Retail N Illinois

Quick change: Some shakeup among the quick service restaurant industry

Quick change: Some shakeup among the quick service restaurant industry,ph1

The quick service restaurant (QSR) industry saw large revenue gains in the U.S. last year, reaching $256 billion. These sales, which represent a 3.8 percent growth, correlate to a 2 percent increase in new restaurant locations.

According to new insights from Chicago-based Quantum Real Estate Advisors, the QSR industry has predominately focused on food innovation to maintain and expand market share. McDonald’s, for example, switched up its beef offering, stanching a five-year decline.

The number two QSR by revenue, Starbucks, continues to provide limited and new product offerings to keep traffic at stores while focusing on increasing per-transaction sales. Subway, which has far more locations than any other QSR, actually lost 1,100 locations last year but continues to innovate and modernize its menu to appeal to consumers.

When personal consumption expenditure is high, consumers are more apt to spend money to eat at restaurants, so the QSR industry growth is particularly sensitive to changes in consumer spending. Fortunately, consumer spending increased by 1.2 percent in Q1 2019. Steady consumer spending has offset most losses while QSRs continue to offer low price point options in an effort to attract new customers.

Focus on fresh

Looking to regain consumer confidence via ingredient transparency, McDonald’s introduced fresh beef last year, leading to substantial market growth in burger sales—40 million more Quarter Pounders alone. This new direction has put monetary pressure on franchisees who had to put capital towards new refrigeration and storage equipment, as well as remodeling and other modernizations like self-order kiosks.

Growth in the U.S and beyond

In the second quarter of 2019, Starbucks comparable store sales rose 4 percent and the company had a total of 319 new net stores added to its roster, though only 6 percent of those were in the United States. Following 686 net new store openings over the past 12 months, the company is looking to accelerate its targeted markets, particularly in the U.S and China. This includes an expansion of the Starbucks brand through Global Coffee Alliance with Nestle.

Can innovation stop the store closures?

Traffic and sales has been challenging in the past for Subway, which closed 1,100 stores in 2018. The company rolled out a “Fresh Forward” design across 465 locations and is now focusing on improved product offerings. Subway has partnered with Tastemade, a digital food network, leading to the development of new menu items and unique data insights derived from the Tastemade audience. In May the company promoted Len Van Popering to chief brand and innovation officer where he will help expand Subway’s innovation pipeline.

Debt restructuring

Driven by higher sales at company-operated restaurants and an increase in franchise royalty revenue, Wendy’s North American sales inched up .2 percent year-over-year in the first quarter of 2019, with total revenues up 7.4 percent to $408 million. The chain also announced its plans to refinance a portion of its outstanding securitization debt with a new series of securitize notes under an existing securitized financing facility. The company intends to issue at least $850 million of new, fixed-rate, senior-secured notes to close by the end of Q2 2019.