Technomic: Big chains and delivery fueling a stronger 2019

Better performances by a handful of big concepts are putting Top 500 chains on pace for their best year since 2015.
Photograph: Shutterstock

The 500 largest restaurant chains are on pace for their best year since 2015 as they gradually emerge out of a surprising three-year slump thanks largely to strong performance by a handful of the largest concepts.

The 500 largest chains are on pace to generate $329.1 billion in U.S. sales this year, which would be a 3.7% increase over 2018, according to the Technomic Top 500 Chain Restaurant Report Forecast Update, released this week. Technomic is a sister company of Restaurant Business.

That would be the largest such increase since 2015, a period marked by weak same-store sales and even weaker traffic.

At least part of the reason could well be delivery. Restaurant chains have considerably expanded their use of third-party services to get meals directly to consumers’ homes, which could be pulling sales up.

“The proliferation of third-party delivery partnerships” could have provided enough of a top line boost at many chains to improve sales for the Top 500 as a whole, said Kevin Schimpf, manager of industry research with Technomic.

The Top 500 is ranked based on U.S. system sales, meaning the total sales generated by both company-owned locations and franchised restaurants. The sales estimates in the forecast are based on figures from numerous sources, including Technomic Transaction Insights, financial releases and news reporting on operator earnings.

Source: Technomic

A handful of large-scale chains also appear to be thriving, which is also helping drive sales for the chain restaurant industry as a whole.

Most notable is Chick-fil-A, which Technomic projects to finish the year with $11.5 billion in U.S. system sales, which would be a 15% increase over last year. That would make it the nation’s third-largest chain, up from No. 5 in 2018.

It’s not the only big chain generating big growth numbers. A handful of strong-performing, large chains appear to be pulling up the Top 500 thanks to their combination of size and sales growth.

The performance of just six chains—Chick-fil-A, McDonald’s, Starbucks, Taco Bell, Domino’s and Chipotle Mexican Grill—represents nearly half of the growth for the 500 largest chains.

“The Top 500 is quite top-heavy,” Schimpf said. He noted that the 10 largest chains account for 40% of the Top 500’s total sales, and the 100 largest account for 80%.

“How those industry giants perform at the top really has an outsized effect on the momentum of the group as a whole,” he said.

McDonald’s, for instance, is projected to generate 4% system sales growth this year. That’s not as strong as any of the other five, but its immense size means it will still generate more additional sales this year than any of them.

Source: Technomic

Indeed, the $1.5 billion sales increase McDonald’s is projected to add this year would on its own be the 41st-largest restaurant chain in the U.S.

The Chicago-based burger giant is expected to see sales rise to more than $40 billion domestically for the first time in its history.

No. 2 Starbucks, meanwhile, is expected to grow by 8.5% this year, to $21.3 billion. Taco Bell is expected to remain the fourth-largest chain, with $11 billion in system sales and 5.5% growth this year.

Rounding out the top five: Burger King, expected to grow by 2%, to $10.1 billion, leapfrogging Subway. The sandwich chain is expected to fall to No. 6 after declining by 4% to $10 billion.

Domino’s is expected to grow 10.5%, to $7.3 billion, which would keep it as the No. 9 chain, just behind Dunkin’.

The strongest growth outside of Chick-fil-A is expected to come from Chipotle, which is projected to grow system sales by 11%, to $5.3 billion—good to be the 12th-largest chain.

Chipotle has regained its own momentum this year thanks to strong growth in digital orders and delivery.

The chains are all limited-service concepts. Technomic expects those restaurants to grow sales by 4.3%, just under their five-year average of 4.4%.

As has been the case for years, full-service restaurants are growing more slowly, with expected sales growth of 1.8%, right in line with the sector’s five-year average. In that sector, however, fine dining leads the pack, thanks to a strong economy: The higher-end chains’ sales are expected to grow 4.3%.

Casual dining, on the other hand, is expected to grow just 1.6%.

This year is expected to bring about a change at the top of the casual-dining heap, however: Olive Garden, which Technomic expects to grow by 5% this year, is on pace to overtake Applebee’s (expected to decline by 3%) as the largest in the sector.

“Olive Garden has been a steadying influence on the segment,” Schimpf said. “Unlike so many casual-dining chains, it has kept its location count steady and has found meaningful and sustained same-store sales growth.”

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