Know about same-store sales to understand restaurants

The two most important drivers of revenue in a restaurant business are same-store sales and unit growth. Same-store sales growth, represented in percentage, measures the growth at existing stores or locations over a period of time, usually year-on-year. It excludes sales from new units opened during the year.   

In the above chart, you can see systemwide same-store sales growth in 2013 at the 28 restaurants that have a presence in the United States and all over the world. Systemwide sales means same-store sales across all stores under the restaurant brand, which includes company-operated as well as franchised restaurants. We will cover these two business models later in this series.

The average systemwide sale for fast-casual restaurants was 5.8%, which includes Fiesta Restaurant Group, Inc.’s (FRGI) Pollo Tropical and Chipotle Mexican Grill (CMG). According to the restaurant sample in the above chart, the system average for casual dining was 2.7%, 1.0% for fast food, which includes McDonald’s (MCD), and 0.93% for family dining. The system-sales average in 2013 was 4.3% for pizza places and 6.3% for cafés.

Exchange-traded fund (or ETF) Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) (XLY) holds several of the restaurant stocks mentioned in the above chart.

The fast-casual segment is leading among restaurant places that offer lunch and dinner, while family dining places such as Denny’s (DENN) and DineEquity (DIN), which owns Applebee’s and IHOP, are lagging behind. Fast casual is in a fast-growth stage and is eating away market share from several other restaurant formats. There are many reasons for this growth, some of which include shifting demographic preferences in taste, food quality, and food ordering methods. We will discuss these later in this series.

Let’s next discuss in more detail what drives same-store sales for a restaurant.