Last year was not a great one for chain restaurants. Total sales among chains on the Technomic Top 500 Chain Restaurant Report rose just 3%, well below menu price inflation and the lowest rate since the Great Recession.
But within that number came a great shift of consumer demand, away from more traditional concepts and toward hot, new brands or burgeoning sectors. And within sectors, consumer shifted their money toward concepts they perceive to be better, either because of their service or their food quality or some combination of all of it.
The shift was clearly beneficial for fast-casual restaurants. Sales of such chains on the Top 500 grew 9% last year. No other sector was able to grow enough to match typical menu price increases of about 4%.
But the concept of “fast casual” is fuzzy to begin with. And simply being fast casual did not guarantee success last year.
Consider that most of the bankruptcies that dominated headlines last year came from fast-casual brands, many of which at one point received millions in investment cash and were considered hot concepts. Then consider the plight of fast-casual pizza.
Every fast-casual pizza chain on the Top 500 saw sales fall last year, notably the biggest such chain, MOD Pizza. Among the broader Technomic Top 1,500 chains, fast-casual pizza sales fell 5% last year.
The sector we find the shift most pronounced is the burger business. Total sales of limited-service burger chains on the Top 1,500 grew just 1.4%, a clear sign of weakness among some of the very biggest chains, notably McDonald’s.
Yet that weakness was evident among each of the biggest burger chains. Sales last year among the five biggest such concepts, including Wendy’s, Burger King, Sonic and Jack in the Box, declined 0.04%. But Hardee’s, Carl’s Jr., White Castle and Steak n Shake also declined last year, each by at least 5%.
Meanwhile, three other fast-food burger chains, Whataburger, Culver’s and In-N-Out, each grew sales at least 9% last year.
“I’m a huge Culver’s fan, but putting that aside, they have been a very strong chain over the last decade or so,” Kevin Schimpf, senior director of research and insights for Technomic, said on this week’s A Deeper Dive podcast. “They’ve kind-of slowly and subtly moved up the ranks and they’re a pretty successful brand, too.”
And fast-casual burger chains generally didn’t benefit from the weakness among the major chains, either. Five Guys, which was beset by many of the social media-fueled frustration over prices last year, saw sales decline nearly 1%. Shake Shack grew 15% and Freddy’s 7%. But several fast-casual burger chains struggled. Farmer Boys and Smashburger both saw sales declines. BurgerFi filed for bankruptcy.
It’s not just burgers, of course. Sales for three traditional fast-food sectors, burgers, pizza and sandwiches, grew sales less than 1% last year.
In theory, consumers ate more Mexican and chicken. But both those sectors were carried by large chains that continue to resonate with consumers.
The most symbolic of that shift can be seen in the rise of Raising Cane’s, now a Top 20 chain and bigger than KFC, at one point the largest chicken chain in the U.S., but which, as we pointed out yesterday, will soon be the fifth largest.
Taco Bell grew sales 8% last year to lead fast-food Mexican. But each of the next five quick-service Mexican chains lost sales: Del Taco, Taco John’s, Taco Bueno, TacoTime and BajaFresh.
In this case, customers are definitely going to fast-casual concepts. Fast-casual Mexican chains grew sales more than 10% last year. And four of the top five fast-casual Mexican brands, including Chipotle, Qdoba, Torchy’s Tacos and Café Rio, all grew sales.
Share trading can also be seen in the full-service world, where brands like Denny’s, Cracker Barrel and IHOP have been donating share to breakfast-and-lunch brands like First Watch. And in the casual-dining sector, Texas Roadhouse and Chili’s have been thriving while much of the sector has been barely holding serve, if they’re not fending off bankruptcy.
The question to me is whether this is simply the result of a weak market, or whether this is an intensification of a shift in where consumers want to go. Last year was a weak year for restaurants, in which a wide swath of consumers were cutting back on spending.
Many of those cutting back had lower incomes, which hurt chains that cater to a large number of such customers. And when people are cutting back, they focus their visits on chains that give them what they want, including quality, service and speed.
But we also believe this is a long-term shift in consumer demand. Many of the more traditional chains, such as the sandwich chain Subway or the burger concept Hardee’s or much of the family-dining sector, have been struggling for years. And consumers are replacing those visits with visits to other concepts they simply like more right now.