PORT WASHINGTON N.Y. The number of total restaurant locations in 2008 contracted from the year earlier by 0.1 percent, driven by closures of independent restaurants and units within smaller chains, according to new data from The NPD Group, a market research firm.
For the first time since 2000, the number of U.S. restaurants in the September-ended fiscal year fell from the year earlier, led by drops in the family-dining and fine-dining segments. Typically, the number of U.S. restaurants grows each year, with increases of 1.8 percent in 2007 and 0.4 percent in 2006, for example. Casual-dining and quick-service locations showed small but positive growth in 2008, NPD data shows.
There were many high profile closures last year as the industry battled a slowdown in consumer spending, especially for dining out, as well as escalated operating costs. Large chains like Starbucks and Bennigan’s shuttered many locations and well-known independents like Emeril’s in Atlanta and San Domenico in New York also closed their doors.
“In any given year, chains are opening and closing units based on performance and other factors,” said Greg Starzynski, director of product development for foodservice at Port Washington-based NPD. “However, the recession this past year has had the most negative impact on the small chains and independents, and full-service restaurants that were performing poorly prior to the economic downturn.”
Independents were the hardest hit in 2008. The number of all independent restaurants, or those defined as operations with one or two locations, fell 0.8 percent from a year earlier. Fine-dining independents drove the decrease, with a plunge of 10.8 percent in 2008. In previous years, independent locations grew by 0.7 percent in 2007 and by 0.5 percent in 2005, but contracted by 0.9 percent in 2006 and by as much as 1.8 percent in 2002.
Among chains, the number of locations increased by 0.8 percent in 2008, compared with year-earlier growth rates of 3.1 percent in 2007 and 4.1 percent in 2005. Many large restaurant chains have tempered unit expansion in recent years because of the consumer-led recession, and many plan to cut back development further in 2009 and 2010.
What NPD calls minor chains, or those with between 50 and 99 locations, posted a 1.8-percent decrease in the restaurant counts for 2008. The smallest of chains, or those with between three and 49 locations, recorded a decrease of 0.5 percent, according to the data. Family-dining brands were the worst performing sector, down 8.9 percent among minor chains and down 2.5 percent among the smallest chains.
Despite the slowdown in U.S. restaurant growth, some industry analysts say the decline in locations still is not enough to match the slowed demand among consumers.
“Overall capacity growth remains a significant issue, with unit growth (i.e. supply) well above sales growth (i.e. demand) for the second consecutive year,” said Jeff Bernstein, a restaurant securities analyst at Barclays Capital. “While restaurant sales trends continue to be negatively impacted by a challenging U.S. macro-consumer environment, we continue to believe in the favorable long-term trends for the restaurant industry.”
Bernstein said that when looking out past the current recession, the fundamentals of casual-dining chains are the strongest when it comes to future unit growth because chains currently make up only about 20 percent of the overall segment. Casual-dining chains can therefore still post significant growth at the expense of independent restaurants, he said. In comparison, quick-service chains already represent about 70 percent of their segment and have less room for unit growth.