Take It From the Top
The 2005 R&I Top 400 Chains display leadership and muscle.

By Scott Hume, Executive Managing Editor

That this year’s Top 400 chain-restaurant concepts had combined 2004 sales of $237.4 billion is impressive; that the sales total increased 8.8% in one year is remarkable. The more meaningful statistic, however, may be that such a gain was achieved with only a 2.1% increase in the total number of units represented by the Top 400.

Growth achieved through improved per-store sales rather than simply through new-unit openings is sustainable improvement, the type that creates industry momentum and not just satisfied Wall Street analysts. Most of the largest U.S.-based restaurant chains included in this year’s ranking reported sales growth in excess of net-store-count increases, indicating that lessons learned about too-rapid expansion during late-1990s’ building boom were put to use in plotting profitable strategies.

That change of management mindset was evident at the No. 1 chain among the Top 400, McDonald’s. The Plan to Win game plan, introduced by former CEO Jim Cantalupo and continued by his successor Charlie Bell and current CEO Jim Skinner, is built on directing corporate energy and capital to improving sales at existing restaurants rather than on opening new locations. As Skinner told R&I in a March interview, the company’s goal has been to “focus on the moment of truth, which is at the front counter and the drive-thru.”

Last year’s untimely deaths of Cantalupo and Bell did not derail the Plan to Win: McDonald’s systemwide sales rose 11.6% to more than $50.1 billion while the net number of units open increased little more than 1%.

Forward Thinking
Many others among the Top 400 followed similar strategies, not only in sales and unit numbers but also with innovative thinking about menus, service, cost containment, design and other aspects of operations. The pace of menu refinement may never have been quicker than it was during the past year. The low-carb trend provided some impetus for adjustments, but greater, more-lasting shifts in consumer demands—such as the popularity of entrée salads and creative sandwiches—likely played a stronger role. Chick-fil-A rolled out a systemwide breakfast program (with upgraded coffee) and Subway is serving morning meals in selected markets. IHOP dramatically revamped its lunch and dinner daypart offerings.

Balancing upscaled foods and prices is the return to favor of low-price meal deals. From Taco Bell’s Big Bell Value Menu and Rubio’s Fresh Mexican Grill’s Fresh & Affordable Menu to Wendy’s Value Choices Menu, QSRs are keeping variety in pricing and food choice.

More-sophisticated palates often go hand-in-hand with desires for interesting, varied dining experiences. Many Top 400 chains have completed or are contemplating refinements to décor. Big Boy, Cosi, Culver’s, D’Angelo’s, El Pollo Loco, Logan’s Roadhouse, Manhattan Bagel and Sizzler are among the many chains with new unit prototypes.

Now in its 41st year, R&I’s Top 400 ranking serves as an industry benchmark by providing key metrics about the chain-restaurant business. Among indices worth noting this year:

• The 100 largest chains account for 86.2% of aggregate Top 400 sales, a slight increase from 85.9% last year.
• Those 100 largest chains’ share of the Top 400’s total units is 82.5%.
• The second 100 claim a larger share of the Top 400’s total units (9.9%) than they do of sales (8.2%).
• One in four of the 249,000 total units operated by Top 400 chains is a hamburger-specialty restaurant (such as McDonald’s, Jack in the Box or In-N-Out).
• The 10 largest chains had combined sales in 2004 of $117.3 billion, representing 49.4% of the Top 400’s total.
• There were 120,530 units of the 10 largest chains operating globally at the end of 2004, or 48.4% of the Top 400’s total.

Rules of the Ranking
Restaurants & Institutions’ 41st annual Top 400 ranks systemwide (global, company-owned and franchised) food-and-beverage sales for the largest restaurant chains. It ranks sales strength of brands, not companies.

• Chains, as defined for this report, are foodservice concepts with five or more units operating under a single brand name, such as Chili’s Grill & Bar. Exceptions have been made where a concept operates under two brands, both controlled by a single management team (such as Ponderosa/Bonanza).
• The sales and unit figures listed encompass all food-and-beverage outlets, domestic and international, for each chain unless otherwise indicated.
• Multiconcept operators are excluded as single entries although individual chain concepts they operate may qualify individually. For example, Seattle-based Restaurants Unlimited is not included, but its Kincaid’s Fish, Chop & Steak and Palomino Rotisseria Bar chains are eligible and are individually ranked as brands.
• Primary sources of information are the Top 400 chains themselves. Survey forms are sent to more than 600 companies in March and sales information for most chains comes from returned survey forms or from filings with the Securities and Exchange Commission. Some companies, however, choose not to share financial information or are unwilling to provide systemwide totals that include sales by franchised as well as by company-run operations. In such cases, R&I uses all other available resources to estimate sales as accurately as possible.
• Sales numbers used in the Top 400 ranking are for calendar 2004 or for fiscal years ending between July 1, 2004, and April 1, 2005, unless otherwise noted.
• When two or more chains have the same reported or estimated sales, chains with company-supplied numbers are given precedence in ranking over those with estimated sales. After that, ties are resolved alphabetically.
• The Top 400 does not include chains headquartered outside the United States. Exceptions can be made for chains owned by overseas companies or Canadian concepts, such as Tim Hortons, that are owned by U.S. firms.
• Companies that believe the chains they operate should be considered for the 2006 Top 400 ranking are invited to send information to Top 400, Restaurants & Institutions, , Oak Brook, Ill. 60523.