Limited-Service Restaurants

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 160,000 limited-service restaurants in the US offer counter service, a practice in which patrons order food and beverage and pay before eating. Food and beverages may be consumed on-premise, taken out, or delivered. Franchises, like McDonald’s and Subway, are ubiquitous in the limited-service restaurant industry and provide independent owners with a well-known brand name and operational and marketing support.

Competition from Alternative Meal Sources

Limited-service restaurants face competition from a variety of alternative sources, including full-service restaurants, prepared foods, specialty food and beverage retailers, and home cooking.

Junk Food Reputation

Fast food has an unhealthy reputation for being junk food, an image that runs counter to the consumer trend towards more nutritious eating.

Industry size & Structure

The average limited-service restaurant employs about 29 workers and generates between $1 million and $2 million annually.

    • The limited-service restaurant industry consists of about 160,000 firms that employ between 4 million and 5 million workers and generate over $250 billion annually.
    • The limited-service restaurant industry includes chains, franchises, and independent operators. Large franchises include McDonald’s, Taco Bell, Burger King, Subway, and Panera Bread. Large chains include Chick-fil-A, Chipotle, and Panda Express. The largest firms have an international presence.
    • Fast food chains account for 75% of limited restaurant traffic, according to NPD, fast casual restaurants account for 8%. Quick-service retail, which includes prepared foods, accounts for 17%.
    • Fast food restaurants accounted for 61% of the restaurant market in 2019, according to TDn2K, while fast casual restaurants accounted for 11%.
    • The top 20 fast casual restaurant companies accounted for 56% of fast casual sales in 2016, according to Technomic. Large franchises dominate the fast food sector.
    • In 2012, franchises accounted for 54% of fast food restaurant establishments and 70% of fast food restaurant sales.
                              Industry Forecast
                              Limited-Service Restaurants Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Nov 10, 2022 - Restaurants Add Kiosks
                              • With the industry still about 500,000 employees short of pre-pandemic numbers and labor costs on the rise, more limited-service restaurants are adding self-service kiosks, Nation’s Restaurant News reported in November. Shake Shack, Yum Brands, and BurgerFi are among those accelerating the trend to self-service ordering by installing kiosks. In a recent earnings call, Shake Shack CFO Katie Fogerty said kiosks are the chain’s most profitable channel, yielding higher check sizes, higher margins, and better labor utilization. Kiosks allow restaurants to operate with fewer workers and redeploy existing workers to other tasks, such as expediting orders or greeting guests. According to Grandview Research, the global self-service kiosk market is expected to grow at a compound annual rate of 6.5% through 2028.
                              • Fueled by rebounding office occupancy rates, restaurants in urban areas look to be staging a comeback. New York City’s office occupancy rate increased by more than 10% in September 2022 and Shake Shack is reaping the benefit, Nation’s Restaurants News reported in November 2022. “We saw strong momentum coming out of Labor Day, as mobility and back-to-office trends broadly improved,” said Shake Shack CEO Randy Garutt adding, “It’s clear that our hometown in New York and other urban centers, things are improving with more people moving about.,” Individual city data from shows that some urban markets are exceeding the nationwide average, with foot traffic to offices in NYC, Denver, and Washington, DC tracking with, or exceeding the nationwide average since January 2022. Other eateries with urban exposure, including Potbelly, and Canada’s Tim Hortons, have posted similar strong sales and traffic recoveries in Q3 2022, NRN reported.
                              • Major fast food chains and other big restaurant operators are spending millions of dollars to overturn a new California law that could set the state’s minimum wage for the fast food industry as high as $22 per hour next year, The Wall Street Journal reported in October 2022. McDonald’s, KFC, Chipotle, and others have formed the “Save Local Restaurants” coalition, which has raised around $12.7 million to fight the law, known as the FAST Recovery Act. Corporate brands have contributed almost $10 million and individual franchisees have given $2 million. Trade associations account for the rest, the coalition told WSJ. The coalition wants to postpone the law’s implementation, set to begin on Jan. 1, and let voters decide through a statewide referendum whether to permanently block the law in 2024. Because Californians would bear the cost of the new law, the industry says the public should have a say in whether it should stand.
                              • On Labor Day 2022, lawmakers in California passed a bill that could raise pay for fast food workers to as much as $22 an hour. In addition to raising pay, the nation-leading legislation gives more than a half-million fast food workers added power and protections. The bill drew strong objections from the fast food industry, which argued that it will increase costs for employers and prices for consumers. The bill creates a 10-member Fast Food Council with equal numbers of workers' delegates and employers' representatives, along with two state officials, empowered to set minimum standards for wages, hours, and working conditions in California. The new law caps minimum wage increases for fast food workers at chains with more than 100 restaurants at $22 an hour next year, compared to the statewide minimum of $15.50 an hour, with cost of living increases thereafter.
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