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US chain restaurant market feeling the effects of the recession

Industry Sector

Food and Drink

Published

24 January 2013

Author

Matt Bodimeade

Type of News

Market

The United States chain restaurant market experienced a major slowdown during the recession due to reduced consumer spending.

In the battle for consumers' shrinking budgets, restaurants increasingly lost out to home-cooked meals or fast-food restaurants. On average, consumers cut spending on small luxuries like eating out, and when they did eat out, they opted for less expensive items.

Over the last five years, consumers have also become increasingly health conscious. While major restaurants have responded by expanding the number of nutritious options on their menus, the general trend toward better eating has hurt many of the less-healthy chain restaurants.

Consequently, industry revenue has fallen at an average annual rate of 0.1% to $54.6 billion over the five years to 2012.

A restaurant chain is a set of related restaurants with the same name in many different locations that are either under shared corporate ownership (e.g., McDonald's in the US) or franchising agreements.

Typically, the restaurants within a chain are built to a standard format (through architectural prototype development) and offer a standard menu. Fast food restaurants are the most common, but sit-down restaurant chains (such as TimberLodge Steakhouse, Outback Steakhouse, T.G.I. Friday's, Ruby Tuesday, and Olive Garden) also exist.

Restaurants, which include former American staples such as Big Boy, Ponderosa and Bennigan's have not been able to maintain a steady crowd. They have failed to update their brand or menu options. As a result locations have been closed in favour of a new generation of eateries.Bennigan's

The type of cuisine these restaurants offer has also played a major role in their decline. In the case of barbecue establishments such as Damon's and Tony Roma's, competition isn't the problem. Rather, the barbecue segment as a whole is performing poorly because it's a necessarily limited cuisine.

In the past 10 years, no major restaurant has lost as much of its business as Bennigan's. The Irish themed restaurant and bar's parent company, Metromedia Restaurant Group, filed for bankruptcy in 2008.

After declaring bankruptcy, Bennigan's abruptly shut almost all of its franchises. As of last year, there were just 33 Bennigan's restaurants and the chain's sales for the year totalled just $62 million -- more than half a billion dollars less than the chain's 2001 sales.

Stronger operating conditions are in sight, though, as consumer expenditure rebounds. Revenue within the US chain restaurant market s forecast to grow at an average annual rate of 3.6% over the next five years to $65.3 billion by 2017.

For more information on the US chain restaurant market, see the latest research: US Chain Restaurant Market

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