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Technomic Top 500 preview: Sales at country's biggest chains improved in 2018

The largest restaurant concepts proved resilient last year, while Chick-fil-A leapfrogged Burger King and Wendy's to become the fifth-largest chain and Panera Bread joined the Top 10.
Photograph courtesy of Chick-fil-A

Sales at the 500 largest restaurant chains in the U.S. rose 3.3% last year, according to Technomic's Top 500 Chain Restaurant Advance Report, as the industry proved more resilient than expected in the face of a challenging environment.

The chains generated $318 billion in total sales in 2018, up from $308 billion the year before, as both fast-casual and fine-dining chains grew quickly on the back of an improving economy.

But most sectors saw better overall performance from a difficult 2017. Indeed, the industry’s growth last year proved to be somewhat surprising given weak traffic and same-store sales, as well as bankruptcy filings at numerous chains and store closures.

“It was a lot better picture than we initially anticipated when we started looking at the numbers and reading the tea leaves,” said Joe Pawlak, managing principal with Technomic, a sister company of Restaurant Business.

To be sure, total unit growth slowed to 0.7%, from 1.2% the previous year, as companies kept growth to a minimum or closed locations. Top 500 chains operated 228,646 restaurants.

Total Top 500 Sales By Year

Source: Technomic Top 500 Advance Report

Much of the overall sales growth was concentrated at the top, thanks to strong performances by some of the country’s largest restaurant companies.

Seven of the 10 largest chains, for instance, saw their sales growth in 2018 improve over their growth rates in 2017.

That included Chick-fil-A, which leapfrogged both Burger King and Wendy’s to become the country’s fifth-largest restaurant chain, with estimated sales last year of nearly $10.2 billion—up 13.5% over 2017.

Chick-fil-A’s double-digit annual sales growth has been remarkable. It operates less than 2,400 locations—fewer than any other chain in the top 10 outside of No. 10 Panera Bread—but generates unit volumes of more than $4 million while being open only six days per week. It is widely expected to finish 2019 as the country’s No. 3 restaurant chain.

“It’s all about service,” Pawlak said. “That’s what they do, and they do it very well.” Though Chick-fil-A tends to have higher prices than its fast-food rivals, its customers love the chain for that service and a perception of higher quality.

Sales Change by Segment

Source: Technomic Top 500 Advance Report

The top four chains remained unchanged. McDonald’s, as it does every year, held the top spot, with 13,914 restaurants and $38.5 billion in sales, up 2.4%. Starbucks was second, though its sales accelerated an estimated 8.3% to nearly $20 billion, according to Technomic.

Subway somewhat surprisingly held onto the No. 3 spot, with $10.41 billion in sales compared to $10.36 billion in sales for No. 4 Taco Bell. Subway’s sales fell 3.6% as the chain closed units and struggled with declining unit volumes.

The newest entrant into the top 10 was Panera Bread, which surpassed Pizza Hut to join the list of the very largest chains. It is the first fast-casual chain to make it into the top 10. Panera’s sales rose 4.7% to an estimated $5.8 billion.

Another fast-casual chain has continued growing, too: No. 12 Chipotle Mexican Grill’s sales rose 8.7%, to $4.8 billion.

Overall, fast-casual chains continued to grow strongly last year, with total sales for such chains rising 7.3% on the back of strong performance from the aforementioned concepts as well as No. 21 Panda Express (up 13.1%), No. 36 Zaxby’s (7.4%) and No. 47 Raising Cane’s (21%), according to Technomic.

Top 10 Chains

*Technomic estimate / Source: Technomic Top 500 Advance Report

Fast-casual chains’ sales growth slowed from the 8.5% growth the year before. It was the only sector in which sales growth slowed in 2018, but its performance was still stronger than expected.

Overall, consumers continued to flock more to limited-service chains, where sales rose 4.3% compared to just 1.6% for full-service concepts.

And full-service chains for the second straight year reduced unit count. The number of full-service restaurants in the Top 500 declined 0.4% last year to 28,135 locations.

Casual-dining restaurants led the decline, with a 0.7% reduction in unit count. There are now fewer than 18,000 casual-dining locations in the Top 500. Such restaurants had grown annually before declining for the first time in 2017.

That might help improved performance at some chains. Same-store sales at casual-dining concepts such as Applebee’s and Chili’s Grill & Bar improved last year. “It’s helping them focus on the locations that are doing well,” Pawlak said.

But he also noted that a number of casual-dining chains continued to struggle. Sales at TGI Fridays declined 6.5%. Ruby Tuesday sales fell 13%.

“I still think there’s going to be a little more retrenchment and more closures,” he said.

One full-service subsector that can do no wrong: steak. Such chains’ sales rose 5.6%—far higher than the full-service average. Every other full-service segment had total sales growth less than 3%.

The performance of steak chains could suggest an improving economy is leading some consumers to splurge.

“People are feeling good about the economy,” Pawlak said. “They have money in the pocket. And so they go for upscale steak. That’s where people are treating themselves.”

But it could also be evident among fast-food chains, where concepts such as Chick-fil-A and Culver’s, which is up 10%, are taking business from lower-priced concepts such as McDonald’s.

“People are trading up in their experiences,” Pawlak said. “They want something better so maybe they invest a little more.”

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