Independent Restaurant Growth Outpacing Chains

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Research continues to show that chain restaurants are less likely to be the types of dining and drinking establishments that today’s customers favor.

In fact, annual revenue for independent operators will grow about 5% through 2020, exceeding chain growth of about 3%, according to Pentallect Inc., a Chicago-based industry research firm,  in conjunction with research partner Critical Mix.

In ratings, consumers give independents the edge in 12 of 15 metrics surveyed. For instance, consumers saw independent restaurants as being more community-oriented, unique and offering personalized service. Independent restaurants were also far more likely to be perceived as sharing consumers' values, offering quality food, value, better service and atmosphere, and menu innovation.

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Delivery was one area where the gap almost disappeared, with consumers rating independents and chains almost equally. Consumers had a higher opinion of chain restaurants in only three categories:

  • Use of technology;
  • Use of social media;
  • Convenient locations.

The one category where chains have the biggest edge – using technology – is important to consumers, particularly those seeking delivery.

Both traffic and revenue growth among independent restaurants is outperforming chains, the report said, indicating a shift from historical patterns when chains were driving growth across the industry. Pentallect estimated 2016 sales of $210 billion for independent restaurants and small chains, while larger chains saw sales of $312 billion.

"Independent restaurants are not only perceived to be doing a better job of meeting consumers' expectations regarding the dining experience and ambiance, they are also doing better than chains in the 'table stakes' of food quality, service, value and menu innovation than have traditionally been a strength of many chains," Pentallect's president Rob Veidenheimer said. "This combined set of favorable attributes represents a significant advantage for well-managed independents, and overcoming the perceived gap represents a major challenge for chains."

Bob Goldin, a partner at Pentallect, commented that "based on these fundamentals, we project that independent restaurants will grow at 4-5% per year for the balance of the decade, almost double the 2-3%  chain growth rate. This has significant implications for supply chain partners' go-to-market strategies and resource allocations". 

Pentallect reported that chain restaurants, which account for well over one half of all restaurant sales, will respond forcefully to regain traffic and continue to receive support among their suppliers, but that the favorable consumer perceptions driving independent restaurant growth are likely to remain and even possibly accelerate over the next several years.

Pentallect's report is available here.

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