1 Dec

An overview of the US restaurant industry

WRITTEN BY Adam Jones

Importance of places to eat out

Eating is the most essential activity of our everyday lives. As the U.S. economy strengthens and more people find employment, personal incomes rise along with disposable income. Consumer confidence in the United States is at an all-time high in seven years, and people are spending more on food prepared outside the home. Whether it’s breakfast, lunch, or dinner, the options abound. How much do people spend on food? According to the U.S. Department of Agriculture, Economic Research Service, the food-away-from-home (or FAFH) category amounted to 42% of household expenditure in 2012.

An overview of the US restaurant industry

In the above chart, limited-service restaurants have the largest market share, at 55%. Full-service restaurants have a market share of 44%. Bars and taverns have a market share of 1%. The total estimated restaurants and bar segment sales are $431 billion for 2014, according to Technomic.

Different types of restaurants

There are many types of restaurants that offer a variety of experiences and food. Almost all restaurants can be classified under two broad categories:

  1. Full-service restaurants
  2. Limited-service restaurants

Full-service restaurants, as the name suggests, offer full table services and can be further classified into casual dining and family dining formats. Common names in this segment include IHOP and Applebee’s, both under the umbrella of DineEquity (DIN), and Olive Garden under the umbrella of Darden Restaurants (DRI).

Limited-service restaurants can be further classified into fast-food and fast-casual formats. Some well known restaurants under this segment are McDonald’s (MCD), Panera Bread (PNRA), and Chipotle Mexican Grill (CMG).

Series overview

In this series, we’ll look at each of these formats and some of the major restaurant companies mentioned above. We’ll also analyze the industry’s business models, key revenue drivers for restaurants, product innovation, and trends related to the industry.

You can gain exposure to the restaurant industry through the exchange-traded fund (or ETF) Consumer Discretionary Select Sector of Standard and Poors depositary receipt (or SPDR) (XLY).

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