Report: Chain-Restaurant Slugfest Ahead
One day, will all the restaurants in America be units of national chains such as Olive Garden or Chili's? Not according to a new report on the chain-restaurant sector from research firm IBISWorld. The report, "Too many cooks in the kitchen: Restaurants consolidate or close as consumers spend less," sees a mature industry that will grow less than 3 percent a year over the next five years.
Major expansion will come overseas -- or it will be taken out of the hides of other national chains, the report projects. Big chains capture less than 40 percent of the restaurant dollar, and apparently that's the cut they're going to get. Smaller chains and single-location restaurants are forecast to hang onto their majority share of the market.
Take that, Red Lobster, from Joey's Fish Shack on the corner.
Growth in the last five years for the chains was slightly negative. The industry has basically been treading water through the downturn.
It may sometimes feel like all the big chains are already owned by one of the giant conglomerates in sit-down dining: Darden Restaurants (DRI), which has Olive Garden, Red Lobster and four more brands; Brinker International (EAT), which recently shed On the Border and pared down to Chili's and Maggiano's Little Italy; or DineEquity (DIN) of IHOP and Applebee's fame. But in fact, big players control less than 30 percent of the major restaurant chains, IBISWorld found. That's an unusually low level of concentration within the sector, the study notes -- especially one that's been trying to take over the restaurant world full-bore since the end of World War II.
So expect consolidation to be a big trend over the next five years, as chains look for economies of scale and technological advantages they can gain from allying with the biggest chain operators. The IBISWorld study identifies the ability to quickly adopt new technology as a key success factor for the industry.
The report runs through all the top players' recent performance, which highlights how weak Denny's (DENN) performance has been in recent years. While most of the big-chain operators had a down year last year, only Denny's has seen negative revenue growth for three years running now. The study makes one wonder if Denny's could do better allied with DineEquity, or maybe Bob Evans (BOBE) or Cracker Barrel parent CBRL Group (CBRL).
One thing's for sure -- it's going to be a slugfest between the big chains for several years to come. The result will likely be good prices for diners, and slim margins for the competitors.
Photo via Flickr user Amy the nurse
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