Unit growth penetration
Besides product development and menu innovation, a restaurant can also boost its sales by growing units and penetrating deeper into the markets. Tim Hortons (THI) added 44 new restaurant units during the third quarter. It added 240 restaurants over the last 12 months alone.
During the third quarter, THI also signed a development contract to open ten restaurants in New Jersey over a five-year period. It has seven developmental agreements to open 145 restaurants over five to ten years.
During the third quarter, Starbucks (SBUX) added 503 restaurants. Dunkin’ Donuts (DNKN) added 120 restaurants in the US in 3Q14. Taco Bell—under the umbrella of Yum! Brands (YUM)—opened 35 restaurants.
Renovating, or remodeling, restaurants is another strategy that THI is using to attract customers at its existing locations. Renovation makes restaurants more contemporary and relevant to the customers. In Canada, THI renovated 300 of its restaurants. The company expects to complete over 80% of its renovations in the next three years.
Restaurants sell their products at their restaurants. Another channel that can help restaurants boost their sales is to offer the products at grocery stores.
Restaurants are a part of the Consumer Discretionary sector. Most of the restaurants listed above are part of the Consumer Discretionary Select Sector SPDR Fund (XLY). When the economy improves, the sector’s performance also improves.
Grocery stores are more stable during good and bad economic cycles. Restaurants can use the sale of their products in grocery stores to stabilize the economic impact. THI stated that its single-serve coffee is available in grocery stores across Canada. During the third quarter, its single-serve coffee expanded to grocery stores in the US.
How have all of these initiatives generated higher revenues? We’ll discuss this in more detail in the next part of this series.