The quick serve sector naturally lends itself to somewhat lower pricing in comparison with other restaurant segments. While that might mean they have a chance to get back on their feet faster it is no guarantee in this economy.
Burger King Holdings, for example, said in its annual report for 2011 that it was enhancing its menu to reach a broader range of customers as well as pursuing other initiatives to increase profitability. Overall unemployment levels, consumer demand, and other economic factors naturally remain serious issues. Burger King also said it is revamping its restaurants to increase their appeal with customers. The effectiveness of this overhaul could have a major influence on the company's future revenue growth.
The casual dining sector has also had a tough time. Back in 2008, company-owned Bennigan's locations shut down practically overnight when then-parent Metromedia Restaurant Group filed for chapter 7 bankruptcy. Bennigan's has since been bought out buy new owners who are trying rebuild the chain.
Smaller players in casual dining have not been safe either. Regional casual dining chain Charlie Brown's Steakhouse in New Jersey filed for bankruptcy in 2010, shut locations, and was later bought out.
It will come down to how nimble these companies are in matching their costs to the current market and proving their value to consumers again.
Re: emerging markets During the 4th quarter conference call in February, CFO Rick Carucci was pretty clear about the direction Yum! was heading. He said it will continue to sell company-owned US restaurants to franchisees so that it can focus more on international markets.
"Our philosophy is really pretty simple," Carucci said. "We reduce company ownership in highly penetrated or under-performing markets, and we increase exposure in emerging and under-penetrated markets" such as China, India, Russia, Africa, France and Germany.
(Think those consumers ever heard the rumors that KFC changed its name from Kentucky Fried Chicken because it doesn't really sell chicken? To wit: "KFC does not use real chickens. They actually use genetically manipulated organisms. These so called "chickens" are kept alive by tubes inserted into their bodies to pump blood and nutrients throughout their structure. They have no beaks, no feathers, and no feet. Their bone structure is dramatically shrunk to get more meat out of them. This is great for KFC because they do not have to pay so much for their production costs. There is no more plucking of the feathers or the removal of the beaks and feet."
You know what amazes me about Taco Bell? The fact that consumers thought a regular old taco was so lacking in flavor that it needed a Dorito flavored shell. Can someone say "overkill"?
Interesting post, @Joao-Pierre! SO glad that Taco Bell resolved the "Beef or not beef" question that was dragging down revenues. As an Angelino ex-pat I love Taco Bell, though I would be the size of the Liberty Bell if I ate much of it!
I'm questioning though, how much growth is really coming from the rebound in US consumer spending. Seems like a lot of the growth is international in emerging markets.
I just saw a study that says younger people are flocking to fast casual restaurants in greater numbers. There is a preference for restaurants where you can see the food prepared, so chains like Chipotle are doing well. As the economy and outlook improves, people seem willing to go out more often. It really looks like things are looking up.
While the economy is still limiting the number of times per week consumers opt to eat out, there are signs of improvement in the industry. The National Restaurant Association's Restaurant Performance Index (RPI) remained above 100 for the fourth consecutive month in February (the most recent stats available). The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.9 in February, up 0.6 percent from January's level of 101.3.
The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction.
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 101.9 in February – up 1.3 percent from January's level of 100.6. In addition, the Current Situation Index stood above 100 for the fourth consecutive month, which signifies expansion in the current situation indicators.
Which sector of the restaurant industry do you think is poised to benefit the fastest if and/when tthe economy improves?
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