Restaurant Industry Overview and Analysis

Restaurant 1Restaurants are big business worldwide, and touch on every aspect of business law, and society. We hope to start a series of articles displaying business analysis issues relative to this sector.

We’ll start with an industry overview, and then followed by economic issues and then discussion of three litigation intense areas: Wage and Hour, Franchisor/Franchisee related and Securities matters. 

The restaurant sector is part of the large service sector that has seen so much growth since 1970. Eating at restaurants isn’t a necessity of life but has evolved to a commonly hoped for convenience, since the 1950s/1960s.

  • It’s a big business, with a global presence. US brands are proliferating throughout the World, often with higher sales levels internationally versus in the United States. Chain restaurants and independents are the two major sectors, about 50/50 in segment share. Estimated 945,000 foodservice sites in the US.
  • In the US: $580 billion in sales (estimated,) and is one of the largest private sector employer by total employee count (12.7 million). Many younger, part time workers swell the ranks, and restaurant work often is their first job experience.
  • Biggest time of development in US in 1950s-2000s, slowing now, as there are so many restaurants and with the US recession underway. The creation of the US Interstate System, and the automobile culture in the 1955-1975 period corresponded with the most rapid US growth.
  • International development is largest focus now, and most of that development will be via franchising.
  • About 1 million restaurant/foodservice settings exist in the US, counting restaurants, concession operations, cafeterias, stadiums and other sites. Food trucks are now a rapid growth development in many urban areas, as an example. And grocery stores have continued to chase the foodservice dollar via expanded delis and take home food options.

About 80 plus US publicly traded chain restaurant companies exist, along with more, privately held, private equity ownership, and independent operators. McDonald’s is the largest from a market capitalization standpoint, with YUM Brands and Darden Restaurants also very large players. The numbers of publicly traded chain restaurant operators have dropped in recent years, as private equity firms have been a buyer.

  • There are relatively low barriers to business entry, and accordingly a wide range of management/ownership capabilities and sophistication. Anyone can open and operate a restaurant if they have the funds and pass basic mandated sanitation class work. However, since 2007, business credit conditions have been poor and access to new money is problematic.

Restaurants are highly regulated: commercial code, property/plant, health code, liquor licensing, food and safety, and a recently growing issue: menu disclosure. The very recent 2010 signed Health Care Bill provided for mandatory caloric disclosure standards for restaurant chains over 20 units, for example.

  • Liquor control regulation is intense, with City, State and Federal oversight, and number of licenses limited by geography. Community and police input are regular, and in some locations, liquor licenses are very expensive.

Legal application settings are very broad: Contract law, Securities Law, Wage and Hour, Title 7/EEO, Real Estate, Franchise law, Commercial Code, US Bankruptcy Code, among others.

Restaurant Franchising is a tremendously important and complex part of the restaurant business, and is favored by restaurant operators as the expansion model as the profit margins is higher and less franchisor capital is needed.

About John Gordon

John A. Gordon is a restaurant sector expert, who focuses on restaurant management, operations, and related earnings and economics matters. He consults with attorneys and other professionals who need to know about restaurants, via expert research, expert consultant and expert witness roles. Working for both plaintiffs and defendants, he has experience with both state and federal actions. He is an expert on chain restaurant business conditions and publicly traded companies. Gordon has extensive, career-long executive restaurant operations, corporate staff, financial management and management consulting experience, and is familiar with virtually all management issues and business disciplines. He has completed PSLRA securities, financial projections, due diligence reviews, earnings and damages, franchisee/franchisor matters, wage and hour and menu analysis expert work. Expert witness and article contributor for www.ForensisGroup.com

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