Full Service Restaurant Franchise Industry Report
This study is a brief review of the U.S. full service restaurant franchise industry. It is based on data collected from the Franchise Disclosure Documents (FDDs) of 18 full service restaurant franchises and published industry sources. The FDDs covered 18 full service franchises in the U.S.
A full service restaurant is defined as a sit down eatery where food is served directly to the customers’ table. These establishments may sell alcoholic beverages; provide takeout, delivery or present live entertainment. The term “full service” can encompass anything from a family-style eatery to an elegant restaurant; from casual dining to fine dining.
The full service restaurant industry sales were projected to reach $182.9 billion in 2009, up 1% from 2008 according to the National Restaurant Associations’ 2009 Restaurant Industry Forecast. This gain is similar to the 2008 gain of 1.1% but will however remain well below the average annual increase of 4.8% gained between 2002 and 2007. Due to the recession and a lack in consumer confidence, 2009 was a challenging year for the full service restaurant industry. The outlook for the industry has begun to improve however. According to the National Restaurant Association 30% of restaurant operators said they expect economic conditions to improve in the next 6 months .
In October of 2009 the National Restaurant Association’s Restaurant Performance Index (RPI) of restaurant activity registered its first gain in three months. The RPI is a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry. The RPI stood at 98.0 in October, up 0.5 percent from its September level. (Index values above 100 indicate that key current situation indicators are in a period of expansion, while index values under 100 represent a period of contraction.)
The full service industry consists of over 250,000 restaurants which include franchised establishments. Competition for full service restaurant franchises includes national and local restaurant chains, fast food outlets, sandwich stores and other franchised businesses operated by national chains, local chains and independent operators. Average annual expenditures per consumer on food purchased away from the home was $2,698 in 2009 according to the Consumer Expenditure Survey released by the Bureau of Labor Statistics of the U.S. Department of Labor.
Top 10 States by Sales
The following table details the sales growth for the 10 states with the highest sales. It provides a break down of the last year’s sales, a projection of this years sales and the projected percentage difference for each of the top 10 states.*
*National Restaurant Associaiton, restaurant industry state statistics
|California (in thousands of $)||$54,822,574||$56,236,159||3%|
(in thousands of $)
|New York (in thousands of $)||$27,462,180||$27,795,102||1%|
(in thousands of $)
|Illinois (in thousands of $)||$18,363,133||$18,800,107||2%|
|Ohio (in thousands of $)||$15,724,997||$15,935,105||1%|
(in thousands of $)
|North Carolina (in thousands of $)||$12,535,553||$12,904,838||3%|
|Michigan (in thousands of $)||$12,349,800||$12,553,615||2%|
|Massachusetts (in thousands of $)||$11,579,483||$11,788,189||2%|
*Projected sales figure
**Projected % difference
It is projected that in 2010 consumers will be interested in locally produced and sourced food. According to the National Restaurant Association 70% of adult consumers said that they are more likely to visit a restaurant that offers locally produced food items. The trend of locally sourced foods has become particularly popular at fine-dining establishments. According to the National Restaurant Association’s research, 89% of fine-dining operators serve locally sourced items, and 9 in 10 believe demand for locally sourced items will grow in their segment in the future.
There has recently been an increase in the number of people concerned about the nutritional value of their food and their children’s food. 3 in 4 adults say that their choice of restaurant is influenced by their concern for the nutritional value of the food. SanSai, a Japanese grill, for example offers franchises that serve healthy and nutritious food. All the meat is grilled to order and all the sushi is prepared in front of the customer using fresh fish and ingredients ensuring the upmost quality.
According to the 2009 Technomic Breakfast Consumer Report, 46% of consumers enjoy breakfast foods and beverages so much that they wish that they could order breakfast all day . Women especially would like to see breakfast available throughout the day. 5 & Diner have taken notice of this trend and now their franchisees offer a wide variety of breakfast items all day such as waffles, pancakes and traditional breakfasts.
There has also been an increase in the number of people who treat themselves to a large traditional breakfast at the weekend. The interest in breakfast sandwiches has grown significantly in the last year.
Full Service Restaurant Franchise Companies
For this report we have taken a sample of 18 full service restaurant franchises. A full service restaurant franchise requires a greater personal and financial commitment than other food franchises. Once you settle on the right full-service restaurant franchise for you, the process of purchasing and launching the establisment is in-depth and detailed, as our comprehensive timeline maps out in full.
The type of franchise and the brand will determine what the initial investment will be. The table below provides an overview of the estimated initial investment required to open one of 18 full service restaurant franchises. It includes the initial franchise fee payable on signing the franchise agreement and the ongoing sales royalties payable to each franchisor. It also contains a detailed profile of each franchise which presents these costs in more detail. The profiles are extracted from the Franchise Disclosure Documents (FDD) of the 18 franchisors.
|Name of franchise||Initial franchise fee||Royalty||Total initial investment – Low-||Total Initial Investment – High -|
|Rib City Grill||$5,000||4%||$329,500||$686,500|
|5 & Diner||$35,000||5%||$62,000||$75,000|
Under the franchise agreement, a franchisee may be obligated to serve alcohol in the franchised establishment. The difficulty and cost of obtaining a liquor license, and the steps for securing the license, vary greatly from place to place. There is also a wide variation in state and local laws and regulations that govern the sale of alcoholic beverages. In addition, dram shop laws establish the liability of establishments arising out of the sale of alcohol to visibly intoxicated persons or minors who subsequently cause death or injury to third-parties. A prospective franchisee should consult an advisor to determine all applicable laws and regulations.
Each full service restaurant franchise brand has its own unique genre. SanSai offers franchises for a Japanese Grill, Famous Dave’s offers barbeque and The Best of Mediterranean is a restaurant which offers authentic Mediterranean food.
Full service restaurant franchisees also offer a wide variety of styles of franchises. One of the best examples of this is Shula’s which offers franchisees 5 individual franchise concept to choose from. The 5 concepts are:
Shula’s steak house, Shula's on the Beach, Shula's Grill & Wine Bar, Shula's 347 Grill, Shula's 2 Steak & Sports:
Sports bars franchises have become increasingly popular as an alternative to classic full service restaurants. They offer quality food in a unique setting that appeals to a wide demographic.
Sports bar franchises are primarily places for people to frequent with friends to watch sports on wide screens. In the past sports bar owners found that business was heavily dependent on the sports season and so sports bar franchises had to find new ways to entice customers to the establishment during the off-season. Many sports bars have positioned themselves as quality full service casual dining restaurants in order to entice a broad range of non seasonal customers. For example, Jocks and Jills Sports Grill has created a distinctive “all sports” atmosphere while offering table service and great food.
According to research completed by the research team at Franchise Direct the average estimated initial investment for a sports bar ranges between $711,540 to $1,522,220. One of the costs to be aware of when deciding to become a sports bar franchisee is the cost of the entertainment system. A franchisee will need plasma, high definition and large screen televisions plus state-of-the-art sound systems to ensure that every customer or fan has the best seat in the house. Beef O’Brady’s Family Sports estimated that a franchisee will need to spend between $15,000 - $40,000 on TV screens and sound.
There are also franchises available for pub style restaurants. Firkin Pubs for example offers the opportunity to operate an old English-style pub as an alternative to other casual dining restaurants. The pub offers a varying menu serving the 3 main meals of the day and a large number of English and European beers on tap.
The below table provides an overview of the estimated initial investment required to open one of 5 sports bar franchises as well as the initial franchise and the ongoing sales royalties. It also contains a detailed profile of each franchise which presents these costs in more detail.
|Name of Franchise||Royalty||Estimated Initial Investment – low -||Estimated Initial Investment – high -||Cost of TV and Sound|
|Beef of Bradys||4%||$160,000||662,500||$15,000 - $40,000|
|Tilted Kilt||6%||$669,500||1,603,000||$45,000 - $100,000|
|Native New Yorker||5%||742,850||1,713,600||$195,000 - $300,000|
|Jocks and Jill||3%||1,587,500||2,430,000||$100,000 - $225,000|
There are laws and systems that have been established to help ensure that the food served in restaurants is safe. A restaurant franchisee will need to ensure that their franchise is constantly up to code as a violation could lead to food poisoning and the closure of the franchise. The Health Department will help with the establishment of correct systems and practices. To reduce the risk of food-borne illness, local food codes contain specific standard requirements. These requirements will be checked by a sanitarian or health inspector during an inspection of the food establishment.
Weakness in consumer discretionary spending due to the economic climate and low consumer confidence has affected the growth rate of the full service restaurant franchise industry. This trend is set to continue into 2010 as consumers remain cautious about their spending. However, as the economy continues to recover consumers are expected to start spending again and increase their patronage to full service restaurants.
Until that time full service restaurant operators and franchisees can focus on maintaining high quality food and exceptional service in order to increase traffic to their establishments. Full service restaurant operators and franchisees will also need to offer their customers a wide variety of food and value for their hard earned cash.