Battle for No. 3

Subway retains the third spot … for now.
Photograph by Jason Little

top 500

There’s a lot going on among the Top 10 largest chains in the restaurant industry. While it’s typically been just three chains over the $10 billion mark in sales, there are now five: McDonald’s, Starbucks and Subway—and now Taco Bell and Chick-fil-A. And Burger King and Wendy’s aren’t far behind.

In years past, the numbers have forced a conversation about the sheer size and power of McDonald’s. And while it is still clearly the dominant force in the industry, bringing in $38.5 billion last year, the other big players have an equally massive impact. “The numbers show how top-heavy the industry is,” says Kevin Schimpf, manager of industry research for Technomic.

In 2018, according to Schimpf, the battle for the No. 3 spot on Technomic’s Top 500 ranking was close. Subway retained the rank, with Taco Bell coming in at No. 4 and Chick-fil-A ranked in the fifth spot. This year, he expects the race to be even closer. “It’ll be interesting to see who goes into the No. 3 spot: How far will Subway fall, versus how fast can the other two grow?” he says.

Subway had another year of declining sales and units in 2018. It now has fewer than 25,000 locations in the U.S., the lowest level since 2011, following the closure of more than 1,100 units last year. Previously, the chain closed 359 locations in 2016 and 836 in 2017. “As part of the optimization plan we shared last year, to achieve this goal, some owners will close, relocate, or remodel their locations, and that will result in slightly fewer, but more profitable restaurants,” a Subway spokesperson said in January. In addition to having its franchisees remodel hundreds of restaurants, Subway introduced its Subway MyWay Rewards loyalty program in 2018, as well as remote ordering, third-party delivery and new menu items. Despite these efforts, its sales fell 3.6% in 2018.

At the same time, both Taco Bell and Chick-fil-A continued to grow. “Taco Bell continues to turn out really solid years,” says Schimpf. The Mexican chain, owned by Yum Brands, grew its sales by 5.8% in 2018, and it also increased its unit count 2.2%.

Chick-fil-A is the real growth story, increasing sales 13.5% in 2018, on the back of 14.2% growth in 2017. Its unit count, too, continued to rise. Unlike many of the chicken chains in the Top 500, Chick-fil-A is competing with McDonald’s, Burger King and others. So much of its success, says Schimpf, is driven by a focus on service. It straddles the line between fast food and a place customers can go and sit to have a meal, he says. “And when they open in a new market, there’s still so much novelty. We’ve seen it for the last few years. Going in a new market still creates such a big draw.” The average unit volumes for those new locations are off the charts, he says. There’s the consumer appeal and craveability that other chicken chains have, but Chick-fil-A has more going on, with its dedication to experience as well as a focus on quality and marketing great ingredients. “It shows no signs of slowing significantly soon,” Schimpf says.

Source: Technomic Top 500 Chain Restaurant Report

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