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Which Fast Casual Restaurant Has Best Utilized Its Retail Space?

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Average revenue per square foot

A company’s average revenue per square foot gives information about how efficiently it’s been utilizing its resources. In 4Q15, the eight fast casual restaurant companies under review in this series generated an average revenue of $146.5 per square foot.

The above chart depicts the average revenue per square foot generated by each company. Revenue per square foot is calculated by dividing revenues from companies’ restaurants with their total square footage for 4Q15.

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The leaders

With revenue per square foot of $344, Shake Shack (SHAK) beat the other seven fast casual companies under review in this series in terms of retail space utilization. The high revenue per square foot of SHAK, which forms 0.03% of the holdings of the iShares Russell 2000 Growth ETF (IWO), is likely indicative of its footprint in Manhattan, where restaurants of its type have low square footage versus those outside the Big Apple.

However, SHAK’s revenue per square foot is expected to fall as the company expands outside Manhattan, which has a high population density and sports a high brand familiarity. SHAK is followed by Chipotle Mexican Grill (CMG) at $196 per square foot, Fiesta Restaurant Group’s (FRGI) Pollo Tropical brand at $193 per square foot, and Habit Grill (HABT) at $184 per square foot.

Panera Bread (PNRA) earned revenue per square foot of $146.5, equal to the peer average. CMG was able to attract customers by highlighting its use of naturally grown ingredients and naturally raised meat. However, its recent food safety issue caused its revenue per square foot to fall in 4Q15.

The laggards

Noodles & Company (NDLS) earned the lowest revenue per square foot at $103.5 in 4Q15. Other companies that earned lower than the peer average were Potbelly (PBPB), Zoe’s Kitchen (ZOES), and the Taco Cabana brand of FRGI, with revenues per square foot of $110, $117, and $145, respectively.

Lower average revenue per square foot can result from several factors, including a weak or unclear business model, which could lead to lower retail space utilization.

Having discussed revenue drivers and the efficiency of these companies in utilizing their resources, let’s move on to EBIT (earnings before interest and tax) margins in our next article.

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