Thursday, August 13, 2015

Chains vs. Independent Restaurants

by Ryan Anderes

Last week, our industry received a sobering statistic that speaks toward the difficulties of operating a restaurant. The numbers can be read and manipulated however you choose to interpret them, but the bottom line is this:

Independent restaurant closures are on the rise, while chain restaurants are increasing their location size. 

It's not an alarming number of closures overall, but it is an alarming trend over the course of the last few years. Independents are going down while chains are increasing.

For those of us operating an independent facility (with profit margins in the low single digits), it is a reality we have to face on a daily basis. There is no relief coming our way.  In fact, increased laws and regulations only contribute to the difficulty in making a profit.

As an independent operator, my personal preference will always be to choose an independent restaurant over a chain. A national chain has so many advantages over us that we aren't even competing on a level playing field. What are those advantages?

#1 - Sheer Buying Power. Large chains are able to purchase large quantities of product for their units, bringing purchase prices down. Not to mention the inexpensive menu options that this purchasing power can provide. In most areas, your typical independent restaurant cannot compete with those prices.

#2 - Funding. Banks are more likely to fund larger, well-known established chains. It is the large reason that many independent restaurants fail within their first year.

#3 - Marketing and Brand Recognition. Many consumers will select what they know. Olive Garden or Uptown Grill? Some will choose us because they like to stay away from chains, but the majority of consumers stick with what they know. Walking into Olive Garden, you know what to expect because of familiarity. The Uptown Grill could be a diamond in the rough, or it could be just plain rough. And most consumers who are not familiar with us (who don't know that we are a rare gem), do not want to take that chance. Review sites help us fight this disadvantage, but only if the consumer uses the tools available.

#4 - Experience, Workforce and Power. An independent owner has to do everything including daily operation, hiring, accounting, marketing, finance and creativity. A chain may have numerous department headquarters in charge of each task I just listed. An independent is just one person up against a team of individuals with usually years of experience among them. Simply put, we just don't have the resources. All we can do is put in the time/work hours.

At the end of day, competition is tough within our industry whichever way you slice it. It's why I try not to contribute to that competition. I will always make the effort to choose an independent over a chain when the option presents itself.

And remember, for every dollar spent with an independent operator, 70 cents stays in that community whereas only 30 cents stays in the community when you visit a chain. Some things just don't add up.

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