As we looked at the Technomic Top 500 Chain Restaurant Report this week, we found one intriguing statistic: Remove McDonald’s and Subway from the equation, and the other 498 restaurant chains on the ranking have more locations than they did in 2019.
The two chains have closed a combined 3,200 restaurants since then. That includes more than 1,400 restaurants in 2021. As two of the three largest restaurant chains by unit count, those kind of numbers tend to influence results from the entire ranking.
Yet their closures last year did not, apparently, impact their sales growth. Both chains increased average unit volumes to rates they haven’t been in years.
McDonald’s shrunk by nearly 2%. Only five chains among the 50 largest had a higher percentage of unit closures and only Subway had more absolute closures than the burger giant’s 239.
Yet it generated $5 billion in additional sales last year, about the U.S. system sales of KFC. It did that thanks to much higher unit volumes.
The average McDonald’s now generates $3.4 million in revenues per year. That is among the highest numbers in fast food.
McDonald's units and AUVs
Source: Technomic
That’s been the burger giant’s strategy for years. But more recently it has taken that to a new level. Over the past five years, for instance, McDonald’s unit count has shrunk by 5% in the U.S.. But its system sales have increased 26% thanks to 32% growth in average unit volumes.
Franchisees have been raising prices and the company has shifted away from a traffic-at-all-costs strategy into one that emphasizes higher average check from consumers willing to pay for convenience. Operators have been rewarded with stronger profitability and record-high valuations for their restaurants.
Subway is earlier in this process. And its need for closures is considerably stronger than that of McDonald’s.
Subway is still trying to recapture years’ worth of lost volumes. The company overbuilt, adding too many sandwich shops in too many locations too close together. That, and a host of other problems, led to years of sales declines—unit volumes peaked at $481,000 in 2012 and declined until 2017, when they fell to $410,000. Sales were improving moderately until the pandemic, when they hit a decades-old low of $362,000.
The company has closed about 1,000 restaurants a year since 2014, when it peaked at 27,000 locations. That included last year, when the chain closed an additional 1,100 units, to bring it to 21,000 restaurants.
But its average unit volumes more than recovered from the pandemic, to $435,000. That’s the highest volume since 2014, according to Technomic. The result was a 13% increase in overall U.S. system sales despite the closures.
Subway AUVs
Source: Technomic
Subway did this with a large menu overhaul and heavy marketing and, according to franchisees, price increases—much like McDonald’s.
Yet it’s worth noting that legacy chains, particularly those with a large number of locations, often need to close units to regain unit volumes. McDonald’s smartly slowed its development two decades ago to get its unit volumes back up. And more recently when sales stumbled, it began closing units altogether. That has helped the chain generate some of the strongest unit volumes in the business, and the company has hopes to grow again.
Subway has a way to go before it can get to that level. It has a lot more units that need to be closed, for one thing. And at least some of the success last year is clouded by pandemic-related issues. But that chain needs stronger unit volumes, perhaps more than any other concept in the U.S. That makes 2021 a step in the right direction.