Monitor 200 Adds $2.9 Billion in Revenue, 1,817 Restaurants
While it’s getting harder to get on the coveted Monitor 200 list, these A-list companies are getting better every day.
When the Restaurant Finance Monitor first calculated the list of the top restaurant operators back in 1989, there were just 13 companies that topped $100 million in revenue.
Ten years later, the Wall Street Journal referred to the list in an article about “mega-franchisees.” Back then, that meant an operator with 50 locations picking up a second brand. Compared to the average today of $187.5 million and 135 restaurants, it’s plain to see that the term “mega” was a little premature—and at the rate the strongest operators keep growing, it may be still. In 2016, eight companies added $100 million or more. Altogether, the top 200 operators by revenue added $2.9 billion in topline revenue with the addition of 1,817 restaurants compared to last year.
Three groups reported more than $1 billion in topline revenue in 2016. Flynn Restaurant Group reported $1.8 billion from 485 Applebee’s, 232 Taco Bells and 97 Panera Bread restaurants. NPC International hit $1.2 billion with 1,236 Pizza Huts and 184 Wendy’s (it’s already added 202 Wendy’s in 2017 as well). And at No. 3 on the list, Dhanani group added $229 million to eek into the billion-dollar club. It reported $1.1 billion in sales from 501 Burger Kings and 240 Popeyes.
The Monitor 200 is roughly 5% of the overall restaurant industry revenues. While that seems a small sliver, the group is beating the industry in growth. Revenue among the 200 operators have grown at a compound annual rate of 8% since 2009, compared to 4% for the overall industry.
What has propelled these massive operations to such astonishing heights? There have been four key factors: Refranchising, capital, technology and culture.restaurants. The largest operators took advantage of a massive refranchising push that became the norm during the recession. Certainly there were refranchising programs and restaurant sales before, but when interest rates plummeted and Wall Street put a premium on royalty income, brands played along.
Historically low interest rates also meant ample capital to buy all those refranchised restaurants. Banks enjoy lending into systems with a track record especially, fueling both refranchising and the flurry of M&A activity. Note the chart to the right—predictability makes seasoned brands a special favorite among acquisition-happy franchisees. Private equity is pouring capital into franchise operations as well and the groups need acquisitions to keep growth on the right track for funds and investors.
“Since the recession, restaurant franchisees have had greater access to capital than at any point I’ve seen in in my 37 years in the restaurant business,” wrote John Hamburger in the June issue of the Restaurant Finance Monitor.
And then to keep tabs on everything, the most sophisticated operators turn to technology. Since the list began, the internet has transformed everything. What once meant a restaurant visit or mailing a sales or inventory report empowered operators to get everything digitally. But end-to-end digital infrastructure and sophisticated point of sale systems have made it easy to track sales, ticket times, labor and food costs in nearly real time from anywhere with a cell signal.
But having access to capital and a cutting edge technology don’t automatically make for a successful restaurant operator. To keep from getting “too big,” the best create a culture that ensures each location is run like it’s the only restaurant.
“That’s where the challenge lies: How do you maintain operating discipline that is critically important to the small and midsize franchisee—how do you avoid losing that culture to a bureaucratic monster you need to run 600 stores,” said Chris Kelleher, managing director at Auspex Capital.
Operators like Tom Garrett at GPS Hospitality (No. 28 in the 2017 rankings) have all but proven that the model works for brands and investors. According to 2016 numbers, the top 200 added 7.2% in total units but added 8.4% in revenue, showing that with the right system, efficiencies emerge. The key to a strong culture really is keeping it like it was when it was small, but with systems. To get big, huge franchise systems need to maintain an owner-operator mentality in each unit.
“Our approach and our culture has been pushing decision-making as far down as you can. Make sure you have a culture that rewards decision-making and leadership,” said Garrett. “If you don’t have a good system or good people and then you try to centralize everything, all you do is get farther and farther away form the business farther and farther away from the customer.”
Now, as all but two of the top 15 operators run multiple brands, getting that culture in place is all the more important. While synergies emerge, each brand still has to operate like its own entity.
“Operations have to be separated as much as possible. Different concepts have different expectations,” said Greg Hamer of B&G Food Enterprises (No. 85). “Dedicated teams have to be assigned to each. Some functions like safety and accounting functions can be combined but operations has to be specific to the particular concept.”
Where the Monitor 200 will go next is pretty clear: upward and onward with more capital, a stronger culture and more sophisticated technology. This year has already seen an uptick in deal activity. Operators across the list keep buying restaurants and becoming more and more efficient. Watch for a few operators to reach the billion-dollar mark this year.
Take a look at the Monitor 200's top 20 operators, see the full list in the June issue of the Restaurant Finance Monitoror the June/July issue of Franchise Times.