Goliaths are getting a little unsteady on their feet, and Davids are flexing their muscles.
Technomic’s upcoming 2015 Top 500 Chain Restaurant Report shows that Subway has been dethroned as the No. 2 chain in America, falling to Starbucks—which grew U.S. sales 8.2% in 2014. Starbucks and other beverage chains capitalized on today’s 24-7 snacking ethos with product and daypart expansion to build market share. Meanwhile, Subway’s domestic receipts dropped 3.3% as the chain overbuilt units, failed to hold the line on sandwich prices and ignored rising fast-casual and quick-service restaurant competitors grabbing share. (Subway’s U.S. sales were down $400 million from 2013; the five highly successful limited-service restaurant sandwich chains shown below collectively raised sales by more than $564 million.)
We see a similar story with the burger behemoths. McDonald’s U.S. sales dropped 1.1% last year. Mickey D’s has confused its customers and complicated its systems with menu extensions like chicken and coffee. Also treading water were Burger King, which eked out a 1.6% nominal sales increase, and Wendy’s, down 0.4%. All are confronting once-unthinkable competition from “better burger” concepts offering higher-quality, freshly made patties and buns.
Americans’ foodservice preferences are changing rapidly, and that means reshuffling up and down the Top 500 list. Other winners:
- “Build-your-own” fast-casual concepts: The fast-casual sector dominated Top 500 growth, but concepts with visible custom prep did even better (up 23.3% collectively). Restaurant patrons love customization, love the drama—and in the age of smartphones, don’t mind a bit of a wait.
- “QSR Plus” chains filling white space: Some successful chains beat QSRs on freshness and style but stayed just below the fast-casual price point: In-N-Out Burger, Freddy’s Frozen Custard & Steakburgers, Pita Pit, Potbelly Sandwich Shop.
- Wing houses: From QSRs (Popeyes Louisiana Kitchen, Bojangles’ Famous Chicken ’N Biscuits) to fast casuals (Zaxby’s, Wingstop) to entertainment-driven full-service brands (Buffalo Wild Wings, Twin Peaks), chicken-wing-focused eateries took flight based at least in part on their signature menu item—craveable, snackable and rightly or wrongly seen as healthy.
AS I SEE IT, restaurant chains can no longer take their customers for granted. Top 500 growth was better in 2014 than in 2013 (4.0% vs. 3.3% in the previous year), and as the economy improves further, the group as a whole will see more growth in 2015. But the pace of change is accelerating, driven by transformations in consumer lifestyles as well as technological, platform and menu innovation within the industry. Growth will come only to concepts that figure out how to marry their format to their customers’ wants and needs.
Note: This content originally appeared in the March 2015 issue of Technomic’s Foodservice Digest newsletter.