How to Profit from the 97% of US Restaurants That Are Not Chains?
The US restaurant industry is very diverse, however, only a small percentage of restaurants actually dominate the market.
Most restaurants are independent and have to fight for every customer! In fact, according to Tarci’s research, out of the approximately one million restaurants in the US, 3% have three or more locations.
If you are offering services or products to small and medium-sized businesses (SMBs) in the restaurant industry, then this is relevant to you!
Why Are Most US Restaurants Single-Unit Operations?
Did you know that only 3% of US restaurants have 3 or more locations. Therefore, roughly 70% of restaurants in the United States are single-unit operations with less than 50 employees.
This prevalent pattern is a consequence of 3 main factors:
- Cost and Risk:
Opening and maintaining multiple restaurant locations is expensive and unpredictable. It demands an extensive process involving finding locations, managing inventory, hiring staff, complying with regulatory requirements, maintaining quality, and dealing with competition.
- Low-Profit Margin and Cash Flow:
The average profit margin for a full-service restaurant is 3 to 5%, meaning that restaurants must generate a high sales volume and manage their expenses to remain profitable. However, many restaurants experience low cash flow due to seasonality, volatility, and unpredictable events.
- Preference and Passion:
Some restaurant owners prioritize one location and create a unique concept that reflects their values and personal vision. They enjoy being involved in their business, creating a positive atmosphere with loyal and niche clientele.
How Can You Benefit from This Trend?
As a business that provides products and services to SMBs in the restaurant industry, you can leverage this trend to your advantage and here’s how:
- Target the smaller restaurant market:
Develop specific solutions and services that cater to the needs and challenges of smaller restaurants; including cost-effective insurance packages, financial management tools, or efficient delivery services complement their scale of operations.
- Identify growth potential:
Although the majority of restaurants operate from a single location, the 3% that possess multiple establishments demonstrate a promising opportunity for expansion and development. It would be wise to consider providing specialized services or support tailored to these burgeoning restaurant chains. This might entail designing personalized insurance and financial packages to cater to their specific requirements or granting bulk discounts on products and services to encourage a lasting partnership with your enterprise.
- Establish partnerships:
Consider actively seeking out possibilities for collaboration with various businesses that serve the restaurant industry. One example is forming partnerships with POS (Point of Sale) system providers, food suppliers, or restaurant technology companies, which can significantly improve your access to the restaurant market. By integrating your offerings with theirs, you can develop comprehensive solutions that cater to the specific requirements of restaurant owners and elevate the value you bring to the table.
What Kind of Products and Services Can You Offer?
The practical implications for your business model depends on the kind of products and services offered to SMBs in the restaurant industry. For example:
- Insurance services:
You have the opportunity to focus on independent and single-unit restaurants that require enhanced protection and coverage against a range of risks, including property damage, liability claims, employee injuries, food spoilage, business interruption, and more.
- Finance services:
Provide independent and single-unit restaurants with a range of financial solutions, such as loans, lines of credit, equipment leasing, merchant cash advances, and alternative financing options. These offerings aim to assist them in navigating cash flow challenges, pursuing expansion plans, undertaking renovation projects, and managing unexpected expenses. Additionally, you can offer valuable financial advice and guidance to help these businesses effectively and efficiently manage their finances.
- Delivery services:
Collaborate with independent and single-unit restaurants that lack their own delivery infrastructure or staff, or those aiming to broaden their reach and customer base. By offering them competitive rates, prompt and dependable services, as well as user-friendly technology platforms that seamlessly integrate with their existing systems, you can provide valuable support.
In order to be successful, you must remain aware of the seasonality and volatility of the restaurant industry. For instance, some restaurants may experience higher sales during holidays, weekends, or special events, while others may face lower sales during inclement weather, economic changes, or health crises.
This evolving trend allows you to reach a wider audience, increase your customer base, and ultimately, generate more profit. However, to create actionable insights you will require additional supporting data.
For example, geographic distribution data that analyzes which regions or cities have a higher concentration of multi-location restaurants, can guide your marketing and expansion efforts. Additionally, other market trends and challenges data identify changing consumer preferences, emerging technologies, and regulatory changes, all necessary factors when adapting your products and services to the evolving needs of the restaurant industry.
Capitalize on this trend and use this data to remain informed, refine your business model, and develop effective strategies to turn your insights into success!