A restaurant operator can’t just maintain sales from one year to the next. It’s important for that operator to at least meet inflation. In restaurants’ case, in other words, a location whose sales did not grow 8% lost customers. Inflation was that bad last year.
And so, in our constant effort to determine the real winners in the industry, we broke out our calculators. Or at least we broke out an Excel spreadsheet, along with average unit volume data from Technomic’s Top 500 Chain Restaurant Report. And then we determined how well the average location from the largest fast-food chains in the U.S. have performed over the past decade, when adjusted for price increases.
The result was unsurprising. Mostly.
Two concepts stand out in particular: Raising Cane’s and Chick-fil-A. Both companies have not only increased unit count and average unit sales, they have easily bested inflation over the past decade, and by a long shot.
Raising Cane’s, whose sales volumes have surged in recent years as consumers discovered that they really like chicken fingers, has increased its average unit volumes by 112% after adjusting for inflation since 2012. Its unit count over that time grew 342%. As such, its system sales have grown by more than 1,000% over that period. It’s why the company believes it can become a top 10 chain by the end of the decade.
At Chick-fil-A, which has provided the blueprint for how a company surges into the Top 10 and then the Top 3, has increased its average unit volumes by 87% over that same time period, when adjusted for inflation. That’s particularly impressive considering that the chain started from a much larger base, where growth is tougher to come by. The chain, which is not open on Sundays, has grown unit count at a slower clip, “just” 68%.
Average unit volumes are a key metric in a restaurant chain. Grow volumes and profits (usually) come with it. Higher profits enable chains, or franchisees, to pay off new units more quickly. That frees up cash for more investment and yields more growth.
We also like it because they show just how much demand there is for the average location, and by adjusting for inflation we price from the equation. And 10 years? Well that’s a nice, even number.
Both Chick-fil-A and Raising Cane’s have grown their unit volumes even while generally adding locations at a relatively fast clip, meaning consumer demand is continuing to outpace their ability to add to their supply of restaurants. In other words, absent some sort of external event that would drive customers away for one reason or another, both should continue to grow sales for the foreseeable future.
The same could also be said for Jersey Mike’s, the sandwich chain that has consistently demonstrated growth over the years. Its unit volumes have grown more than 50% over the past decade, adjusted for inflation, while it increased its restaurant count by more than 300%. Its units average $1.2 million, remarkably high for a sub-sandwich chain.
One other chain you won’t see on the above graphic is McDonald’s. The burger giant’s average unit volumes are up 11% over the past decade, which is strong, particularly given its size and performance versus competitors. But its unit count has also declined 5% over that same timeframe. And many of those closures are lower-volume Walmart locations without drive-thrus that have lower unit volumes. That inflates unit volume (and same-store sales) growth.
It would also suggest that the company be more cautious about developing new locations and not get overly aggressive. Its inflation-adjusted unit volumes underperformed the 27 chains we analyzed—whose median unit volume growth was 12% over the past decade. There may be demand for more McDonald’s, but it’s not quite as strong as it might appear.
The numbers on the other end of the spectrum are also unsurprising with one key exception: Panera Bread. The bakery/café chain’s unit volumes have fallen 7% over the past decade with decent unit growth, despite the chain’s addition of drive-thrus.
It also highlights the difficulties with Subway. Even after recent increases in same-store sales and unit volumes, and accounting for the closure of nearly one out of every five of its locations, its volumes are still down 24% adjusted for inflation. That means its franchisees are making a lot less money now than they did 10 years ago, which explains why so many of its restaurants have closed. And why its sale process is taking this long.