If you’re a burger aficionado, then the recent news that Five Guys Burgers and Fries — already the fastest growing franchise in the U.S. — is expanding even more, came as no surprise (and welcome news!) That expansion, fueled by $100 million in financing from GE Capital Financial, is the latest signal that small and medium-sized “main street” businesses in the franchise industry are poised for growth.
Those growth signals are among the key takeaways in a new report released today in which approximately half of the restaurant operators surveyed say they are planning capital expenditures in the first half of 2011. That could mean investing in new equipment, remodeling existing units or building new units. The information is in the 21st edition of the Chain Restaurant Industry Review, which was first shown at last week’s Restaurant Leadership Conference by GE Capital Franchise Finance. The Review includes a survey of the largest 150 restaurant operators and the top 100 chains (of the nearly 580,000 restaurants in the U.S. in 2010, 46.2% were chains).
The National Restaurant Association echoes that positive outlook, predicting that 2011 will be the first time in four years that the total foodservice industry will see real growth, resulting in sales up to $604 billion.
Thinking big: In 2008, GE Capital Financial loaned $14 million to Five Guys Burgers and Fries. Underscoring the company’s huge success in the restaurant industry, the new $100 million financing is nearly seven times that original amount and will be used to finance expected growth. Five Guys opened its first restaurant in 1986 in Arlington, Virginia. Over the last three years, it’s opened more than 375 restaurants and today has more than 640 franchised locations and more than 100 corporate-owned locations across the U.S. and Canada. Photo courtesy of Five Guys.
The Five Guys expansion, like the signs of optimism found in the survey, come after four tough years in the sector. According to Industry Review, consumers have understandably become more price-sensitive. One of the ways restaurants are keeping them coming back is by making capital expenditures for remodeling units and installing new equipment.
Another way has been to keep prices low, with the industry overall having had the slowest annual rate of menu price increases in 55 years. However, the report finds that this is likely to change due to significant increases in commodity prices. Sixty percent of operators as well as several chains have announced plans to raise menu prices in 2011 since food costs comprise about 33 percent of every dollar of restaurant sales. In fact, the survey found that 88.9 percent of operators see commodities as the number one factor that will impact their business in 2011, followed by financial markets and gas prices (tied at 33.3 percent).
Regarding the half of the operators surveyed who say they are considering capital expenditures in the first half of 2011, their plans breakdown into: focusing on operational improvements (46.7%), expanding within their current markets (44.4%), re-imaging units (31.1%) and updating their menus (26.7%).
* Read today’s survey announcement
* Read the Five Guys announcement
* A copy of the Industry Review can be obtained by subscribing to www.gefranchisefinance.com and clicking on “Access Industry Expertise.”
