R&I Top 400: Strategic Planning

The Top 400 chains post a 6.8% sales increase while focusing on repositioning brands in a difficult consumer marketplace.

By Scott Hume, Executive Editor -- Restaurants and Institutions, 7/1/2007

R&I Top 400: Strategic Planning
R&I Top 400 List

In February of this year, Overland Park, Kan.-based Applebee’s International—parent of the largest full-service chain, Applebee’s Neighborhood Grill & Bar—announced its intention to “explore strategic alternatives for enhancing shareholder value, including a possible recapitalization or sale of the company.” Two months later, the company announced that it had received and was evaluating several acquisition proposals.

Applebee’s certainly was not alone in rethinking its marketplace position and the best ways to achieve continued future success. R&I’s 43rd annual list of the Top 400 restaurant chains is a ranking by systemwide sales, but many of the most important changes that took place are not evident on menus or in service styles. Behind closed doors in boardrooms and offices, executives at the helm of the largest restaurant chains spent 2006 and the first half of 2007 weighing difficult decisions about the consumer marketplace and their chains’ niche within it.

By the numbers, this year’s Top 400 chains fared surprisingly well. Aggregate 2006 food-and-beverage sales by the 400 largest U.S.-based chains were $277.2 billion, or 6.8% greater than last year’s Top 400 but below the 9.3% sales gain posted between 2004 and 2005. This year’s Top 400 operate roughly 269,000 units globally (company-owned, franchised and licensed), up 3.9% from last year’s Top 400.

Sales growing faster than unit counts suggests that chain operators are increasing comparable-store revenue, which has been a commonly voiced strategic goal in recent years. It remains important, of course, but in 2006 and the first half of 2007, an increasing number of restaurant-chain companies focused on evaluating corporate structures. That has resulted in ownership changes for many companies, as in Memphis, Tenn.-based Back Yard Burgers Inc.’s recent $38 million buyout by an investment group. Other companies have opted to sell or spin off pieces that no longer fit brand portfolios, as Dublin, Ohio-based Wendy’s International did with Tim Hortons and Baja Fresh Mexican Grill, and as Orlando-based Darden Restaurants is doing in seeking to sell Smokey Bones Barbeque & Grill.

Mergers, such as this year’s combining of two Scottsdale, Ariz.-based companies—Kahala Corp. (operator of five top 400 brands) and Cold Stone Creamery—are likely to continue, industry analysts say. That will put control of leading chain-restaurant brands in fewer and fewer corporate hands and further change this industry.

For more than four decades, R&I’s Top 400 ranking has provided a unique benchmarking tool for evaluating the global sales power of major restaurant brands. It serves that function again this year by providing sales- and unit-growth data for leading brands. But vital information also is included in the short news summaries for each chain, because updates on strategic shifts are provided there. More than before, it’s impossible to understand the industry without a score card.

Contact writer at shume@reedbusiness.com

The Biggest Sales Gainers

Two chains—Granite City Food & Brewery and Kona Grill—posted sales gains in excess of 25% between 2005 and 2006 and make their first appearance among the Top 400. Another first-timer, Bar Louie, increased sales 20.1%. Note that sales for Smokey Bones Barbeque & Grill, which parent Darden Restaurants has announced it will sell, are for its fiscal year ended 5/28/06. Chains for which R&I estimated sales in 2005, 2006 or both are not included in this list.

Top 400 Rank	Chain, headquarters	2006 sales (millions)	Change from '05	2006 units	Change from '05	Category
335	Granite City Food & Brewery, Minneapolis	$58.3	61.0%	18	50.0%	Casual dining
169	Pei Wei Asian Diner, Scottsdale, Ariz.	180.2	56.0	107	39.0	Asian (fast casual)
267	Raising Cane's Chicken Fingers, Baton Rouge, La.	84.0	55.6	55	61.8	Chicken (fast casual)
227	Yard House, Irvine, Calif.	114.1	50.5	15	36.4	Casual dining
124	Moe's Southwest Grill, Atlanta	273.0	48.4	324	21.8	Mexican (fast casual)
104	Bonefish Grill, Tampa, Fla.	327.0	39.1	119	32.2	Casual dining
365	Kona Grill, Scottsdale, Ariz.	50.7	37.8	14	55.6	Casual dining
250	Fogo de Chao, Dallas	96.0	37.1	10	25.0	Casual dining
141	BJ's Restaurant & Brewery, Huntington Beach, Calif.	238.9	34.1	55	22.2	Casual dining
198	Firehouse Subs, Jacksonville, Fla.	150.0	33.9	258	20.6	Sandwich/baker-cafe (QSR)
46	Buffalo Wild Wings Grill & Bar, Minneapolis	869	32.4	429	15.9	Casual dining
229	Brio Tuscan Grille, Columbus, Ohio	110.0	32.2	20	25.0	Casual dining
49	Chipotle, Denver	819.8	30.6	581	18.8	Mexican (fast casual)
282	Fatz Cafe, Taylors, S.C.	76.6	29.8	35	20.7	Casual dining
190	Wingstop, Richardson, Texas	153.7	29.7	281	13.8	Chicken (QSR)
233	Abuelo's Mexican Food Embassy, Lubbock, Texas	107.4	27.8	37	27.6	Mexican (casual dining)
100	Smokey Bones Barbeque & Grill, Orlando	337.0	25.3	126	7.7	Steak/barbecue
166	Fleming’s Prime Steakhouse & Wine Bar, Tampa, Fla.	188.0	25.3	45	15.4	Casual dining

Rules of the Ranking

Restaurants & Institutions’ 43rd annual Top 400 ranks systemwide food-and-beverage sales (global, company-owned, franchised and licensed) for the largest U.S.-based restaurant chains. It ranks strengths of brands, not companies.

Chains, as defined for this report, are foodservice concepts with five or more units operating under a single brand name, such as Taco Bell. Exceptions have been made where a concept operates under different brands depending on the market (such as Souplantation/Sweet Tomatoes) or where a concept operates under two or more names but with a single management team (such as HomeTown Buffet and Old Country Buffet).
Tim Hortons is the only chain among the Top 400 that is headquartered outside the United States. It is eligible because for most of 2006 it was owned by Dublin, Ohio-based Wendy’s International. Barring future ownership changes, Tim Hortons will not be eligible for next year’s Top 400.
Sales and unit figures listed encompass all food-and-beverage outlets, domestic and international, for each chain unless otherwise indicated.
Multiconcept operators are excluded, although individual brands they own may qualify. For example, Seattle-based Restaurants Unlimited is not eligible, but its Kincaid’s Fish, Chop & Steak House and Palomino Restaurant Rotisseria Bar concepts are large enough to be ranked individually among the Top 400.
Our primary sources of information in compiling the Top 400 ranking are the chains themselves. Survey forms are sent to more than 600 companies in March; sales information for most chains comes from those surveys or from filings with the Securities and Exchange Commission. Some companies, however, choose not to disclose financial information about chains they operate or they are unable to provide systemwide (franchised as well as company-owned) sales data. In such cases, R&I uses all available resources to estimate sales, unit counts, average-units sales or average checks as accurately as possible.
Sales figures used in the Top 400 are for calendar 2006 or for fiscal years ending between July 1, 2006, and April 1, 2007, unless otherwise indicated.
In the listings on the following pages, the small number in parentheses is a chain’s rank last year, if applicable.
When two or more chains have the same reported or estimated sales, chains with company-supplied sales are given precedence in ranking over those with estimated sales. After that, ties are resolved alphabetically.
Companies that believe a chain or chains they operate should be considered for the 2008 Top 400 ranking should send information to Top 400, Restaurants & Institutions, 2000 Clearwater Drive, Oak Brook, Ill. 60523