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Restaurant units drop 2%, but some operators still find growth

A shakeout is underway, NPD finds; meanwhile, two operators share expansion strategies

With the restaurant industry experiencing its steepest decline in unit count in more than two decades, coupled with five years of little or no traffic growth, a serious shakeout is underway.   

In fall 2017, unit counts dipped 2 percent from the prior year, or 10,962 fewer units, according to NPD’s ReCount report on restaurant unit locations, the steepest drop since ReCount tracking began in 1998.

While both restaurant chains and independents closed units in 2017, the largest number of closures occurred among independent operators, NPD found.

“There’s just too many restaurants,” said NPD analyst Bonnie Riggs. “Those underperforming had to close.”

And yet, both chain and independent operators in a handful of markets seem to know the secret to growing in these tough times.

While nationally there have been more closures than openings, of the 211 markets in the U.S., only 18 have been able to achieve any growth at all, and only nine of those markets achieved 0.5-percent growth or higher.    

In the year ended fall 2017, Phoenix and Las Vegas both grew unit counts by 2 percent. Austin, Texas; Oklahoma City; Baton Rouge; Boise, Idaho; Traverse City, Mich.; Salisbury-Cadillac, Md.; and Peoria-Bloomington, Ill., all grew unit counts by 1 percent. The new units were almost evenly split between chains and independents.

“[Consumers want] variety; uniqueness; real, vibrant places that are alive,” Riggs said. “It has a lot to do with the experience. They want to go where the action is, so you’ve got to be a part of that.”

More than location, location, location

While many of the growing markets are tourist destinations or rapidly emerging markets that boast vibrant communities with strong consumer participation, Riggs said there’s much more that goes into acceptance of a brand than just the right location.

“It’s that [operators in these markets] engaged consumers in a way that others haven’t done in other markets,” she said.

Executives from It’s A Grind and Coolgreens, two smaller chains with locations in growing markets, shared insights into their expansion strategies:

It’s A Grind gets personal  

The Austin, Texas location of It’s A Grind (IAG), a coffee chain with 20 franchised units across the globe, has been open for a decade and is one of the chain’s top five best-performing outlets. 

Laina Sullivan, director of franchise development for Retail Food Group USA Inc., parent to IAG, said the brand has been successful in Austin and elsewhere because of its innovative products — “We’re pioneers in the flavored coffee industry,” she said — but also because of its franchisee structure, which enables it to offer personalized service to meet the needs of customers in each specific market. That could mean delivering coffee to a customer’s table, not just the counter, and remembering customers’ names and orders on repeat visits.

“[That’s] the flavor and mentality you get when you have individually owned franchisees,” Sullivan said.

Additionally, IAG encourages its franchisees to get heavily involved in the community and to invite customer involvement. In return, IAG has been rewarded with loyal customers, Sullivan said.

“[IAG] is the anti-corporate corporation,” she said. “[It’s] big enough to be a chain, but small enough to be part of the community.”

IAG has two new units slated to open in 2018, in California, and is reviewing additional franchise developments in Austin. The chain did not open or close any locations in 2017.

Coolgreens goes with the grain

Evolving to meet customer needs is key to growth for Coolgreens, a healthful lifestyle concept with seven locations in the Oklahoma City metro area and plans to open several locations soon in other markets.

“The customer is evolving; evolving with them is very important,” said Coolgreens CEO Robert Lee. “The awareness to eat healthy, to keep an active lifestyle, that has been more ingrained in society.” 

When Coolgreens opened its first location in 2009, Oklahoma City was largely a “meat and potatoes town,” Lee said. Coolgreens capitalized on the healthful trend sweeping the rest of the nation, as well as an influx of younger professionals and families moving to the city following the expansion of the oil industry in the early aughts. 

“Now we’re not going against the grain anymore,” Lee said.

Although it’s riding the healthful trend by delivering customers the better-for-you salads, wraps, bowls and flatbreads they crave, Coolgreens isn’t just in it for the short term. To ensure continued growth, the chain has ingrained itself into all aspects of its customers’ lives by offering lifestyle activities that align with brand values, such as yoga classes, CrossFit events, runs and support of local school activities.

“If you don’t have a connection to your customers, don’t listen to them, you aren’t going to succeed,” Lee said.

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