Restaurants
Description
Companies in this industry operate restaurants and other eating places, including full-service restaurants (FSRs), quick-service restaurants (QSRs), cafeterias and buffets, and snack bars. Major companies include Bloomin' Brands, Darden Restaurants, McDonald's, Starbucks, and Yum! Brands (all based in the US), as well as Greggs (the UK), Jollibee (the Philippines), Skylark Group (Japan), and Restaurant Brands International (Canada).
The global food service industry is forecast to grow about $4 trillion by 2030 at a 3% compound annual growth rate (CAGR) from the 2024 to 2030, according to Grand View Research (GVR). Cross-border franchising of restaurants has helped boost growth in recent years.
The US restaurant industry includes about 570,000 restaurants with combined annual revenue of about $600 billion.
COMPETITIVE LANDSCAPE
Restaurants are adopting new technologies and services to compete for consumers who increasingly value convenience. Mobile payments, online ordering, and home delivery are becoming more commonplace in both the full-service and limited-service segments of the industry. Pricing is also becoming a more important issue as customers are able to choose from a growing variety of dining options, including pre-packaged meals from outlets such as grocery stores, convenience stores, and coffee shops. Emerging competitors such as providers of subscription meal kits could further disrupt the industry in the future.
Factors that can influence global competition in the restaurant industry include reliable access to infrastructure, stable relationships with ingredient suppliers, and the ability to adapt menus to suit local tastes. Some restaurants rely heavily on imports of fresh produce and other ingredients, which can make them vulnerable to trade disruptions. Several large American chains are increasing their efforts to expand globally through franchising, while some international restaurant chains are becoming more competitive within the US market.
The profitability of individual companies can vary: while QSRs rely on efficient operations and high volume sales, FSRs rely on high-margin items and effective marketing. Large companies have advantages in purchasing, finance, and marketing. Small companies can compete by offering superior food or service. The US industry is highly fragmented: the 50 largest companies account for about 15% of revenue.
Competitive Advantages:
Trendy Menus – Restaurants that continually adapt their menus in response to changing consumer tastes often stand out from competitors that stick to more traditional fare. For example, establishments have increased sales in recent years by adding new breakfast items, snacks, and healthy dishes to their menus in response to rising customer demand.
Focus on Convenience – Restaurants are investing in mobile technology, expanding their delivery networks, and making other upgrades to provide faster service and additional convenience for customers. Conveniently located establishments near customers’ homes and workplaces are well-positioned to compete not only with other restaurants but also with neighborhood supermarkets and convenience stores.
Strategic Pricing – Restaurants are under constant pressure to keep their prices competitive while accounting for ever-rising costs of ingredients and other key inputs. Operators attempt to maintain healthy margins by closely monitoring the profitability of individual menu items and adjusting prices according to changes in demand and operating costs. Offering lower-priced value deals can increase traffic but also runs the risk of eroding overall sales.
Companies to Watch:
McDonald's has more than 38,000 restaurants serving burgers and fries in about 100 countries. More than 90% of the company’s restaurant locations are run by franchisees or affiliates.
Yum! Brands — whose flagship chains include KFC, Pizza Hut, and Taco Bell — is the largest fast-food operator in the world in terms of number of locations, and it trails only McDonald's in global sales. The company is pursuing growth by expanding its franchising business in Asia; in 2016 it spun off its Chinese operations into a separately traded public company.
Starbucks, the world's largest coffee retailer, has about 30,000 coffee shops in 80 countries. The company also sells products through grocery stores and food service customers, and it earns additional revenue through brand licensing.
Darden Restaurants is the top casual-dining operator in the US and Canada, with a collection of chains including Olive Garden, LongHorn Steakhouse, Eddie V's, and The Capital Grille. Many of the company's brands cater to families by offering mid-priced menu items in primarily suburban locations.
PRODUCTS, OPERATIONS & TECHNOLOGY
The restaurants and other eating places' meals, snacks, and nonalcoholic beverages account for 90% of the total industry revenue, and alcoholic beverages account for about 10%.
At QSRs, customers generally order and pay before eating. While most QSRs are fast-food restaurants, QSRs also include fast-casual restaurants, which offer higher quality, more expensive food without table service. In FSRs, waiters take orders, serve beverages and meals, present the check, and process payment. FSRs include casual dining (full bar); family dining (limited bar); and fine dining establishments.
The industry includes national and regional chains, franchises, and independent operators. The majority of companies are independently owned and operated, although many QSRs are franchises of large national chains. Franchises allow individual owners to leverage a well-known brand name and benefit from the purchasing efficiencies and operational expertise of the franchiser. Franchise agreements generally cover a specific geographical market and outline restaurant operating requirements, such as hours of operation, menu offerings, and pricing.
The food preparation area of a restaurant is known as the "back of house," while the dining area is known as the "front of house." Food prep areas include the kitchen, cold storage, and dishwashing areas. Because the restaurant industry is highly competitive, site selection is critical: companies may consider population density, household income, competition, visibility, accessibility, and traffic.
Food preparation varies depending on restaurant type. QSRs typically offer a limited number of simple items, which allows companies to train unskilled workers to prepare food. Most chains have strict operating procedures for food preparation to ensure consistent quality and food safety. FSRs offering expensive fare or a wide variety of menu options have more complex operations and require larger staff. An executive chef, assisted by a sous chef, oversees kitchen operations and may be involved in the business end of restaurant management. Line cooks are responsible for various kitchen stations, such as the grill, sauté, or fryer. Prep cooks prepare ingredients for cooking. Pastry chefs create desserts.
Companies typically buy supplies from food distributors. Some restaurants buy directly from local farms or farmers markets. Large chains may contract with suppliers to minimize volatile commodity costs. Companies carefully manage inventory of perishable food products, such as fresh seafood and dairy goods, to reduce losses due to spoilage. When developing menus, restaurants consider ingredient availability, cooking equipment, labor requirements, physical space, and cost. Some companies change menu selections seasonally, with some high-end restaurants creating new menus daily. Alcoholic beverages are important contributors to total sales, particularly for FSRs and especially for high-end restaurants. Companies may offer an alternative menu for children or those with special dietary needs.
The global food service industry is forecast to grow about $4 trillion by 2030 at a 3% compound annual growth rate (CAGR) from the 2024 to 2030, according to Grand View Research (GVR). Cross-border franchising of restaurants has helped boost growth in recent years.
The US restaurant industry includes about 570,000 restaurants with combined annual revenue of about $600 billion.
COMPETITIVE LANDSCAPE
Restaurants are adopting new technologies and services to compete for consumers who increasingly value convenience. Mobile payments, online ordering, and home delivery are becoming more commonplace in both the full-service and limited-service segments of the industry. Pricing is also becoming a more important issue as customers are able to choose from a growing variety of dining options, including pre-packaged meals from outlets such as grocery stores, convenience stores, and coffee shops. Emerging competitors such as providers of subscription meal kits could further disrupt the industry in the future.
Factors that can influence global competition in the restaurant industry include reliable access to infrastructure, stable relationships with ingredient suppliers, and the ability to adapt menus to suit local tastes. Some restaurants rely heavily on imports of fresh produce and other ingredients, which can make them vulnerable to trade disruptions. Several large American chains are increasing their efforts to expand globally through franchising, while some international restaurant chains are becoming more competitive within the US market.
The profitability of individual companies can vary: while QSRs rely on efficient operations and high volume sales, FSRs rely on high-margin items and effective marketing. Large companies have advantages in purchasing, finance, and marketing. Small companies can compete by offering superior food or service. The US industry is highly fragmented: the 50 largest companies account for about 15% of revenue.
Competitive Advantages:
Trendy Menus – Restaurants that continually adapt their menus in response to changing consumer tastes often stand out from competitors that stick to more traditional fare. For example, establishments have increased sales in recent years by adding new breakfast items, snacks, and healthy dishes to their menus in response to rising customer demand.
Focus on Convenience – Restaurants are investing in mobile technology, expanding their delivery networks, and making other upgrades to provide faster service and additional convenience for customers. Conveniently located establishments near customers’ homes and workplaces are well-positioned to compete not only with other restaurants but also with neighborhood supermarkets and convenience stores.
Strategic Pricing – Restaurants are under constant pressure to keep their prices competitive while accounting for ever-rising costs of ingredients and other key inputs. Operators attempt to maintain healthy margins by closely monitoring the profitability of individual menu items and adjusting prices according to changes in demand and operating costs. Offering lower-priced value deals can increase traffic but also runs the risk of eroding overall sales.
Companies to Watch:
McDonald's has more than 38,000 restaurants serving burgers and fries in about 100 countries. More than 90% of the company’s restaurant locations are run by franchisees or affiliates.
Yum! Brands — whose flagship chains include KFC, Pizza Hut, and Taco Bell — is the largest fast-food operator in the world in terms of number of locations, and it trails only McDonald's in global sales. The company is pursuing growth by expanding its franchising business in Asia; in 2016 it spun off its Chinese operations into a separately traded public company.
Starbucks, the world's largest coffee retailer, has about 30,000 coffee shops in 80 countries. The company also sells products through grocery stores and food service customers, and it earns additional revenue through brand licensing.
Darden Restaurants is the top casual-dining operator in the US and Canada, with a collection of chains including Olive Garden, LongHorn Steakhouse, Eddie V's, and The Capital Grille. Many of the company's brands cater to families by offering mid-priced menu items in primarily suburban locations.
PRODUCTS, OPERATIONS & TECHNOLOGY
The restaurants and other eating places' meals, snacks, and nonalcoholic beverages account for 90% of the total industry revenue, and alcoholic beverages account for about 10%.
At QSRs, customers generally order and pay before eating. While most QSRs are fast-food restaurants, QSRs also include fast-casual restaurants, which offer higher quality, more expensive food without table service. In FSRs, waiters take orders, serve beverages and meals, present the check, and process payment. FSRs include casual dining (full bar); family dining (limited bar); and fine dining establishments.
The industry includes national and regional chains, franchises, and independent operators. The majority of companies are independently owned and operated, although many QSRs are franchises of large national chains. Franchises allow individual owners to leverage a well-known brand name and benefit from the purchasing efficiencies and operational expertise of the franchiser. Franchise agreements generally cover a specific geographical market and outline restaurant operating requirements, such as hours of operation, menu offerings, and pricing.
The food preparation area of a restaurant is known as the "back of house," while the dining area is known as the "front of house." Food prep areas include the kitchen, cold storage, and dishwashing areas. Because the restaurant industry is highly competitive, site selection is critical: companies may consider population density, household income, competition, visibility, accessibility, and traffic.
Food preparation varies depending on restaurant type. QSRs typically offer a limited number of simple items, which allows companies to train unskilled workers to prepare food. Most chains have strict operating procedures for food preparation to ensure consistent quality and food safety. FSRs offering expensive fare or a wide variety of menu options have more complex operations and require larger staff. An executive chef, assisted by a sous chef, oversees kitchen operations and may be involved in the business end of restaurant management. Line cooks are responsible for various kitchen stations, such as the grill, sauté, or fryer. Prep cooks prepare ingredients for cooking. Pastry chefs create desserts.
Companies typically buy supplies from food distributors. Some restaurants buy directly from local farms or farmers markets. Large chains may contract with suppliers to minimize volatile commodity costs. Companies carefully manage inventory of perishable food products, such as fresh seafood and dairy goods, to reduce losses due to spoilage. When developing menus, restaurants consider ingredient availability, cooking equipment, labor requirements, physical space, and cost. Some companies change menu selections seasonally, with some high-end restaurants creating new menus daily. Alcoholic beverages are important contributors to total sales, particularly for FSRs and especially for high-end restaurants. Companies may offer an alternative menu for children or those with special dietary needs.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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