in this industry. Global expansion is anticipated to continue as restaurants focus on specific areas of expertise and food concepts and styles held by each major operator. This move offers them the opportunity to raise the pace of revenue growth, employment and earnings, because direct competition is lower in many emerging and high-growth countries. In addition, some of these countries, like China, provide the added attraction of significantly expanding middle-income households. Chain Restaurants in the USJuly 2015   24 WWW.IBISWORLD.COM Major Companies DineEquity Inc. | Darden Restaurants Inc. | Other Companies Major players (Market share) Darden Restaurants Inc. 6.0% 86.5% Other DineEquity Inc. 7.5% Player Performance DineEquity Inc. M  arket share: 7.5%  Industry Brand Names Applebee’s IHOP SOURCE: WWW.IBISWORLD.COM DineEquity Inc. was formerly known as IHOP (International House of Pancakes), but with the acquisition of Applebee’s in November 2007, the company restructured its operations and changed its name. The company is based in Glendale, CA, and employs about 2,500 staff. Similar to other restaurant chains, DineEquity’s business model now focuses on franchising its brands rather than running restaurants. The company now earns about 50.0% of its revenue, and most of its profit, through franchise royalties and other related fees. As a result of this shift to focus on franchising, company revenue has declined significantly over the past five years, but profit has increased. In 2014 DineEquity earned $655.0 million in revenue. DineEquity’s has more than 2,000 Applebee’s restaurants (1,988 franchise operators and 23 company-owned) across 49 states, 15 countries and one US territory. Applebee’s provides moderately priced food to a broad customer base, with a menu focused on mainstream American dishes such as salads, chicken, pasta and its signature “riblets” dish. All Applebees restaurants feature a bar area and serve alcoholic beverages (except where prohibited by law). Meanwhile, IHOP was originally founded in 1980 in Atlanta and targets the family market through its breakfast-focused menu, featuring pancakes, French toast and omelets. The company has more than 1,650 IHOP restaurants (1,483 franchise and area license operators and 167 company-owned) in all states and internationally in Canada, Mexico, Puerto Rico and the US Virgin Islands. Financial performance DineEquity has refranchised the majority of its company-operated restaurants over the past five years with DineEquity Inc. (US industry specific) - financial performance* Year Sales ($ million) (% change) Operating Income ($ million) (% change) 2010 6,919.7 -0.3 989.5 2.5 2011 7,081.3 2.3 970.1 -2.0 2012 7,197.9 1.6 1,036.5 6.8 2013 7,341.9 2.0 1,027.8 -0.8 2014 7,588.5 3.4 1,100.3 7.1 2015 7,787.9 2.6 1,168.2 6.2 *Estimates SOURCE: ANNUAL REPORT AND IBISWORLD Chain Restaurants in the USJuly 2015   25 WWW.IBISWORLD.COM Major Companies Player Performance continued the aim of becoming a 99.0% franchised company. While this has resulted in actual company revenue more than halving between 2010 and 2014, it does not reflect the performance of DineEquity’s restaurants; rather, it shows a structural change in the way the company earns revenue. The change in business model has been undertaken in order to reduce capital investment, generate higher profit margins and reduce volatility of cash flow. In the five years to 2015, DineEquity’s US-specific network sales are expected to increase 2.4% per year on average to $7.8 billion. In many ways, the company’s performance has mirrored broader industry performance, as traffic at family dining restaurants has been down across the board. For much of the previous five years, both Applebees and IHOP stores have recorded negative or flat growth in same-restaurant sales, although IHOP recently reported growth of 2.4% in same-restaurants sales in 2013, its first positive year since 2010. The company attributed this increase to successfully promoting bigger ticket menu items on prominent positions on the menu, which increased the average guest check amount. Nevertheless, DineEquity’s flat sales have halted the expansion of its retail footprint over the past five years: IHOP added just 179 new domestic locations between 2010 and 2014, while Applebee’s number of domestic locations increased by a meager 10 new locations over the same period. Player Performance Darden Restaurants Inc. is one of the world’s largest full-service restaurant companies. The Orlando, FL-based company was first publicly listed in 1996 and served more than 441.0 million meals in fiscal 2013. The company employs over 200,000 staff, operates under several brands and offers a variety of food and menu items at different price points designed to meet guests’ needs. Over time, the company has expanded through new stores, concepts and acquisitions. As economic conditions weakened during the recession, however, Darden resorted to shutting down some of its underperforming stores and brands. Unlike other major restaurant chains in the United States, Darden does not franchise its restaurants. Darden owns all of its restaurants in the United States and Canada, and has 37 licensed restaurants in Japan, Puerto Rico, Darden Restaurants Inc. M  arket share: 6.0%  Industry Brand Names Olive Garden LongHorn Steakhouse The Capital Grille Bahama Breeze Seasons 52 Darden Restaurants Inc. (US industry specific) - financial performance* Sales ($ million) (% change) Operating Income ($ million) (% change) 2009-10 6,980.5 -1.3 920.9 2.7 2010-11 7,365.6 5.5 1,039.0 12.8 2011-12 7,866.3 6.8 1,070.7 3.1 2012-13 8,419.9 7.0 1,027.0 -4.1 2013-14 6,191.6 -26.5 622.2 -39.4 2014-15 6,259.9 1.1 604.0 -2.9 Year** *Estimates; **Year-end May SOURCE: ANNUAL REPORT AND IBISWORLD Chain Restaurants in the USJuly 2015   26 WWW.IBISWORLD.COM Major Companies Player Performance continued Other Companies Mexico and Dubai. The company derives over 98.0% of its revenue in the United States. As of 2014, Darden operates 2,138 restaurants in the United States and Canada. In the United States alone, it operates 1,500 restaurants, including 822 Olive Gardens, 430 LongHorn Steakhouses, 49 The Capital Grilles, 33 Bahama Breezes, 31 Seasons 52s, nine Eddie V’s Prime Seafood, three WildfishSeafood Grille restaurants and a couple of dual-use Red Lobster and Olive Garden restaurants. In early 2014, Darden agreed to sell its struggling Red Lobster brand to Golden Gate Capital for $2.1 billion; this deal was finalized in July 2014. This will result in the company losing significant market share within the Chain Restaurants industry going forward. Both the Red Lobster and Olive Garden chains have struggled over the past five years with negative same-store sales as consumers have flocked to cheaper fast casual restaurants. Darden does not plan to pursue any acquisitions for the foreseeable future and is halting the expansion of its Olive Garden chain in order to focus on lifting same-restaurant sales at its existing locations. In 2012, the company purchased Yard House, an upscale beer-centric eatery chain with a classic rock theme, for $585.0 million, which followed its 2007 acquisition of RARE Hospitality International Inc., which owned the brands LongHorn Steakhouse and The Capital Grille. Bloomin’ Brands Inc. operating under franchise or joint venture arrangements across 48 states and 21 countries and territories and employs over 100,000 staff. Bloomin’ Brands’ restaurants have a number of themes and serve a range of cuisine of varying quality. Outback Steakhouse, an Australian-themed steakhouse, is the chain’s cheapest concept, followed by Carrabba’s Italian Grill, which serves Italian cuisine, and Bonefish Grill, a casual seafood eatery. The average check per person in 2013 at all three chains was in the low $20 range. Estimated market share: 4.5% Bloomin’ Brands is a Tampa, FL-based hospitality company that owns several restaurant chains, including Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill. The company was founded in August 1987 as Multi-Venture Partners Inc. and first went public in 1991. Bain Capital Partners and Catterton Partners purchased the company in 2007 and relisted it in August 2012. Bloomin’ Brands owns and operates 1,344 restaurants and has 166 restaurants Financial performance Over the five years to fiscal 2015 (yearend May), Darden’s US-specific revenue is estimated to decrease at an average rate of 2.2% per year to $6.3 billion. While US revenue has grown in every year from 2010 to 2013, largely due to the addition of new restaurants, as well as the acquisition of Yard House, the sale of its Red Lobster restaurant chain resulted in a substantial drop in revenue over 2014, which is expected to continue into 2015. Nevertheless, the company has aggressively expanded its number of Olive Garden and LongHorn Steakhouse locations over the five-year period. Additionally, while food inflation has led to higher purchase costs over the past five years, the company has managed to keep labor costs under control (which account for between 30.1% and 32.1% of the company’s revenue in 2014) and is expected to earn an operating profit of $603.7 million in 2015. From 2015 onward, Darden’s market share within the industry will be significantly reduced due to the recent Red Lobster sale. Chain Restaurants in the USJuly 2015   27 WWW.IBISWORLD.COM Major Companies Other Companies continued Bloomin’ Brands Inc. (US industry-specific) - financial performance* Year Sales ($ million) (% change) Operating Income ($ million) (% change) 2010 2011 2012 2013 2014 2015 3,634.0 3,793.0 3,934.0 4,084.0 4,173.0 4,315.3 0.2 4.4 3.7 3.8 2.2 3.4 146.7 185.2 156.1 196.7 163.7 171.8 4.4 26.2 -15.7 26.0 -16.8 4.9 *Estimates SOURCE: ANNUAL REPORT AND IBISWORLD On the other hand, Fleming’s Prime Steakhouse and Wine Bar and Roy’s provide upscale dining with an accompanying list of highly rated wines. The average check per person at Fleming’s in 2013 was $69. Bloomin’ Brands also operated Roy’s, an upscale eatery featuring Pacific Rim cuisine with a focus on fresh fish and seafood, steaks, short ribs, pork and chicken. As of January 2015, the company sold its Roy’s concept and its 20 company-owned restaurants to United Ohana. In the five years to 2015, Bloomin’ Brands’ US-specific sales are estimated to have grown at an annualized rate of 4.7% to $4.3 billion. Sales in the United States have grown due to an increase in comparable restaurant sales and the opening of new restaurant locations. Operating profit has also improved as a result of larger average check values and fewer fluctuations in the price of food. However, like many companies in the casual dining segment, Bloomin’ Brands has indicated that tough macroeconomic conditions have held back sales over the past five years and has been forced to close a number of underperforming locations. Brinker International Inc. Estimated market share: 3.7% Brinker International Inc. is a Dallasbased full-service restaurant group that has been in operation since 1966. At the end of fiscal 2013 (latest available data), the company owned or franchised 1,591 establishments internationally, with 1,309 locations in the United States. Its brands include Chili’s Grill & Bar and Maggiano’s Little Italy. Brinker has recently offloaded two of its restaurant Brinker International Inc. (US industry-specific) - financial performance* Year** Sales ($ million) (% change) Operating Income ($ million) (% change) 2010 2011 2012 2013 2014 2015 3,935.4 3,817.7 3,845.6 3,780.9 3,821.4 3,817.0 -1.1 -3 0.7 -1.7 1.1 -0.1 212.7 284.2 316.0 341.1 318.5 345.1 5.1 33.6 11.2 7.9 -6.6 8.4 *Estimates; **Year-end July SOURCE: ANNUAL REPORT AND IBISWORLD Chain Restaurants in the USJuly 2015   28 WWW.IBISWORLD.COM Major Companies Other Companies continued chains to affiliates of San Francisco-based private equity firm Golden Gate Capital. In December 2008, Brinker sold a majority stake in its Romano’s Macaroni Grill while retaining a 19.9% stake. In June 2010, the company sold On The Border Mexican Grill and Cantina. Chili’s Grill and Bar offers a range of American food heavily influenced by Tex-Mex cuisine, such as tacos, quesadillas and fajitas. In recent years the chain has introduced pizzas, flatbreads and a “Fresh Mex” menu, placing a greater emphasis on healthy salads in an attempt to cater to changing consumer tastes. In 2013, Chili’s average revenue per meal was about $14.0, with alcoholic beverage sales accounting for about 14.0% of sales. Brinker’s other brand, Maggiano’s Little Italy, is a full-service casual dining chain serving mainly Italian cuisine. Maggiano’s restaurant interiors are designed in the style of the classic Italian-American restaurants of New York’s Little Italy of the 1940s. The average revenue per meal at Maggiano’s was about $27.0, with alcoholic beverages accounting for about 17.0% of this amount. Brikner has struggled over the past five years and has been forced to sell, close and refranchise a number of its restaurants; consequently, it now has a significantly smaller footprint in the industry than it did in 2010. IBISWorld estimates the company’s domestic system-wide sales have slightly decreased by 0.5% per year on average to $4.0 billion. Comparable restaurant sales, particularly at Chili’s, also struggled over the period, as increasing competition from fast-casual options with competitive pricing attracted more of the company’s core market to other food venues. To win back customers, Brinker has kept its restaurant menu prices competitive, leading to an increase in guest traffic; nevertheless, revenue remains constrained. Cracker Barrel Old Country Store Inc. Estimated market share: 2.1% Cracker Barrel Old Country Store Inc. was founded in 1969 in Lebanon, TN. As of fiscal 2014, the company operates 633 Cracker Barrel Old Country Store restaurants across 42 states, with all restaurants company owned and operated; the company has no franchised stores. Cracker Barrel’s concept is based on a country-style menu of steak and ribs, with restaurants fitted out in the manner of traditional old country stores with stone fireplaces, antique-style furnishing and other nostalgic items. Cracker Barrel earns about 20.0% of its revenue through retail sales of apparel, toys and food in store gift shops and online. In fiscal 2014 the company earned $2.7 billion in revenue and employed 71,000 staff. CBRL Group Inc. (US industry-specific) - financial performance* Year** 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 *Estimates; **Year-end July Revenue ($ million) (% change) Operating Income ($ million) (% change) 1,911.7 1,934.0 2,054.1 2,104.8 2,137.4 2,216.5 1.9 1.2 6.2 2.5 1.5 3.7 249.2 242.9 268.4 274.4 269.0 287.0 19.9 -2.5 10.5 2.2 -2.0 6.7 SOURCE: ANNUAL REPORT AND IBISWORLD Chain Restaurants in the USJuly 2015   29 WWW.IBISWORLD.COM Major Companies Other Companies continued Over the five years to fiscal 2015, industry-specific revenue is expected to increase at an average annual rate of 3.0% to $2.2 billion. Cracker Barrel earns a healthy operating margin of about 13.0%, with industry-specific operating income expected to reach $287.0 million in 2015. Restaurant sales have increased over the past five years due to an increase in average menu prices, which has boosted the value of the average check. However, restaurant traffic declined in fiscal 2010 and 2011 due to continued low consumer sentiment, high unemployment and reduced discretionary spending. Chain Restaurants in the USJuly 2015   30 WWW.IBISWORLD.COM Operating Conditions Capital Intensity   |   Technology & Systems   |   Revenue Volatility Regulation & Policy   |   Industry Assistance Capital Intensity Level  The level of capital intensity is Low  The Chain Restaurants industry has a low level of capital intensity. For every $0.12 cents allocated toward using and replacing buildings and equipment, $1.00 is spent on wages. As such, labor intensity is high. The industry is heavily dependent on direct labor input across all operations, including ordering, delivery, food preparation, liquor and other beverage sales, cooking, serving, cleaning and management. Some rise in labor productivity can occur from investment in technology, including electronic customer ordering systems that are linked to the kitchen, allowing chefs and cooks to more efficiently process and prepare orders. These advancements can help improve profit margins. Still, significant labor Capital intensity Capital units per labor unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Accommodation Chain and Food Restaurants Services Dotted line shows a high level of capital intensity SOURCE: WWW.IBISWORLD.COM input is required to meet customers’ expectations and provide a quality and hospitable dining experience. Labor costs Tools of the Trade: Growth Strategies for Success Investment Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan. Single Location FullService Restaurants Traditional Service Economy Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. Capital Intensive Labor Intensive New Age Economy Chain Restaurants Coffee & Snack Shops Fast Food Restaurants Frozen Food Dairy Wholesaling Wholesaling Change in Share of the Economy Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products. SOURCE: WWW.IBISWORLD.COM Chain Restaurants in the USJuly 2015   31 WWW.IBISWORLD.COM Operating Conditions Capital Intensity continued can be managed by bringing on an appropriate number of trained casual and part-time staff at peak guest periods. Technology & Systems Chain restaurants regularly leverage Level  The level of Technology Change is Medium  Revenue Volatility Level  The level of Volatility is Low  technology to reduce labor and food costs to increase sales. They also use it to improve business processes, support growth, maintain current operations and improve meal experiences. Quality of service The majority of technological adoption by the industry aims to address new systems and processes that are designed to promote quality service and reduce customer wait time. Wireless electronic ordering systems that link front-of-the house orders to kitchen meal preparation are an example of such innovation. The increasing sophistication of the internet and mobile technology have also allowed industry players to reach wholesalers and suppliers online. This has allowed for increased efficiencies in coordinating supplies and other preprepared food items. Larger chains also use data networks to send and receive business data to and from restaurants to monitor and analyze all aspect of the business. Through data analytics, operational efficiencies can be Revenue volatility is low for the Chain Restaurants industry. The industry depends on consumer tastes and preferences, as well as levels of disposable income and consumer confidence. Restaurant spending is highly discretionary and easily substituted for lower cost options, such as home cooked meals. As a result, changes in factors affecting incomes, such as taxes and unemployment levels, directly affect industry revenue. However, industry identified and improved on throughout a company’s network of stores. Point of sale systems Most operators now have point-of-sale systems in stores to speed up service, which helps lead to larger purchases on average and cuts down on labor costs. Retailers are increasingly accepting credit card payments through devices such as Square, which connect directly to the store’s tablet device and facilitates ease of transaction. Customers can sign with their finger on a touchscreen rather than with a pen and have the receipt emailed to them. Some restaurants have adopted mobile technology, allowing for the ordering of coffees and food items via mobile applications and online. Social media Technology has also aided chain restaurants with marketing. Social media such as Facebook, Twitter and Instagram allows savvy operators to connect directly with customers and tailor their brand’s message to target fragmented consumer segments. revenue growth has remained steady, thanks to robust increases in both the Consumer Confidence Index and consumer spending. With increasing per capita disposable income and lower unemployment rates, consumer spending at restaurants has remained consistent over the past five years. As a result of these trends, the industry has exhibited low volatility . The diversity of foods served by the industry helps keep any volatility under Chain Restaurants in the USJuly 2015   32 WWW.IBISWORLD.COM Operating Conditions control. The industry consists of a range of food products, from Asian restaurants, to traditional American restaurants and other ethnic cuisines, meaning that if tastes defer from one type of food towards A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly. another, the industry still captures the revenue. Industry revenue volatility is anticipated to level out over the next five years as the industry continues along a long-term low growth trajectory. Volatility vs Growth 1000 Revenue volatility* (%) Revenue Volatility continued Hazardous Rollercoaster 100 10 Chain Restaurants 1 0.1 Stagnant –30 –10 Blue Chip 10 30 50 70 Five year annualized revenue growth (%) * Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM Regulation & Policy Level & Trend  The level of Regulation is M  ediumand the trend is Increasing  The Chain Restaurants industry is subject to a medium level of regulation that is increasing. There are regulations covering a range of areas, from food safety and standards, to labor conditions and franchising requirements. Most regulation is enacted and enforced at the state level, but many federal laws also apply. Food safety and standards The industry is subject to laws and regulations relating to the preparation and sale of food, including regulations regarding product safety, nutritional content and menu labeling. The main agency responsible for providing guidance and regulation is the US Food and Drug Administration’s (FDA). The FDA’s Model Food Code, which is a best-practice guide to food handling and presentation, applies to this industry and is updated each year. The FDA Nutritional Value applies as well. Since 1996, the FDA regulations have set standards for nutritional values of individual foods and meals. If claims like “low fat” or “heart healthy” are on a menu, an owner must be able to demonstrate to officials that there is a reasonable basis for the claim. For instance, the meal may be based on a recipe from a health association or a recognized dietary group. Complete nutritional information, however, is not required to be on menus. The Affordable Care Act requires restaurant companies to disclose calorie information on their menus. The Food and Drug Administration has proposed rules to implement this provision that would require restaurants to post the number of calories for most items on menus or menu boards and to make available more detailed nutrition information upon request. Labor relations The industry employs a high number of young and low-skilled workers at hourly rates and, therefore, is subject to Chain Restaurants in the USJuly 2015   33 WWW.IBISWORLD.COM Operating Conditions Regulation & Policy continued minimum wage and employee benefits regulations. Workers in the US are entitled to be paid no less than the statutory minimum wage, which as of 2015 was $7.25 per hour. Each state also formulates and regulates its own minimum wage, with some states implementing rates higher than the federal rate. The implementation of the Affordable Care Act over the next five years will have a minor impact on the industry. Employers with 50 or more employees that work 30 hours a week will be required to provide healthcare coverage or pay a fine. However, the large majority of firms in the industry employ less than 50 staff. Most major operators are currently reviewing the potential impacts of the new law on their businesses. distance smoking is banned outside a building. California was the first state to enact a statewide ban on smoking, with most other states imposing a ban in the mid to late 2000s. Smoking bans Smoking laws are generally enforced at the state level as the US Congress has not attempted to enact any nationwide federal smoking ban. Smoking is banned in restaurants, bars and non-hospitality workplaces in many states and some local jurisdictions ban smoking in outdoor areas. Each jurisdiction has developed legislation separately; however, most laws are relatively consistent. There are some differences pertaining to the circumstances in which ventilated smoking rooms are permitted and the Industry Assistance Level & Trend  The level of Industry Assistance is Lowand the  trend is Steady  Franchising laws A large proportion of industry establishments are operated under franchise agreements. There are both federal and state laws governing franchising, which vary from state to state. Franchising is regulated at the federal level by the US Federal Trade Commission and applied in any region within the United States. At the state level, various state agencies regulate franchises and laws vary between states. A state’s franchise laws usually only apply if the sale of a franchise is made in the state and the business is located in the state. Laws generally fall under three categories: disclosure laws, registration laws and relationship laws. Under the FTC Franchise Rule there are three elements of a franchise: the franchise has a trademark under which the franchisee is given the right to distribute goods and services; the franchisor has significant control of or provides significance to the franchisee’s method of operation; and the franchisee is required to pay the franchisor at least $500 before opening for business. Although the Chain Restaurants industry receives no formal assistance in the form of government aid or monetary compensation, there are industry associations that help the industry as a whole. For example, the National Restaurant Association provides industry news, research, sponsoring events, networking opportunities, and representation, among other things. There are also organizations that provide the same services on a more local level. WWW.IBISWORLD.COM Chain Restaurants in the US July 2015   34 Key Statistics Industry Data 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank Industry Value Added ($m) 33,693.3 34,537.7 34,223.6 33,390.4 33,995.5 34,454.3 36,476.2 39,148.0 39,520.5 40,324.6 40,936.0 41,442.7 42,092.7 43,033.2 44,003.9 5/30 79/1373 Establishments 27,681 28,582 28,965 29,040 29,756 30,056 30,019 30,529 31,295 31,929 32,576 33,043 33,763 34,407 35,117 11/30 237/1373 Enterprises Employment 673 1,574,913 699 1,592,609 715 1,637,326 728 1,573,894 745 1,571,502 756 1,595,550 746 1,664,383 757 1,706,763 773 1,748,108 786 1,769,471 799 1,800,500 809 1,817,633 821 1,837,693 833 1,871,790 843 1,910,554 26/30 4/30 833/1373 17/1373 Exports ---------------N/A N/A Imports ---------------N/A N/A Wages ($m) 27,404.0 28,603.3 28,887.8 27,866.5 28,286.3 28,814.7 30,104.4 32,210.4 32,847.2 33,375.5 33,829.6 34,224.7 34,656.6 35,436.0 36,232.2 5/30 54/1373 Domestic Demand N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Consumer spending ($b) 9,821.7 10,041.6 10,007.2 9,847.0 10,036.3 10,263.5 10,449.7 10,699.7 10,969.0 11,336.1 11,664.0 12,104.8 12,407.8 12,654.0 12,951.9 N/A N/A Revenue (%) 2.9 0.6 -6.0 1.8 1.9 4.8 7.3 2.8 2.4 1.9 1.4 2.3 2.5 2.0 19/30 729/1373 Industry Value Added (%) 2.5 -0.9 -2.4 1.8 1.3 5.9 7.3 1.0 2.0 1.5 1.2 1.6 2.2 2.3 19/30 796/1373 Establishments (%) 3.3 1.3 0.3 2.5 1.0 -0.1 1.7 2.5 2.0 2.0 1.4 2.2 1.9 2.1 14/30 513/1373 Enterprises Employment (%) (%) 3.9 1.1 2.3 2.8 1.8 -3.9 2.3 -0.2 1.5 1.5 -1.3 4.3 1.5 2.5 2.1 2.4 1.7 1.2 1.7 1.8 1.3 1.0 1.5 1.1 1.5 1.9 1.2 2.1 12/30 25/30 540/1373 821/1373 Exports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Imports (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Wages (%) 4.4 1.0 -3.5 1.5 1.9 4.5 7.0 2.0 1.6 1.4 1.2 1.3 2.2 2.2 21/30 744/1373 Domestic Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Consumer spending (%) 2.2 -0.3 -1.6 1.9 2.3 1.8 2.4 2.5 3.3 2.9 3.8 2.5 2.0 2.4 N/A N/A IVA/Revenue (%) 38.57 38.41 37.84 39.29 39.30 39.10 39.50 39.50 38.79 38.64 38.51 38.46 38.20 38.08 38.19 15/30 528/1373 Imports/ Demand (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Revenue ($m) 87,352.0 89,915.1 90,437.4 84,982.6 86,502.5 88,118.4 92,344.9 99,108.9 101,882.6 104,367.3 106,307.9 107,749.0 110,187.4 112,995.8 115,218.5 5/30 109/1373 Annual Change 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank Key Ratios 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sector Rank Economy Rank Exports/ Revenue (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Figures are in inflation-adjusted 2015 dollars. Rank refers to 2015 data. Revenue per Employee ($’000) 55.46 56.46 55.23 54.00 55.04 55.23 55.48 58.07 58.28 58.98 59.04 59.28 59.96 60.37 60.31 19/30 1262/1373 Wages/Revenue (%) 31.37 31.81 31.94 32.79 32.70 32.70 32.60 32.50 32.24 31.98 31.82 31.76 31.45 31.36 31.45 8/30 320/1373 Employees per Est. 56.90 55.72 56.53 54.20 52.81 53.09 55.44 55.91 55.86 55.42 55.27 55.01 54.43 54.40 54.41 2/30 230/1373 Average Wage ($) 17,400.33 17,960.03 17,643.28 17,705.45 17,999.53 18,059.42 18,087.42 18,872.22 18,790.14 18,861.85 18,789.00 18,829.27 18,858.75 18,931.61 18,964.24 15/30 1229/1373 Share of the Economy (%) 0.23 0.23 0.23 0.23 0.23 0.23 0.24 0.25 0.25 0.24 0.24 0.24 0.23 0.23 0.23 5/30 79/1373 SOURCE: WWW.IBISWORLD.COM Chain Restaurants in the USJuly 2015   35 WWW.IBISWORLD.COM Jargon & Glossary Industry Jargon AVERAGE CHECKThe average amount of money spent per check at an industry establishment. CHAIN RESTAURANTSRestaurants owned and directly operated by a single company. FRANCHISED RESTAURANTSRestaurant concepts sold to individual operators. Operators receive ordering, marketing, training, financial and management support from the franchisor. COMPARABLE STORE SALESA retail measure used to assess the true performance of retail outlets by taking out the effect of new store openings and only looking at the sales growth of existing stores. IBISWorld Glossary BARRIERS TO ENTRYHigh barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry. CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor. CONSTANT PRICESThe dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator. DOMESTIC DEMANDSpending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports. EMPLOYMENTThe number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry. ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control. ESTABLISHMENTThe smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise. EXPORTSTotal value of industry goods and services sold by US companies to customers abroad. IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States. INDUSTRY CONCENTRATIONAn indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%. INDUSTRY REVENUEThe total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED (IVA)The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation. INTERNATIONAL TRADEThe level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%. LIFE CYCLEAll industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services. NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals. PROFITIBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax. Chain Restaurants in the USJuly 2015   36 WWW.IBISWORLD.COM Jargon & Glossary IBISWorld Glossary continued VOLATILITYThe level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%. WAGESThe gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure. www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com At IBISWorld we know that industry intelligence is more than assembling facts It is combining data with analysis to answer the questions that successful businesses ask Identify high growth, emerging & shrinking markets Arm yourself with the latest industry intelligence Assess competitive threats from existing & new entrants Benchmark your performance against the competition Make speedy market-ready, profit-maximizing decisions Who is IBISWorld? We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. 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This document was uploaded on 10/16/2015.

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