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Report: Consumers prefer independent restaurants over chains

Shift in industry growth patterns underway, Pentallect finds

Independent restaurants are killing it.

That’s according to a recent report by foodservice consulting firm Pentallect Inc., in conjunction with research partner Critical Mix.

Both traffic and revenue growth among independent restaurants is outperforming chains, the report said, indicating a shift from historical patterns when chains were driving growth across the industry. 

Pentallect estimated 2016 sales of $210 billion for independent restaurants and small chains, while larger chains saw sales of $312 billion. 

However, from 2017 through 2020, independent restaurants are expected to see annual revenue growth of 4 percent to 5 percent. That’s almost double the 2-percent to 3-percent growth expected for chains, Pentallect said.

This has significant implications for manufacturers, sales agencies and distributors, given that independent restaurants represent more than half of all restaurant sales, Pentallect noted.

It’s also good news for independent restaurant operators, and it gives chain operators a picture of the challenges ahead.

Why are independent concepts winning, or at least outperforming chains?

It’s partly a result of urbanization, said Bob Goldin, a partner in Pentallect. But consumers also rate independent restaurants as more superior on 12 of 15 attributes studied.

“In the top 10 and 20 major metros, independent restaurants are absolutely knocking it out of the park,” Goldin said. “I hear this anecdotally and from all the distributor clients. Restaurants in urban areas, in particular, are doing fantastic. People, especially Millennials, are moving downtown to more gentrifying neighborhoods, and they’re frequenting local establishments that are winning on these factors.”

Consumers said independent restaurants were much more likely to be rated highly for being special, community oriented and offering personalized service.

Independent restaurants were also far more likely to be perceived as sharing consumers’ values and offering quality food and better service.

Delivery was one area where the gap almost disappeared, with consumers rating independents and chains almost equally.

But when it comes to use of technology, social media and offering convenient locations, restaurant chains won higher scores, according to the survey.

Systemwide sales among the 100 largest restaurant chains increased 5.9 percent, to $248.3 billion in fiscal 2015-2016, the strongest growth since 2006, according to Nation’s Restaurant News’ Top 100 research. 

But the first quarter of 2017 was rough for restaurant chains. Overall, consumers dined out less. Average same-store sales among publicly traded restaurant companies declined. There were winners and losers. 

Overall, the National Restaurant Association expects industry sales to reach $799 billion in 2017, a 4.3-percent gain over 2016 and the eighth consecutive year of real growth. Adjusted for inflation, the increase over last year is 1.7 percent, the NRA said, up from a 1.5-percent increase the prior year.

Contact Lisa Jennings at lisa.jennings@penton.com

Follow her on Twitter: @livetodineout

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