Market research firm NPD Group says independent restaurants lost a lot of customers to chain restaurants over the past four years. Now the biggest casual dining chain, Darden Restaurants, is telling investors it plans to win away even more of them over the next five. Yet their gain may not necessarily be your loss.
It certainly looks like market momentum is on Darden’s side. Consider how many independents went out of business during the recent recession.
There’s no way to sugarcoat the numbers from NPD’s ReCount tally of U. S. restaurants. Since 2009, chains have added 4,511 units while the number of independent restaurants has fallen by 7,158. That’s some serious attrition in the independent ranks.
This swing is a big reason independent operators who corralled 28 percent of all restaurant traffic in 2008 now get only 27 percent. Chains captured that one percent of customer traffic, increasing their share from 60 percent of all traffic in 2008 to 61 percent in 2011. Given the scale at which the restaurant industry operates, one percent is big.
NPD restaurant industry analyst Bonnie Riggs says the recession was the culprit.
“Independent restaurant operators have neither the money nor resources that the chains have,” she says. “They lacked the marketing power to drive traffic and the monetary buffer to get through the difficult times during the past several years.” We add that the explosion of fast casual dining options, most of them chains, hurt full-service independents as well.
Now that the economy is showing signs of recovery, will independent restaurant counts and share of traffic continue to shrink? We’ll find out when NPD issues the next editions of these reports. But if you’re an independent operator assuming that a rising tide will lift all boats going forward, be aware that at least one chain restaurant organization intends to have that tide lift its boats more than yours.
Last week, Darden Restaurants told stock analysts that its growth plans include capturing additional increases in restaurant traffic, and then some, by 2016. Over the past five years—roughly the same time frame the NPD study tracked—1,900-store Darden has added $1.2 billion in revenues. The plan for the next five years calls for $3 billion to $4 billion more. Darden, which currently pulls in $7.5 billion a year, would become a $10.5 billion to $11.5 billion company by 2016.
Let’s note that Darden isn’t a proxy for the whole chain restaurant industry, and that growing restaurant traffic and revenue isn’t necessarily a zero sum game. But the extra billions Darden expects to gain have to come from somewhere. Independent operators better be ready to defend their businesses against this big push and similar efforts by other chains.
The advantage independents hold in this particular battle is that Darden’s biggest chains are Olive Garden and Red Lobster. These two almost-over-the-hill restaurant concepts are cash cows, to be sure, but they lack the excitement and energy so many independent restaurants offer. There’s no real reason savvy independents shouldn’t be able to grow their sales by the same percentage as Darden.
Provided, of course, Darden doesn’t clean you out of employees. The company also told analysts it intends to create a whopping 50,000 net new jobs over the coming five years across its several concepts. Many of these positions will be good paying ones. Darden plans to promote 4,000 employees to restaurant managers and will promote another 1,250 workers to general managers and/or managing partners.
That’s a lot of talent to acquire. Darden’s a good place to work, but do what you can now to make sure your key employees stay with you.