As their aggregate top-line and new-unit growth rates slowed, the nation’s 100 largest foodservice brands nonetheless punched through the $200 billion barrier in U.S. systemwide sales in their latest full fiscal years, only to confront worsening marketing and operational challenges.
(This story is from the 2008 Top 100. Subscribers can read more stories from this special issue in the subscribers only section. Nonsubscribers can purchase the entire special issue by clicking here.) 
The 5.22-percent rate of aggregate growth that pushed the group’s latest-year domestic sales total to $200.32 billion was off the
5.57-percent pace of the preceding year, according to data compiled by Nation’s Restaurant News for its 35th annual Top 100 census.
Contained in this issue of NRN as part one of a study whose Second 100 installment follows next month, the Top 100 ranks the first-tier chains on a brand-by-brand basis by domestic systemwide sales and other growth metrics. The report separately tracks the U.S. industry’s 100 largest foodservice companies on the basis of domestic revenue and growth rates.
Among trends and developments revealed in this year’s Top 100 data and segment analyses: the virtual dead heat in the battle for U.S. family-restaurant chain supremacy between the Denny’s  and the IHOP /International House of Pancakes chains as the faster-growing latter brand affirmed its turnaround muscle.
In keeping with Top 100’s apples-to-apples assessment of domestic-only results over a three-year span, NRN’s researchers calculated only U.S. sales for Denny’s and IHOP, neither of which formally reports that data. Under the new corporate banner of DineEquity Inc., which also owns the Applebee’s  chain, IHOP scored a $2 million latest-year advantage as it and Denny’s both hit the round number of $2.32 billion in 2007 sales.
That marks the first time in decades that Denny’s has not been the clear leader of the industry’s hotly contested family-dining sector.
Still, though family chains have been struggling for years, recent improvements in Denny’s new-unit development picture and capital situation suggest that a clear segment winner may not emerge for some time in the race for sales dominance. However, momentum has been building at a faster clip for IHOP, as can be seen in other results and rankings emerging from the voluminous Top 100 database.
Top 100’s companion study of the biggest foodservice companies doing business in the United States reveals a collective 15.46-percent growth in annual domestic revenue, to $116.44 billion, in those outfits’ latest years, up from an 11.01-percent increase a year earlier. However much of that latest growth reflects the extraordinary levels of merger and acquisition activity in recent years and its impact on shifts in overall market share among corporate titans.
Though pro forma presentations combining predecessor and successor company results would show a lower rate of growth, the new slate of Top 100 companies can be expected to post even stronger evidence of revenue robustness as recent chain buyers begin reporting full-year results of their acquisitions.
To keep their extended run of year-over-year aggregate systemwide sales growth in the 5-percent range alive, Top 100 chains have increasingly relied on menu price hikes, limited-time offers and new marketing and advertising strategies to build traffic and boost meal tabs. Marketing tactics lately have shown a more technological bent, including digital cell phone coupons from the likes of Hardee’s  and Domino’s Pizza  and explorations of social-networking websites resembling Facebook and MySpace, with sandwich specialist Arby’s  among those seeking higher brand loyalty from the online crowd.
The number of corporate and franchised U.S. restaurants within the realm of the Top 100 chains rose to 194,292 at the end of their latest fiscal years, marking year-over-year growth of 2.22 percent. That’s down from a 2.43-percent bump in total restaurants a year earlier, which also was off from a prior annual rate of 2.72 percent.
Comparatively speaking, franchisors that rank within the Top 100 chains saw franchisees slow their rate of expansion substantially in the latest year, compared with the previous two. The total U.S. base of franchised and licensed outlets grew by 2.56 percent in the latest year to 121,202 locations. That compares with aggregate franchise system growth of 3.44 percent and 3.72 percent, respectively, in the preceding and prior years.
The rate at which brand owners opened new units of their own rebounded in the latest year, however, with company-store fleets growing 1.67 percent, up from 0.81 percent in the preceding year and 1.16 percent two years back.
Some of that company-store growth came from franchised unit buybacks, including those by Jamba Inc. of Emeryville, Calif., which purchased 34 Jamba Juice stores from franchisees in 2007. That contributed to Jamba Juice’s growth to 501 corporate outlets at the end of its latest fiscal year, up from 373 a year earlier.
Conversely, some operators have been selling restaurants to franchisees, including Chili’s Grill & Bar  owner Brinker International  Inc., which also has been seeking a buyer for its entire Romano’s Macaroni Grill  chain. In deals that began in Brinker’s preceding fiscal year and closed at various times in the latest year, outsiders agreed to acquire more than 182 Chili’s locations from the company, with ERJ Dining of Louisville, Ky., buying 76 of those units.
Starbucks Coffee, which has ranked in the top five of the Top 100’s new-store-growth leaders several times in recent years, does so again in the 2008 census. The chain added 1,121 U.S. branches in the latest full year. That brings the coffeehouse giant’s net company-store growth tally to 2,527 domestic sites for the three-year stretch ended last fall, when it operated 6,778 corporate branches.
But such run-ups in company stores apparently are ending for the foreseeable future for Starbucks.
Citing slowing revenue growth, a 28-percent year-over-year decline in net income and a mid-single-digit deterioration of same-store sales at U.S. coffee bars for the quarter ended this March, Starbucks said it will cap company-store development at 450 units in each of the next three years. Chief executive Howard Schultz said the chain was “clearly being impacted by reduced frequency to our U.S. stores.”
Jamba Inc., too, has “further slowed the growth of new stores to shift and intensify our focus on improving the performance of our existing stores,” said its chief executive, Paul Clayton. The company said it losses from operations more than doubled, to $19.6 million, for the quarter ended in April, in large part because comparable-store sales slippage at company smoothie bars, whose volumes dropped by 4.2 percent from a year earlier.
But not all of Top 100’s high flyers are feeling a growth hangover. Chipotle Mexican Grill this year landed in the Top 100’s top-five chains on the basis of systemwide sales growth, new-unit growth and growth in the franchisor’s corporate revenue. That latter feat resulted from the reporting of the parent company’s first full year of results since it was spun off by McDonald’s  Corp. in 2006.
Chipotle Mexican Grill Inc. posted a 29.3-percent bump in revenue, 38.9-percent rise in net income and comparable-store sales gains of 10.2 percent for the quarter ended in March. That followed a 30.89-percent increase in systemwide sales to $1.09 billion for the year ended last December, along with a 21.17-percent jump in total units to 704.
Steve Ells, Chipotle’s chief executive, credited his company’s “better tasting food” and use of organic and other naturally raised products as among the reasons the chain is “able to attract new customers even in this challenging economic environment.”
The challenging environment cited by Ells is one in which consumers are being forced to reconsider their dining habits as they face unprecedented higher spending for gasoline and other fuels and fast-climbing food expenses—a problem they share with restaurateurs. The federal government’s Consumer Price Index for foods and beverages, for all urban dwellers, was up by a seasonally adjusted 5.0 percent for the 12-months ended in May; energy prices had climbed 17.4 percent in that time. Meanwhile, restaurant operators have faced wholesale food cost increases that have risen at about double the rate of inflation overall.
However, shifts in consumer spending appear to have benefited some Top 100 players as recession-wary diners have traded down to lower-priced alternatives.
Oak Brook, Ill.-based McDonald’s, the No. 1 Top 100 chain in U.S. systemwide sales, has seen its domestic volumes grow by better than 5 percent in each of the past two years, reaching $28.58 billion for 2007. The chain’s growth stemmed primarily from comparable-store sales improvements as McDonald’s U.S. store base grew by less than 1 percent for fiscal 2006 and 2007.
McDonald’s U.S. branches carried their same-store performance into the first five months of 2008. Management pointed to the chain’s “value” menu, recent new-product rollouts, including a Southern-style chicken sandwich, and consumers’ higher perceptions of convenience regarding such things as expanded operating hours.
Yum, in its latest year, booked a 10.13-percent bump in net income to $909 million from an 11.27-percent jump in global revenue of $10.42 billion. But the parent of Taco Bell , Pizza Hut  and KFC  had little to smack its lips about in terms of U.S. results. Of Yum’s four largest domestic operations, a list that also includes Long John Silver’s , only Pizza Hut reported higher sales, a 3.85-percent rise to $5.4 billion, from 7,515 U.s. units.
Pizza Hut is trying a slate of new product and service initiatives to keep that positive trend alive in the current year, including its recent rollout of baked pasta for delivery and carryout and support for orders made via cell phones and portable Internet devices.
The negative side of consumers’ trading down is that the operators suffering defections include many of the U.S. industry’s biggest casual-dining and other full-service brands. The 22 casual-dining chains in the 2008 Top 100 census saw their collective systemwide sales growth fall to 5.07 percent for the latest year, from 7.14 percent in the preceding 12 months. Only six casual-dining chains ranked among the top 50 chains in terms of latest-year growth in estimated sales per unit, versus 11 that had ranks within the top 50 a year earlier.
As it was last year, the “Top 100 Companies Ranked by U.S. Foodservice Revenue” data table is filled with footnotes about transactions that saw revenue flows start, stop or get shared. The biggest news in the latest year included the acquisition of the LongHorn Steakhouse and The Capital Grille  chains by Darden  Restaurants Inc., owner of Olive Garden  and Red Lobster . That purchase of the former Rare Hospitality International  helped push Darden’s latest-year revenue to $6.65 billion and move it past McDonald’s into the No. 2 U.S.-revenue spot behind No. 1-ranked Compass Group  PLC of London.
Sun Capital Partners of Boca Raton, Fla., has not yet seen full-year contributions from some of its recent acquisitions, including the Boston Market  chain it bought from McDonald’s Corp.  last August. Nonetheless, buyout-bent Sun in the latest year jumped to the 16th spot on Top 100’s company roster, from 52 in the preceding year, by scoring estimated U.S. foodservice revenue of $1.62 billion.
Also shaking up the Top 100’s companies roster in the latest year were the going-private transactions of Aramark  Corp., now controlled by Aramark Holdings Corp.; Outback Steakhouse  parent OSI Restaurant Partners , now majority owned by Bain Capital LLC of Boston; and Hilton Hotels Corp., which was snapped up by private-equity pioneer Blackstone Group LP, now a public entity.