Pizza, QSR and fast casual segments enjoying big gains
By Dustin Minton, BDO
Economic conditions continue to improve in 2015, as unemployment rates decrease and fuel costs remain much lower than in the previous years, granting consumers a renewed confidence in their financial security. With this new optimism, consumers are increasingly using their discretionary dollars to eat out. While bolstered consumer confidence is good news for restaurants, rising costs are perhaps their biggest challenge in today’s business landscape. The quick-serve, fast causal and pizza segments experienced healthy increases in same-store sales during the first quarter of 2015, while maintaining relatively stable costs of sales and labor costs, despite the pressures of commodity fluctuations and new labor-related laws and minimum wage increases across the nation.
Restaurants have been able to keep costs down while enjoying improved same-store sales thanks to a variety of factors, including stronger economic fundamentals, improved technology and better weather compared to 2014, in addition to their own willingness to adapt and change. Specifically, restaurants have addressed rising costs by increasing menu prices and working toward better inventory management and menu engineering, as well as by employing strategic labor management. Additionally, many brands are differentiating themselves in a crowded market by focusing on food quality, unique atmospheres, social causes and innovative menu options.
Quick Serve segment
Though busy consumers are enjoying higher discretionary income, they continue to crave quick and reasonably priced food options. Among publicly traded companies, the QSR segment experienced a 5-percent increase in same-store sales during the first quarter of 2015. Healthier options, limited-time offers and notable rebranding efforts on the part of many QSRs have broadened the segment’s appeal to a larger convenience-seeking customer base. Sonic led the charge, posting an 11.5-percent jump in same-store sales, while McDonald’s continued to fall behind its peers.
Fast Casual segment
The fast casual boom has shown no sign of slowing, with multiple companies going public in recent months and years, and a consistent pipeline of new concepts being developed. The segment has continued to grow rapidly, experiencing a 6.6 percent jump in same-store sales during the first quarter. Chipotle, Habit Burger and Shake Shack all saw double digit same-store sales increases this quarter. Fast casual restaurants appeal to younger generations, particularly Millennials, as well as those looking for a quick meal option. Concepts distinguish themselves by offering a more robust menu at a slightly higher price than most QSRs, providing high-quality ingredients and unique customer experiences. Fast casual concepts have also increasingly differentiated themselves by supporting various social causes. For example, Chipotle’s cause-related marketing around sustainable and non-GMO ingredients has helped boost brand loyalty.
The pizza segment also continues to thrive in today’s market, posting same-store sales increases of eight percent during the first quarter. Pizza makers benefited greatly from recent drops in cheese and wheat prices. The segment relies heavily on the convenience factor to keep consumers coming back, and many concepts have generated buzz and boosted sales by adopting the latest technology to appeal to tech-savvy consumers. Pizza concepts rely heavily on creative marketing and social media, as well as promotions and discounts, to drive sales. Dominos continues to outpace its competition, posting a jump in same-store sales of 15.9 percent during the first quarter. The company’s recent move allowing customers to order pizza using Twitter has shed light on the importance of social media in the restaurant industry.
Of late, segments across the restaurant industry have enjoyed a favorable trend of same-store sales increases, as operators learn to adapt and better manage their costs as a result of the Great Recession. Overall, these cost management practices and innovative branding strategies have greatly enhanced the profitability of the industry.
Material discussed is meant to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual circumstances.
Dustin is an Assurance Partner with BDO USA’s Cincinnati office with more than 17 years of experience providing accounting and consulting services to clients, including supervision and review of staff, design of engagement service plans, and preparation of financial statements for restaurant companies. Dustin regularly consults with clients regarding benchmarking and internal controls and processes, performing limited or full reviews of internal controls to assess their overall effectiveness and efficiency.
Topics: Trends / Statistics