QSR Magazine - The QSR 50 - August 2002 - 20

SEGMENTS | AMERICA’S HOTTEST CHAINS rest of the field? The credit lies with the continuing popularity of the chain’s ubiquitous spokesdespot and the value in its product. Two pizzas for the price of one will always remain a popular offer. But, despite a promising franchise agreement designed to bolster expansion, Little Caesars may still have difficult times ahead; ninety-eight of the chain’s one hundred and fifteen K-Mart units are slated to close. Elsewhere, look for perennial segment leader Pizza Hut to partner with either a sandwich or pasta quick-serve concept in one of those co-branding situations parent company YUM! Brands Inc. is known for. Meanwhile, Papa John’s continues to be the fastest-growing company in the category and plans to introduce a deep-dish pie by the end of the year. For the future, several chains not currently in the top five are positioning themselves for major growth. The Big Five should take notice. quarter revenues foretold what was to come. Systemwide store sales actually fell in 2001 by a slight –0.7 percent. And it hasn’t gotten much better. In the first quarter of 2002, the chain experienced a systemwide decrease in same-store sales, and Schlotzsky’s has yet to truly bounce back. CEO John Wooley has onslaught of Next-Mex. No real revamp of the menu here. Instead, Del Taco has positioned itself as a hybrid of quick-serve Mexican’s past and future—cheap and fresh. The chain recently unleashed its “made-toorder Mex” campaign, emphasizing its grilled-daily chicken, its slow-cooked, hourly But the real story is Panera Bread and its meteoric rise. promised shareholders that the chain’s negative sales problems will correct themselves while Schlotzsky’s forges ahead with its growth, renovation, and co-branding plans. Panera’s rise also displaced Einstein/ Noah’s Bagels. Einstein neither grew in terms of sales nor units in 2001. Now at the number five spot, and owned by New World, Einstein must pull something out of its hat to keep Blimpie at bay. As Panera proved, anything can happen in sandwiches. prepared beans, and its freshly grated, 100percent cheddar cheese. Overall the segment has seen tremendous growth among its leaders and sub-category leaders in the past few years. Particularly among the quick-casuals, with McDonald’s backing Chipotle and Wendy’s recent purchase of Baja Fresh, all signs point to continued growth. In fact, in 2002, Chipotle surpassed the “Magic 200”—200 units and an estimated $200 million in annual sales. Yep, things are looking all right for Mexican: studies say consumers are burned out on burgers, “fresh” has become the new buzzword in quick-serve, and paying a bit more for better quality is more than acceptable to most potential customers. Yet if Mexican is to truly convince the nation to “Think Outside the Bun,” the segment as a whole will have to expand aggressively beyond its West Coast roots into the hinterlands. q M E T H O D O L O G Y Sandwiches The numbers do not tell the whole story. Sure, Subway has more units than any other chain—including McDonald’s. And, Arby’s may be still sitting pretty at number two among the top five sandwich shops thanks to its Market Fresh line. But the real story in sandwiches is Panera Bread and its meteoric rise from last year’s number five spot to number three. After all, it was Panera Bread, not Arby’s, that Business Week and USA Today named as one of the best performing stocks of 2001 (Small Cap Top 50). The 6.5 percent increase in same-store sales that the Market Fresh sandwiches brought Arby’s pales in the face of Panera’s 50.9 percent increase in systemwide sales since 2000. Subway’s estimated $350,000 in gross unit sales thanks to Jared and Jim and its new breads and sauces cannot compare to Panera’s $1.7 million. Panera is the hot story in sandwiches right now much to the chagrin of its quick-service brethren, and the company shows no signs of slowing down. Just this May, its stock spilt two for one, an indication, say company executives, of the market’s confidence in Panera Bread. For Schlotzsky’s, which fell a spot to number four, 2001 started out as an encouraging year. As late as the third quarter of 2001, the chain was experiencing significant earnings increases. But a slight decrease in fourth- Mexican Despite the recent hype surrounding them, it will be years—dare we say, decades even— before Next-Mex upstarts like Baja Fresh, Qdoba, and Chipotle unseat Taco Bell from its number-one spot in the quick-serve Mexican category. Taco Bell’s nationwide network of restaurants includes more than six thousand units, the largest Next Mex a little over two hundred. Need we say more? Even so, with the introduction of its new Steak Quesdillas, Grilled Stuffed Burritos, and Border Bowls, it appears as if the vet has ripped a few pages from the rookies’ playbooks. All three of the new menu items mirror the more sophisticated fare typically found at quick-casual Mexican eateries and cost a bit more than the rest of Taco Bell’s menu. But when put up against comparable items at places like Taco Cabana, the Taco Bell products are still less expensive. “If it ain’t broke, don’t fix—much,” the YUM! Brands operation seems to be saying. And it looks as if its core market of eighteen- to thirty-year-old males agrees. Same-store sales began to rise in October 2001, the first time in seven consecutive declining quarters. On the other hand, numero-dos player in the Mexican category, Del Taco, appears to have adopted a slightly different “if you can’t beat them, join them” approach to the The data for The QSR 50 is supplied by GE Capital Franchise Finance, a leading lender for the dynamic franchise finance market in the U.S. and Canada. GECFF provides financing for many nationally known concepts in the restaurant, hospitality, petroleum, and automotive industries. GECFF has complete store-level profit and loss statements of more than ten thousand individual properties, demographic and traffic-count data on more than five hundred thousand locations, and data on more than six thousand operators throughout the United States. GE Capital Franchise Finance augments this data with its own extensive industry surveys, with the aim of providing a ground-level view of the restaurant industry. The success of these surveys is due to GECFF’s relationships with top management in the chains surveyed—for example, CFOs, treasurers, etc.—and, as a result, the company believes its more complete and accurate data provides an advantage when analyzing a specific chain or the industry in general. GE Capital Franchise Finance conducts the year’s first Top 100 Restaurant Chain Sur vey, emphasizing the chains’ systemwide sales, average sales per unit, and total number of domestic units, both franchised and company-owned. This is the data QSR uses to construct the charts that appear in The QSR 50. GE Capital Franchise Finance is based in Scottsdale, Arizona. 61 www.qsrmagazine.com | QSR AUGUST 2002

QSR Magazine - The QSR 50 - August 2002

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