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 159,000 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 various alternative sources, including full-service restaurants, prepared foods, specialty food and beverage retailers, and home cooking.
Junk Food Reputation
Fast food (aka "junk food") has a reputation for being unhealthy, an image that runs counter to the consumer trend toward more nutritious eating.
Industry size & Structure
The average limited-service restaurant employs about 30 workers and generates about $2.3 million annually.
- The limited-service restaurant industry consists of about 159,000 firms that employ between 4 million and 5 million workers and generates over $367 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.
- Limited-service restaurants accounted for 38.5% of food-away-from-home expenditures in 2019 and have increased their share since the COVID-19 pandemic.
- Between 1997 and 2022, spending at limited-service restaurants increased by over 300% from $112 billion to $468 billion.
- Fast food chains account for 75% of limited-service restaurant traffic, according to NPD. Fast casual restaurants account for 8%. Quick-service retail, which includes prepared foods, accounts for 17%.
- In 2020, there were 785,316 franchise owners of fast food restaurants in the US.
Industry Forecast
Limited-Service Restaurants Industry Growth
Recent Developments
Jul 14, 2024 - Peak Employment and Wages
- According to the latest US Bureau of Labor Statistics data, jobs and wages at limited-service restaurant establishments reached new highs in May. Employment by limited-service restaurants grew 1.8% for the month compared to a year ago, while average industry wages rose 4.8% over the same period to $16.19 per hour. Rising sales for food services and drinking places and sustained consumer spending are driving industry growth and helping to support rising labor costs for restaurant operators.
- Fast-food restaurants are among the retailers experimenting with smaller, take-out-focused stores, The New York Times reports. The trend in smaller, pick-up-and-delivery-only outlets, which started during the pandemic and has persisted aided by online ordering apps, with fast-food restaurants and coffee shops among the key participants. In addition to reducing person-to-person contact, smaller, seatless businesses reduce rental costs for operators because they can be much smaller. According to NYT, from 2019 to 2023, the average size of a retail lease in Manhattan shrank 17% to 2,585 square feet, citing data from commercial real estate data firm CoStar Group. On New York’s Upper East Side, Chick-fil-A debuted its first location in March to serve pickup and delivery orders only, according to NYT. Foodservice consulting firm Technomic found that 73% of all orders at limited-service restaurants were either carryout or delivery in the first half of 2022, negating the need for seating.
- First-quarter earnings misses at leading limited-service restaurant chains signal consumers are pushing back against higher menu prices, The New York Times reports. McDonald’s, Starbucks, and Yum! Brands (parent of KFC and Pizza Hut) all acknowledged that increasingly cautious consumers are among the reasons for sales shortfalls. Growing consumer resistance to rising menu prices has spurred McDonald’s and other chains to announce new value meals in recent weeks as a way to drive traffic to their restaurants. McDonald’s new $5 value meal, which will include four items — a McChicken or McDouble, four-piece chicken nuggets, fries, and drink – will run for about a month beginning on June 25, CNN reports. Burger King and Wendy’s also recently announced new value meals. With the average price of a Big Mac up 21% from 2019, CEO Chris Kempczinski said in an April earnings call that McDonald’s has to be “laser-focused” on affordability to attract diners.
- Yum! Brands is going all in on artificial intelligence, The Wall Street Journal reports. The company, which operates Taco Bell, Pizza Hut, KFC, and other quick-serve chains, has been increasing its investment in technology and automation. With nearly half (45%) of Yum’s sales coming from digital channels, the company collects and consolidates customer data for its restaurants to drive new sales and lower costs. “Our vision of [quick-service restaurants] is that an AI-first mentality works every step of the way,” Yum’s chief digital and technology officer, Joe Park, told WSJ in an interview. The rapid growth of generative AI is further accelerating the pace at which Yum! and other fast-food chains embrace cutting-edge technologies. The company is testing generative AI use by its customers, managers, and employees. Tech fees paid by Yum’s franchisees are helping fund its AI investments, Park told WSJ.
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