Firehouse Subs CEO: Are there too many restaurants?
Are there too many restaurants?
As we start 2011, it would appear that we are looking at another year of contraction in terms of the number of restaurants in the United States. The latest prognostication comes from an analyst at Barclays Capital, and is echoed by other industry gurus. The prediction for 2011: approximately a 1% reduction in locations. Given the trend that has developed for modest annual contraction in the industry, one might wonder...are there too many restaurants?
Let's take a look at the numbers. With a domestic population of about 310 million people, if there was an equal distribution of restaurants across the land, there would be one restaurant for approximately every 325 people. Our industry generated 67 billion occasions in 2010...about 216 visits per person, per year (of course, different age groups have substantially higher and lower rates of restaurant usage...but hang with me here!). If every restaurant had an equal share, that's 70,200 occasions per restaurant per year. That's 192 per day.
So, if restaurant usage were fixed at today's level, there is clearly plenty of capacity to satisfy the public's demand for eating out. When it comes to opening a new restaurant, the pessimist in the room would say "Why bother! Stealing share is too tough." "Even if I get my equal share, I can't turn a profit with only 192 customers a day." Woe is me...the sky is falling.
But consider this: With a population of 310 million, if everyone gobbled down three square meals a day, there are 339 billion meals consumed per year (again, hang with me on the general assumption). So as it stands, the restaurant industry is only serving 20% of those meals.
Some within the industry look at the total number of restaurant occasions as a fixed sum; they think we are strictly in a share battle for those 67 billion occasions. But I would argue that with the industry capturing only one out of five meal occasions, there is ample room for growth.
The challenge for our industry is that, collectively, we need to be better. We have to work harder to satisfy our guests. We have to treat them like gold. We need to serve them higher quality food than they have ever received before. We need to innovate. We need to offer flavors, recipes, and products that they cannot find in grocery stores, nor replicate at home, at a price that is viewed as a solid value for their dollar. We have to provide a great experience. If more restaurants aspired to and achieved excellence, we would increase our share of those 339 billion meals. Any restaurant that rises to a level of excellence is helping the cause of the industry. Many of my peers in the fast-casual segment are helping lead the way in this regard, and should be proud of the contribution they are making toward the betterment of our industry.
So, are there too many restaurants? Yes, there are. There just aren't enough great restaurants.
Don Fox Don Fox has 30+ years experience in the restaurant industry. He joined Firehouse Subs in 2003 as director of Franchise Compliance, and was promoted to the position of CEO in 2009. www