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Once again, Restaurant Hospitality has teamed up with the equity research analysts at Morgan Keegan & Company to compile a list of the 50 fastest growing full-service and fast-casual chains. Take a look at what they’ve done and where they’re going. It’s a road map to success.


The ever-changing face of the restaurant industry continues its metamorphosis. The fast-feeders are attempting to reimage themselves in an effort to deal with America’s maturing tastes and desire for more healthful options. On the other end of the scale is fine dining, which has found itself all dressed up with no place to go in a sluggish economy that can bear only so much champagne and foie gras. In the middle of it all are the casual and fast casual segments, two freight trains with tons of power and momentum. It’s in this middle ground where all the action is taking place.

To own a piece of real estate on our list of the Top 50 Powerhouse Chains, particularly in this tough economy, a concept has to be solid, well-positioned and a little lucky. In keeping with criteria changes made last year, the list reflects only full-service and fast casual restaurants (we eliminated quick service). For a company to be included on this list, it must have yearly sales of at least $20 million. And, of course, a company must be in a growth mode. Keep in mind, growth is a relative term. Darlings of the financial community one year can easily be gasping for breath the next because of overly ambitious growth plans.

Bob Derrington, a senior vice president of research for Morgan Keegan, did much of the heavy lifting to build this list. He says it was no surprise that casual dining concepts dominate the list.

"Of the 50 companies that occupy this list, 38 of them, or 76 percent, are casual companies who collectively raised their sales by about 20 percent (in 2002) over the prior year," he says. That’s an increase of 450 units or $1.5 billion. "Clearly, casual dining companies are driving the Top 50 list."

Trailing behind is the hybrid fast-casual segment, which logged an impressive $600 million increase in sales over the prior year.

At the top of this year’s list, replacing Smokey Bones BBQ, is Bonefish Grill, a seafood concept from Outback Steakhouse, which has also three other concepts on the list: Roy’s (#4), Carrabba’s Italian Grill (#27) and Fleming’s Prime Steakhouse (#7). A relatively new concept, Bonefish grew from 4 units to 15 units last year, with system-wide sales of $24 million. Because of its small base, that $24 million represents a 700 percent growth in sales.

Because Bonefish nearly quadrupled its units, one might be concerned that it’s growing at a dangerous rate. Derrington doesn’t think so. "Outback has traditionally grown its brands at a controlled, but rapid rate," he says. "When we look at Bonefish, we see no significant change in operating fundamentals or customer experience. We expect to see the concept continuing its strong expansion push."

Another strong player in the casual seafood segment is Rockfish, which captured the #11 spot on our list. Founders Randy and Michael DeWitt have partnered with Brinker International to grow the concept, and that they have with lower check averages than Bonefish. It grew from 10 to 16 units last year and posted system-wide sales of $39 million.

"Rockfish looks to be one of Brinker’s stronger partner brands for the future," says Derrington.

A look at the list of our Top 50 Powerhouse Chains suggests that America’s tastes for ethnic, spicy foods is showing no signs of slowing down. Particularly hot on this year’s list, says Derrington, is the Asian segment. "P.F. Chang’s has led the charge in the casual segment, increasing its unit count from 65 to 79 units last year, followed by Brinker International’s Big Bowl, which nearly doubled its unit count from 9 to 16." Other Asian players in the segment include Outback’s pricier Roy’s, and an old stalwart, Benihana, which posted a 15 percent increase in sales last year.

Not to be outdone, the fast-casual Asian segment has three strong players on this year’s list, including number two-ranked Pei Wei, an offshoot of P.F. Chang’s. Pei Wei was on a fast track last year, increasing its unit count from 5 to 16. Not far behind was Noodles & Co., a $50 million company that increased unit count from 36 to 58 in 2002, making it our 6th ranked company on our list. Another fast casual Asian player is Pick Up Stix (#23), a Carlson Restaurants concept that opened 17 additional units last year.

Derrington says the Asian segment has been relatively under-penetrated compared to other segments, which helps explain why it’s so hot right now. It’s also a segment that is gaining more respect or, at least, trust over its counterparts in the independent segment because of more consistent recipes, operating standards and dining environments. In other words, consumers are more comfortable walking into what they know.

Other surprises on our list of Powerhouse Growth Chains? Italian. Remember all the talk that the Italian segment is over-penetrated and running out of steam? Not so, says Derrington.

"Keep in mind that there is an 800-pound gorilla out there named Olive Garden, which has fueled the Italian segment. But on our list of growth chains, we have eight other Italian concepts that have averaged a sales growth of 22 percent, and a unit growth of 18 percent." The fastest growing among the Italian concepts is Brio Tuscan Grille, a Bravo Developments concept that took the #9 spot on our list by more than doubling its unit count from 3 to 7 and posting impressive average unit sales of $6.4 million.

Big name players in the segment include Carrabba’s Italian Grill (#27), owned by Outback Steakhouse.

It’s a $343 million company that added 20 units last year. Buca di Beppo (#17) grew its sales last year by nearly 37 percent, despite weaker sales at its newer stores. "Buca is struggling with frequency of diners," says Derrington. "It’s become more of an event sort of place for birthdays, anniversaries and such, but because of 9/11, the war with Iraq and the weak economy, people are not in a celebratory mood."

Perhaps the biggest surprise in the category has been Wolfgang Puck Express, which increased its unit count from 19 to 30 last year, a lot of them at airport locations. Its average unit sales are in the $1.8 million range, which is comparable to Panera Bread. "The beauty of Puck Express is that it crosses so many categories—Asian, Italian, Californian. It’s got wide appeal," Derrington says.

Speaking of Panera, the bakery category is where the "real" action is taking place in the fast-casual segment. Panera has captured the #15 spot on the list by continually growing its unit counts by 30 percent each year, despite having more than 500 units (including this year’s growth). Another monster in the category is Atlanta Bread Company, which has captured the #5 spot on our list of Powerhouse Chains. It added 32 units last year and pushed its 2002 sales to $214 million on the strength of 151 units.

At least one other bakery concept, Cosi (#31), is struggling, perhaps because of overly aggressive expansion, while McAlister’s Deli (#26) is enjoying a brisk expansion pace, with sales increases of nearly 28 percent last year.

It’s this bakery category that is contributing to the decline of quick service and the very reason why quick service is trying to reimage itself into something more appealing to adults, says Derrington. "When you look at Panera and Atlanta Bread Company you can see their broad appeal: They have a highly perceived product quality with reasonable price points that are offered in a casual and inviting atmosphere. What they’re doing is significantly superior to the lower-end fast food restaurants."

Another surprise on the list is the casual Mexican segment, which has lost steam. In the past, brands such as Don Pablo and Rio Bravo demonstrated considerably growth, but have faded a bit lately. The big growth in the segment comes from fast casual, where Chipotle (#12) and Baja Fresh Mexican Grill (#16) are posting strong numbers. Chipotle, which partnered with McDonald’s, has the financial clout to increase its unit count at a considerable pace (from 177 to 232 in 2002). Baja Fresh, which partnered with Wendy’s, increased its unit count from 151 to 210. Nothing like a lot of financial muscle to fuel growth.

Muscle is great, but a well-thought-out growth plan is vital, says Derrington, and it’s this plan that will determine if a concept is on RH’s list of Powerhouse Chains from one year to the next. Only time will tell. Meanwhile, take a bow this year’s Top 50. We salute you.

TAGS: Trends Archive