The new chain restaurants here, many of which are franchises, include Freddy’s Frozen Custard and Steakburgers, PIZZAFIRE, Rapid Fired Pizza, MOD Pizza, Bagger Dave’s Burger Tavern, Another Broken Egg, Cheddar’s Scratch Kitchen and Panda Express.
The new players will compete with such established chains as McDonald’s, Wendy’s, Subway, Panera Bread, Applebee’s, Buffalo Wild Wings, Donato’s and Papa John’s Pizza, and scores of local independent restaurants. Some of the established chains have added or plan to add restaurants here as well.
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Many of the new players are opening shops in or near newer regional retail centers such as the Cornerstone of Centerville, Austin Landing in Miami Twp., and The Greene in Beavercreek. Others have opened shops in or near older retail centers that have been renovated such as the Mall at Fairfield Commons in Beavercreek, the Dayton Mall in Miami Twp. and some smaller neighborhood retail centers.
SHAKEOUT LOOMING
A shakeout is inevitable, said Tom Kaiser, assistant editor of the Franchise Times, a trade magazine that covers the franchise industry.
“This growth has to come at somebody’s expense, and I think we are starting to see that,” Kaiser said.
Al Herzog agreed. He is president of the McDonald’s of Miami Valley co-op, a group of roughly 18 McDonald’s franchisees who operate 74 McDonald’s restaurants in the Dayton area. He has owned and operated McDonald’s restaurants in the Dayton area for nearly 30 years.
“I think there is a saturation point,” Herzog said. “Unless the population is growing, you can’t grow the number of restaurants exponentially and expect them all to survive.”
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The Dayton metro area has pockets of population growth, but overall population growth here is flat, U.S. Census Bureau figures show.
Chain restaurants already outnumber independent restaurants in the Dayton area and the gap is growing, statistics show.
Between spring 2015 and spring of 2016, the number of independent restaurants here fell 4 percent to 813, while the number of chain restaurants remained unchanged at 1,370, according to the NPD Group, a restaurant industry research firm based in Chicago.
NEW PLAYERS COME IN WAVES
New chains and franchises tend to enter markets like Dayton in periodic waves as local economic conditions improve, consumer spending rises and new retail centers open. Generational shifts in tastes and preferences also inspire chain and franchise owners to open new shops, industry observers said.
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Low interest rates and looser lending practices by banks since the last recession in 2008 also make it easier for chain and franchise business owners to open new shops here and elsewhere. What’s more, owners of multiple franchise shops with good track records often find it easier to get the loans and franchisor support they need to enter new markets, industry observers said.
Businesses of all sorts open and close all the time for various reasons. But restaurants often are among the most active and visible new players in any market. And when one enters a new market, others often follow if the demographics look good to them, said Joel Libava, a Cleveland, Ohio-based franchise industry and observer.
An influx of new chains brings new choices and jobs to an area, Libava said. But independents can look at the influx as predatory.
“If you’re an independent (pizza retailer), you don’t want seven or eight new pizza franchises coming into a town the size of Dayton because you’ll get lost in the shuffle,” Libava said.
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It seems an unusually high number of new restaurant chains have entered the Dayton market lately, said Herzog, who expects the trend to continue.
“Dayton seems to be on an upswing from an economic standpoint,” Herzog said. “It seems to be a lot more virile than it did even five or 10 years ago. So, if that continues, and I think it will, I think the restaurant scene will probably grow along with it unless there is another strong recession.”
RESTAURANTS DOMINATE FRANCHISE INDUSTRY
Other fast-growing franchise businesses here and elsewhere provide senior care, lodging, health and fitness training, and education services. Still, restaurants dominate the $540 billion franchise industry.
Nearly 733,000 “business format” franchise shops exist in the United States today, providing 7.6 million jobs and $270 billion in payroll, according to a new report by the International Franchise Association, a top franchise trade group, and business research firm PwC.
A business format franchise sells a franchisor’s product and services under the franchisor’s trade mark and uses the franchisor’s system of doing business. It is the most popular type of franchise system.
Payroll includes wages, salaries, benefits and other compensation.
Quick- and full-service restaurants, when combined, provide 58.4 percent of all jobs generated by business format franchises. Business services is the next biggest job provider with 8.2 percent.”
Ohio has 27,000 business format franchise shops that provide 318,000 jobs and $10.1 billion in payroll, according to the report. Ohio, which hosts more than 21,100 restaurants, also is one of five states with the most franchise employees, according to the franchise association and the NPD Group.
SALES, CUSTOMER VISITS FALLING
But restaurant owners face headwinds. They are opening new shops here and elsewhere at a time when total restaurant sales and customer visits are falling.
Black Box Intelligence, an arm of Dallas, Texas-based research firm TDn2K, reported in August that same-store sales at 25,000 restaurants nationwide fell 1.4 percent in July, while the number of people visiting those restaurants fell 3.9 percent. July represented “the weakest performance for both metrics since December 2013,” Black Box said.
Same-store sales generally encompass outlets that have been open a year or more.
The slide in total sales has been consistent. Since January 2015, total same-store restaurant sales have slipped an average one-quarter of 1 percent per month, Black Box said.
However, same-store sales at quick-service restaurant grew about 1.3 percent in July and have grown roughly 2 percent so far this year, Black Box said.
In August, the NPD Group said restaurant traffic was flat in the first quarter and remained flat in the second quarter. Even traffic at quick-service restaurants, which attract 80 percent of all restaurant traffic, flattened in the second quarter after rising 1 percent in the first quarter.
“The good news is … that consumers made 61.3 billion restaurant visits this past year,” said Bonnie Riggs, NPD’s restaurant industry analyst, in a news release. “It’s true that in this flat market it’s a battle for visit share, but there are restaurants that are winning.”
MORE CHURN COMING
There will be a lot of churn in the restaurant industry in coming years, Kaiser said.
“I think you’re going to see a lot of these upstart food brands taking away locations and sales from restaurants that were started by the previous generation,” he said. “You’re going to see a lot of turnover where a place that has been a McDonald’s or a Subway for years becomes a MOD Pizza or one of these other new concepts.”
Herzog is sanguine about the burgeoning competition.
“My theory is I will just run my restaurants the best that I can, and in the long run, I will do well because I will wear down everyone else,” he said.
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