Which restaurant sectors can justify their unit growth?

Drive-thru coffee chains like 7 Brew are growing volumes despite heavy unit growth. | Photo courtesy of 7 Brew.

In recent years, the fast-casual chicken sector has seemingly been unstoppable. Brands like Raising Cane’s and Dave’s Hot Chicken have thrived. And they’ve responded by building more and more locations. 

But the segment’s unit growth could be putting some pressure on its unit volumes, at least based on an analysis of data from the Technomic Top 500 Chain Restaurant Report.

We analyzed median sales and unit count growth for each segment and cuisine type last year, then compared the two. The theory was to see what segments performed best without the benefit of expansion, but rather by organic sales at the location level. We used median sales and unit growth, to get an idea of what the typical chain did rather than the entire segment, to filter out the influence of the largest chains. 

The results weren’t all that surprising. Coffee chains performed remarkably well. Upscale and fine-dining brands did well, the clear result of a bifurcated economy.

In general, the median restaurant chain last year generated 2.5% U.S. system sales growth and grew unit count by 0.8%, so the median chain was able to generate 1.8% more in sales on a per-location basis. That is still below menu price inflation. But it’s organic growth, nevertheless. 

The median fast-casual chicken chain, meanwhile, grew sales by 10.6%. But they grew unit count by 13.1%. That suggests a 2.5% median decline in unit volumes. Only two segments, casual-dining Asian and casual-dining Italian chains, performed worse. 

Here’s a chart. 

Total unit count among fast-casual chicken chains is little better. Unit count grew 15.2%. Sales grew 12.31%. 

To be sure, unit growth will frequently pull down average-unit volumes, eventually, thanks to sales transfer, as new units pull sales away from locations in the same markets. But this still suggests that all these new locations may be creating some competitive pressure. Economic challenges, GLP-1s and other issues could all be factors, too.

The impact can be seen in particular at a chain like Wingstop, which reported a 3.3% decline in same-store sales for the full year, its first such decline in 22 years. But we see some signs of unit-volume stress throughout the chicken sector, as Chick-fil-A reported declines in average-unit volumes in each of the past two years, the first time we’ve ever seen that. While Chick-fil-A is not fast-casual, it is clearly being hurt by all this competition. 

By contrast, we do not see the same dynamic in the quick-service coffee sector, another segment in which sales are booming. 

Median sales growth among coffee chains was 10.14%, compared with 6.3% unit growth, a difference of 3.78%.

Fast-casual coffee chains performed far better, with median sales growth of 37.06% compared with 28.33% unit count growth, a gap of 8.72%. But there are only four, high-growth chains in that segment: Paris Baguette, Manman, Tous les Jours and Bluestone Lane.

The coffee sector is doing this despite the fact that there are already a ton of locations. 

There are 32,843 quick-service coffee locations in the U.S., compared with 6,103 fast-casual chicken locations. If we expand to include all limited-service chicken chains that’s still 19,550, or more than 13,000 fewer locations. 

Yet fast-food coffee chains are still more likely to generate sales that outpace unit growth. Indeed, the median numbers probably understate that sector’s strong performance last year: They grew sales 7.5%, despite weak performance by leader Starbucks, while unit count grew 2.8%. 

That is certainly a function of the expansion of the types and variety of drinks being offered at many of these concepts and the broadening of the service styles, focusing on drive-thru and customer service. 

All of which suggests demand is still there for all these fancy beverages being sold now.