Harder times for chain restaurants


food, dining, valetine's dayThe chain restaurants industry operates on a specialised business model that represents a hybrid between traditional restaurants and fast food services, according to an IbisWorld report.

The concept has proven relatively successful in Australia with industry revenue forecast to grow at an annualised 3.4 per cent over the five years through 2013-14 to reach $384.9 million. This solid growth has been supported by rising levels of discretionary income combined with improving consumer sentiment and increased expenditure on recreation and culture.

In 2013-14, industry revenue is forecast to increase by a strong 8.6 per cent on the back of new restaurant openings and growth in revenue per establishment.

Characteristic of the hybrid model, chain restaurants tend to fall between fast food services and traditional restaurants in terms of price. Most of the chains originated in Australia, with international chains having only limited success. The industry is characterised by a medium level of market share concentration and faces a high level of external competition from fast food services, restaurants, and cafes.

The chain restaurants industry has entered a mature stage of its economic life cycle with the number of enterprises expected to decline over the five years through 2018-19. The main point of differentiation for chain restaurants is the style of food, and the options for new entrants are becoming increasingly scarce.

The outlook for the industry is not so bright with demand expected to flatten over the next five years. IbisWorld industry analyst, Andrei Ivanov, says the weaker performance will be partially attributed to changing consumer preferences as people start to focus on more premium dining experiences.

“More food savvy diners are likely to look at menus and peer review sites rather than rely on the reputation of a certain chains, which will lead to industry players needing to differentiate themselves with their menus and build strong reputations,” Ivanov said.

The chain restaurants industry has a moderate level of market share concentration, which is largely due to the small number of restaurant chains nationally.

According to Ivanov, “there are fewer chain restaurant establishments than fast food outlets, since fast food outlets operate using a low cost model that focuses on the economies of scale afforded by a franchise network”.

Conversely, chain restaurants typically operate in the medium price range in between quick service establishments and fine dining restaurants.

The broader restaurant industry is characterised by a large number of single owner-operated restaurants, which provide robust external competition and has contributed to the low number of chain restaurants. Chain restaurants also compete with cafes and coffee shops. Major industry players include Hog’s Breath Café, La Porchetta, Fasta Pasta, and Taco Bill.

For more information, visit IbisWorld’s Chain Restaurants report.

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