The Power Elite

Source: Restaurants and Institutions
Date: 7/1/2006

With the threat posed by high gasoline prices so much on restaurant executives' minds, two numbers illustrate an interesting example of global financial power. In 2005, the United States' bill for imported oil hit an all-time high of $229 billion. Another record set last year was the $259.5 billion in aggregate global sales by the 400 largest U.S.-based restaurant chains.

This year's Top 400 chains' performance was 9.3% above the $237.4 billion in 2004 sales by last year's list. While that increase may not be as large as those for oil imports or gas prices, it does convey the U.S. restaurant industry's size and strength. This year's 400 largest brands operated in 258,900 locations around the world, an increase of nearly 10,000 units over last year.

The multi-unit-restaurant business did not merely withstand the economic, social, legislative and natural-disaster hurdles it confronted in 2005, it flourished. Is it any wonder, then, that restaurant companies have won investment interest from private equity firms and renewed respect from Wall Street?

For 42 years, Restaurants & Institutions ' ranking of the Top 400 chains has been the benchmark by which the industry measures its power and personality.

That personality is determined by the brands that make up the R&I Top 400. Each new list is a little different than the last, enriched by arrival of concepts grown large enough to join the top tier. Chains making their first appearances in the ranking this year exemplify the industry's richness. They include sushi haven Nobu at the top of the price scale as well as no-frills limited-menu (burgers and dogs) crowd-pleaser Five Guys Famous Burgers & Fries at the opposite end. Seafood-focused Mitchell's Fish Market and The Oceanaire Seafood Room are new this year, as is grilled-meat specialist Texas de Brazil.

Of special significance is the Top 400 debut of Pho Hoa. Beginning in 1983 with a single storefront restaurant in San Jose, Calif., the concept grew to a 73-unit chain (as of year-end 2005) that is indicative of the business opportunities foodservice provides. Pho Hoa's menu of several varieties of pho --Vietnamese noodle soup--is largely unchanged; it is American culinary culture that has changed around it, becoming more ethnically diverse.

Strength and Power

Amid changes there are pockets of constancy, and in the realm of chain restaurants, nothing is more assured than the global love of burgers. More than one-third of all sales by this year's Top 400 chains ($87.4 billion; 33.7% of the total) were generated by burger-specialty concepts.

Unaltered as well is the traditional industry dominance by the very largest chain brands. The 10 biggest brands' systemwide sales of $129.8 billion was approximately half of the Top 400's total. These chains' 125,980 units account for 49% of the Top 400's locations.

But determined entrepreneurship continually proves to be even stronger than the power of the chain-restaurant industry's largest brands. This month, a restaurateur somewhere in the United States will sign the lease for a second location. There is nothing to keep that concept from ultimately becoming one of R&I 's Top 400 chains.

Rules of the Ranking

by: Scott Hume

Restaurants & Institutions ' 42nd annual Top 400 ranks systemwide (global, company-owned, franchised and licensed) food-and-beverage sales for the largest restaurant chains. It ranks sales strength of brands, not companies.

· Chains, as defined for this report are foodservice concepts with five or more units operating under a single brand name, such as Denny's. Exceptions have been made where a concept operates under different brands depending on the market (such as Souplantation/Sweet Tomatoes).

· Sales and unit figures listed encompass all food-and-beverage outlets, domestic and foreign, for each concept unless otherwise indicated.

· Multiconcept operators are excluded as single entries although individual multi-unit concepts they operate may qualify. For example, Seattle-based Restaurants Unlimited is not included, but its Kincaid's Fish, Chop & Steak House and Palomino Restaurant Rotisseria Bar concepts are eligible and are individually ranked as chain brands.

· Primary sources of information are the Top 400 chains themselves. Survey forms are sent to more than 600 companies in March and sales information for most chains comes from those survey forms or from filings with the Securities and Exchange Commission. Some companies, however, choose not to share financial information or are unwilling or unable to provide systemwide totals that include sales by franchised as well as by company-owned units. In such cases, R&I uses all available resources to estimate sales or average unit volumes as accurately as possible.

· Sales numbers used in the Top 400 ranking are for calendar 2005 or for fiscal years ending between July 1, 2005, and April 1, 2006, unless otherwise indicated.

· The number in parentheses below the larger ranking number indicates the concept's rank in 2004, if applicable.

· When two or more chains have the same reported or estimated sales, chains with company-supplied numbers are given precedence in ranking over those with estimated sales. After that, ties are resolved alphabetically.

· The Top 400 does not include chains headquartered outside the United States. Exceptions can be made for chains operated by overseas companies or Canadian concepts, such as Tim Hortons, that are owned by U.S. companies.

· Companies that believe a chain or chains they operate should be considered for the 2007 Top 400 ranking should send information to Top 400, Restaurants & Institutions , 2000 Clearwater Drive, Oak Brook, Ill. 60523.

Contact writer at shume@reedbusiness.com