I’m very privileged to get to travel this great nation each week and share data and insights about food and beverage consumption trends. While it’s my job to share what I’ve learned from studying NPD’s diverse data sets on food and beverage consumption, consumer restaurant behavior, and wholesale distribution, I feel like I learn as much as I share from hearing what’s on the minds of food and foodservice industry executives. Lately many of these executives are asking a common question: What is happening with independent restaurants?
This question is stemming from multiple competing viewpoints in the marketplace and the resulting confusion as key stakeholders try to make sense of the diverse and fragmented restaurant landscape.
The foodservice landscape is more complex than ever as it adjusts to changing consumer needs, technological advances that have redefined quick service, and competitive threats from other channels, like retail foodservice and meal kit delivery services.
Fortunately, we at NPD have multiple data assets to shed light on the situation – from consumer traffic trends, to a bi-annual census of restaurant locations, to broadline shipments to over 700,000 commercial and non-commercial operators. Leveraging all of these assets, here is my assessment of what is really happening with independent restaurants.
The popular narrative right now is that independent restaurants are winning while big chains are losing. This assessment of the market is often derived from a limited viewpoint. My view, which is informed by NPD’s diverse and comprehensive set of data, yields a different result.
For clarity we’ll first define terms. In over 30 years of tracking the restaurant industry, NPD defines independent restaurants as those having one to two locations. This definition is underpinned by our ReCount® restaurant census of over 600,000 individual restaurant locations nationwide. The term independent restaurant can be more broadly defined, but I’ll use our definition of 1-2 units in order to provide a more granular evaluation of the foodservice landscape.
We have reported publicly that consumer visits to independent restaurants have declined sharply while consumer visits to the large chains increased. In the first quarter of 2017, customer visits to independent restaurants declined 3 percent compared to a 1 percent gain for the big chains. So how can other sources extol the successes of the independent restaurant sector?
Let’s dig deeper. While independent restaurants saw a decline in consumer traffic of 3 percent in Q1, actual unit counts for spring 2017 versus year ago show 4 percent of these restaurants went out of business. A 4 percent closure rate and only a 3 percent traffic decline would imply that independent restaurants managed to eke out some positive growth. By analyzing case volume shipped to these restaurants by broadline distributors, we see they did purchase slightly more product in Q1, increasing the volume by .5 percent versus year ago. So clearly there is some life in the independent sector, but we would be hard pressed to say they have outperformed big chains.
But what about independent restaurants beyond the 1-2 unit definition? Those small operations with marketplace success and the business acumen to expand to three or as many as 19 units, which we call micro-chains, are faring quite well in today’s environment. Micro-chains have increased their case volume purchased from broadline distributors in Q1 by almost 3 percent versus year ago. Many of these micro-chains are in major metro areas and reflect the leading edge of emerging food trends and consumer experience.
Although interesting, this relatively small segment does not reflect what is happening in the industry overall. After all major chains represent more than 64 percent of all restaurant visits, and there are many examples of major chains with double-digit traffic growth even in today’s challenging environment.
So, are independents beating the chains? Not necessarily. I can cite examples of success in multiple sectors of foodservice. Typically those with growth are differentiated by superior quality, excellent execution, great value, and a keen relevance to current consumer trends. These fundamentals have always been keys to success in foodservice and always will be. This is true regardless of whether a chain has one or 2,000 units. The bottom line, however, is that although some independents are doing well, on balance, they are not trouncing major chains. Major chains are here to stay.