Unit growth equally important for restaurants as same-store sales

By

Updated

Restaurants seek newer markets

As we have seen, restaurants seek revenue growth in a variety of ways, including growing same-store sales, capitalizing on popularity in one market by opening stores in newer markets, and finding attractive untapped emerging markets. But after exhausting all these options, restaurants pursue a unit-growth strategy to capitalize on these opportunities.

Number of Units Opened or Closed in 2013 2014-11-26

The above chart includes total restaurants in the system, meaning company-owned as well as franchised or licensed restaurants. In 2013, on average, café chains added the most units, with Starbucks (SBUX) adding as many as 1,700 units. Most locations were opened in the China market (206), followed by the U.S. market (193). The company also opened about 338 new concept stores, including Teavana. Tim Hortons (THI) opened the most restaurants in the United States (141).

Article continues below advertisement

Fast-food restaurants target China

Moving to the fast-food segment, McDonald’s (MCD) opened the most restaurants in the Asia Pacific, Middle East, and Africa region, with China leading at 275 units. Internationally, Yum! Brands (YUM) opened the most restaurants (610), excluding China where it added about 500 restaurants of the total ~1300 restaurants it added during the year. Similarly, Burger King (BKW) opened the most restaurants (104) in China. Wendy’s (WEN), Jack in the Box (JACK), and Sonic Drive-In (SONC) had negative unit growth.

Fast-casual restaurants stay close to home markets

Fast-casual restaurants focused their unit growth primarily in the North American continent. Chipotle Mexican Grill (CMG) added 185 restaurants, followed by Panera Bread (PNRA), which added 125 restaurants.

Exchange-traded fund (or ETF) Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) (XLY) has several restaurant stocks in its portfolio that you may consider.

Casual-dining restaurants saw unit growth primarily in the North American continent but had a few restaurants in Middle Eastern countries. Buffalo Wild Wings (BWLD) added 102 new units, and Darden Restaurant (DRI) added 69 restaurants in 2013.

Family restaurants overall did not have much unit addition during 2013, with a total of 37 additions.

It is important to keep in mind that all of the above restaurants’ unit growth is systemwide, meaning it includes company-owned as well as franchised or licensed restaurants. We will discuss these two business models in the next few parts of this series.

Advertisement

More From Market Realist