Recent data shows that independent restaurants are faring better than chains, and are expected to grow at a faster rate. Don't discount larger corporations yet, though — innovation and creative ideas are happening across the industry.
— Kristen Hawley
Yelp’s just-released economic outlook hones in on the differences between chains restaurants and independents. According to the report, which analyzed more than 700,000 restaurants on Yelp, there’s been a “tremendous rise in independent restaurants over the last five years.” Their Yelp ratings have improved, too: Independent fast food and fast casual restaurants saw a seven percent improvement over the past five years.
Yelp’s data also says that sentiment around fast-food chain restaurants has decreased — average ratings have dipped about 16 percent (that’s one-third of a star in Yelp units). Fast casual chains have also experienced a dip in ratings, though not as severe.
At the same time, chain restaurants are growing, and fast. Last year, in response to news of chain location closures across the board, Dunkin’s CEO called the country “over-restauranted,” with more restaurants than customers to serve. In a crowded market, one must stand out to succeed.
Yelp’s findings echo other research we’ve seen. Last spring, one report found that not only are independent restaurants outperforming chains, they’re expected to see annual revenue growth of four to five percent over the next two years. Expected growth for chain restaurants over the same time period is two to three percent.
That said, there’s plenty that chain restaurants can offer their independent counterparts, and vice versa. During last year’s Skift Global Forum, Danny Meyer spoke offstage about how the two business models play off of each other. “I think what’s happening is that we’ve converged,” he said, of independents and chains. “The chains have said, we need to learn how to retrofit good taste. We need to learn how to work with our communities. We need to learn much more sophisticated sourcing of ingredients and culinary technique. The fine dining restaurants have said, we need to grow and we need to learn how to scale. The margins of these restaurants are getting thinner and thinner. If we don’t learn how to scale and learn the systems of the chains, we’re going to go out of business. So we’re coming together. This convergence moment is really an exciting time in our industry.”
It could be that independents are perceived to be more fun, edgy, or hip. Fast food brands, especially, have responded to that, honing their voice on both social media and advertising to be more conversational and, at times, edgy, adding an element of personalization to what could be an otherwise dry exchange.
At the same time, independent restaurants have more agility, and can reinvent themselves quickly, creating unique spaces, unique menus, or otherwise standout concepts that challenge the status quo. Considering this, it stands to reason that these restaurants would get more positive attention than, say, a local Taco Bell location.
Regardless of management structure, a rising tide lifts all boats. In the fourth quarter of 2017, the industry as a whole recorded its first positive quarter of sales growth in two years, according to TDn2K data. This year, expect to see more lines blurring as chains continue to take a page out of the independent restaurant’s playbook, while independent restaurants work to follow the commercial success and popularity of beloved and well-known brands.