Full Service Restaurants Vs. Limited Service Restaurants: What’s the difference?

Today we are going to give a little bit of education around full service restaurants and limited service restaurants. The angle we want to take is: What is the difference between full service restaurants and limited service restaurants and how each industry is changing. Let’s begin by first defining both terms:

Full Service Restaurants: Establishments with a relatively broad menu along with table, counter and/or booth service and a wait staff. These establishments offer meals and snacks for immediate consumption primarily on-premise, though they may also offer takeout service.

 Limited Service Restaurants: Establishments whose patrons generally order or select items and pay before eating. Food and drink may be consumed on premises, taken out, or delivered to customers’ locations.

However, one of the interesting pieces of news that came out last week is that these two types of restaurants are slowly blurring.  According to our partners at Technomic, their latest press release reported that ten years ago Limited Service Restaurants (LSRs) made up 47 percent of the total commercial foodservice industry while full-service restaurants (FSRs) made up 53 percent. Now the landscape has reversed; LSRs account for 53 percent and FSRs 47 percent. Within the LSR segment fast-casual restaurants continue to gain market share while fast-food restaurants are working overtime to upscale their menu and concept positioning–not only to keep pace, but to compete directly with fast-casual leaders.

A great example of this is McDonalds. They are an LSR that has created a updated version of McDonald’s that has cosy leather chairs, a contemporary look and feel and delivers a “place to hang out”  vibe. The moment you walk by this storefront, you know that this is a hip, upscale version of McDonalds.

Understanding the landscape is key, especially for foodservice industry professionals who want to market to LSRs and FSRs. That’s why we help our clients visualize the foodservice landscape by providing them with data, operator contact information and more. If you have any questions about our foodservice offering or want to learn more about our products solutions, visit our website: www.CHD-Expert.com.

Independent Full Service Restaurants: Signs of Resiliency Through Tough Economic Times

According to CHD Expert Independent Full Service Restaurants in the USA Out number Major Chains Eight to One. Independently owned FSR restaurants on average bring in less revenue than chains, but their sheer volume makes them a big player in the restaurant industry.

If you think that Chili’s, IHOP and Applebee’s are taking over the full service restaurant (FSR) industry, think again. Independent FSR locations across the United States outnumber the major chains by eight to one.1 This is a bit surprising, as our streets and highways are seemingly lined with major chain restaurants. Still the independently owned FSR operators are holding their own during the worst of economic conditions and increased encroachment from the major chains.

How are they doing it? Consumers seem to enjoy the independent experience. This could be due to long-term loyalty the consumer has to their local neighborhood restaurant. Independent restaurants have a tendency to understand the regional cuisine and local tastes as well as preparation methods that consumers prefer. They also have the flexibility of changing their menu, offering more variety, whereas the chains do not. There is also a strong attraction by the consumer for the local décor and ambiance their local independent restaurants give them offering a strong level of comfort. With a high level of intimacy offered, service qualities extend to knowing the consumer’s name as well as their ordering history. The local Pub N’ Grub isn’t going away anytime soon. And there are many more of them to choose from.

Whatever the reason, the resilience of the local independent restaurant is unmistakable. But despite having many more locations, independents are dwarfed by the chains in dollar volume. Almost 62% of the independent FSR restaurateurs have less than $500,000 in annual sales; only 3% of chains are at or below this sales level. Over 46% of the full service restaurant chain units are netting $1-$2.5 million per year in annual sales.

Of particular interest on this note is the northeastern U.S. The northeastern states (Washington DC and north, including Pennsylvania) account for 10 out of the top 11 states with the highest density of independent FSR restaurants by percentage in the country. Only Alaska breaks into the top eleven.  In total, over 93% of FSR locations in this region are independently owned.1 

Chains versus Independent #Units

 

 One might argue that the ethnic diversity of the northeastern states results in numerous specialty restaurants to service the various cultures here. By overlaying consumer demographics with independent restaurant footprints, we can get a clear understanding of the affect ethnicity has in the market. Certainly, this part of America is historically the oldest, and many of the independents in the region might have been handed down from generation to generation. One might also speculate that Manhattan and other major cities have skewed the numbers; as local ordinances, zoning laws and/or costly real estate have subdued the expansion of the conglomerates in this market.

It appears there are some markets that have the ability to keep the chain restaurants at bay and win the battle for market share with their experience of being both flexible and nimble to adapt and evolve in the foodservice market.

A better understanding of the independent market conditions will benefit both restaurant operators and suppliers/distributors who partner with them. The ability for food service providers to reach the independent operators has and continues to be a challenge. With the large number of independents in the food service industry, it will be critical for food service providers to leverage this information and increase their market share in the industry through direct independent operator outreach.

According to Cathy Kearns, General Manager at CHD Expert, a Chicago-based database marketing firm, “Many of our customers like to focus on the major restaurant chains in their marketing efforts, but there is actually more potential in the independent restaurant market. Prudent marketing strategy should not preclude the little guys… en masse they are a very powerful customer basis”.

For more information on the foodservice industry please send an email to

brad@chd-expert.com or visit CHD-Expert.com.

[1]Source: CHD Expert, Internal Data, April 2012