Why restaurants are remodeling their stores

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Remodeling

Several restaurants are focusing on changing their restaurants’ images by remodeling their existing stores. Burger King (BKW), for example, has a goal to remodel about 40% of its U.S. and Canadian market restaurants by the end of 2015. According to the company, its already re-imaged stores have boosted sales by 10% to 15%.

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Pushing remodeling through incentives

Wendy’s (WEN) provides incentives for its franchisees who participate in its remodeling program known as the Image Activation program. At the end of 2013, Wendy’s anticipated a $4.5-million incentive payout related to this program.

Completions

McDonald’s (MCD) re-imaged 700 of its U.S. restaurants in 2013. According to the company, 45% of its U.S. system restaurants reflect this change in interiors as well as exteriors. That same year, McDonald’s also re-imaged 470 restaurants in its European market and 240 in its Asia Pacific, Middle East, and Africa (or APMEA) market. In the rest of the world that year, McDonald’s re-imaged 1,500 restaurants. Exchange-traded fund (or ETF) Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) (XLY) also holds McDonald’s.

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It’s not only fast-food restaurants that are re-imaging their stores. Casual restaurants such as Chili’s, under the umbrella of Brinker International, remodeled 80% of its company-owned restaurants in 2013. Brinker has 824 company-owned Chili’s restaurants in the United States and 14 in the international markets.

DinEquity (DIN), which operates family and casual restaurants Applebees and IHOP, also remodeled more than 500 of its restaurants in 2013. About 96% of these two restaurants are located in the U.S. market. Bob Evans (BOBE), which had 560 restaurants at the end of 2013, remodeled 195 of its restaurants during the quarter.

One more card up the sleeve to drive restaurant sales

While restaurants are making all these efforts to grow restaurant sales in the United States, casual, family, and fast-food restaurants are facing strong challenges with dwindling same-store sales growth. Fast-casual restaurants, with most of their restaurants in the United States, are growing and eating away at the market share from the other three concepts. Some restaurants are seeking international markets for their growth, which we will discuss next.   

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