Sysco argues that independent restaurants are performing better right now. | Photo courtesy of Sysco.
Everything you read these days suggests that independent operators are having a brutal time. More than 40% of restaurants don’t make a profit. And, as my colleague Lisa Jennings reported, the number of independent locations declined last year, by 2.3%. Rising costs and consumer cutbacks may be having a real impact.
But Sysco CEO Kevin Hourican has a different perspective.
“We have a treasure trove of data,” he said in an interview. “Mom and pop restaurants are performing better than national chains at large. That doesn’t mean there aren’t national chains that are doing great. I’m talking about in the span of averages, local restaurants are doing better at this time.”
Hourican was saying this in an interview after earnings, in which the company reported positive revenue and volume growth, albeit missing analysts’ expectations slightly. Sysco, of course, is also planning to buy Jetro Restaurant Depot for $29 billion.
The interview was part of a strategy to deliver a message that it has no plans to raise prices at the cash-and-carry retailer.
But Hourican’s comments on independent restaurants were notable, because they tend to go against conventional wisdom and at least some data. Independent restaurant operators have distinct disadvantages, notably in the form of marketing and technology and the ability to negotiate deals with third-party delivery providers.
“Oftentimes people just assume the opposite,” Hourican said. “They assume the national chain with the loyalty app, they’re going to put the mom-and-pop out of business. We see the opposite in our data.”
Hourican argues that over the past 18 months, independent restaurants have done increasingly better than national chains.
It’s worth pointing out that the independent restaurant community is a vast collection of operators, from food trucks and hot dog stands to large-volume, high-average-check locations, so it’s difficult to put them in one box, even though we do. And even in the best years, there is a high rate of churn among these restaurants because, hey, the restaurant industry is hotly competitive.
And while it may go against conventional wisdom to hear that independent restaurants are faring better in this environment, it’s not that crazy. And the simple reason is independent restaurants have a lot more flexibility to deal with some of the challenges.
The first reason is hospitality. When I visit an independent restaurant, it’s not uncommon for me to see the owner. That means something. “They’re in the kitchen, they’re in the front of house, they’re talking to their guests at the table,” Hourican said. “Those restaurants that have the owner in the building perform better than a franchisee operation that has 300 doors.”
He specifically mentioned concepts like Chick-fil-A, in which the owner of that restaurant is in that restaurant, interacting with employees and customers. Indeed, brands that have a strong hospitality focus are performing better than those without one.
Second, Hourican mentioned, is price. “They’ve been scrappier on menu price and they’ve done things to lower their food costs,” he said. “They’ve done things to lower portion size. They have on average been sharper on menu price point.”
National brands may not have that kind of focus, even though they work hard to ensure that price points meet local expectations. A local restaurant may change prices daily.
Hourican also said that many independent restaurants source local ingredients—and then advertise them—which consumers like.
And then there’s the simple fact that independent restaurants are more on top of trends. Hourican mentioned Indian food, one of the hottest trends in the industry. He mentioned a speech he gave at a conference a couple of weeks ago.
“I said raise your hand if you were eating Indian food 10 years ago,” Hourican said. “Like 10 hands went up. Two years ago. Another 20 hands up. How many people have eaten Indian food in the last year? Half the room raised their hands. The trend is huge.
“Now name a nationwide chain in the space. None of us can, because there isn’t one.”
We’ll add this one other explanation: Consumers with money prefer independent restaurants and will often visit when they get an opportunity. And those folks are spending in this environment.
None of this is to say that independent restaurants don’t have challenges. They do. But they do have some real strengths in this market and, according to the country’s largest distributor, they are using them.
