Independent, Locally Owned Restaurants Outpacing Chains

Research continues to show that chain restaurants are less likely to be the types of dining and drinking establishments that today’s customers favor.

In fact, annual revenue for independent operators will grow about 5% through 2020, exceeding chain growth of about 3%, according to Pentallect Inc., a Chicago-based industry research firm,  in conjunction with research partner Critical Mix.

In ratings, consumers give independents the edge in 12 of 15 metrics surveyed. For instance, consumers saw independent restaurants as being more community-oriented, unique and offering personalized service. Independent restaurants were also far more likely to be perceived as sharing consumers' values, offering quality food, value, better service and atmosphere, and menu innovation.

Delivery was one area where the gap almost disappeared, with consumers rating independents and chains almost equally. Consumers had a higher opinion of chain restaurants in only three categories:

  • Use of technology;
  • Use of social media;
  • Convenient locations.

The one category where chains have the biggest edge – using technology – is important to consumers, particularly those seeking delivery.

Both traffic and revenue growth among independent restaurants is outperforming chains, the report said, indicating a shift from historical patterns when chains were driving growth across the industry. Pentallect estimated 2016 sales of $210 billion for independent restaurants and small chains, while larger chains saw sales of $312 billion.

"Independent restaurants are not only perceived to be doing a better job of meeting consumers' expectations regarding the dining experience and ambiance, they are also doing better than chains in the 'table stakes' of food quality, service, value and menu innovation than have traditionally been a strength of many chains," Pentallect's president Rob Veidenheimer said. "This combined set of favorable attributes represents a significant advantage for well-managed independents, and overcoming the perceived gap represents a major challenge for chains."

Bob Goldin, a partner at Pentallect, commented that "based on these fundamentals, we project that independent restaurants will grow at 4-5% per year for the balance of the decade, almost double the 2-3%  chain growth rate. This has significant implications for supply chain partners' go-to-market strategies and resource allocations". 

Pentallect reported that chain restaurants, which account for well over one half of all restaurant sales, will respond forcefully to regain traffic and continue to receive support among their suppliers, but that the favorable consumer perceptions driving independent restaurant growth are likely to remain and even possibly accelerate over the next several years.

Running a successful restaurant can be a very fulfilling, yet challenging task. In a recent survey of restaurant owners, only 30% described their financial situation as “good to excellent.” Being able to handle many different challenges is the source of great satisfaction, along with some headaches too.

In the last five years, it has become increasingly difficult for a business owner to access funds through a loan system by a financial institution. Statistically, approximately 80% of ALL small business that apply for loans from big banks get rejected. Sadly, that number is even higher for restaurant owners, as restaurants are typically on a banks restricted industry list. In order to deal with this shortfall, the Merchant Cash Advance (MCA) was developed in order to help small business owners obtain the capital needed to operate and grow their businesses. The key characteristics of a merchant cash advance include a limited amount of paperwork and quick access to funds, both of which see it as a much better source of funding than a loan. Loans from financial institutions routinely take weeks to months to complete processing, and the release of funds is sometimes just as slow. Assume you have an 800 credit score, a flawless credit history, and plenty of free time on your hands to upload endless amounts of paperwork, do you really want to wait 4 months to get the capital you need to grow your business...today? A merchant cash advance provider such as LVRG delivers funds to the receiver in a single lump sum payment and then is repaid over time like a loan. One of the major differences between a loan and a merchant cash advance (MCA), is that an MCA deals with the purchasing of a business' future income whereas a loan deals with lending money to a business in exchange for payment over time with attached interest.

There happen to be many terms used to describe a Merchant Cash Advance, here are a few to be aware of: Same Day Small Business Financing, Merchant Cash Advance Loans, Business Cash Advance, Unsecured Business Loans, Merchant Money Advancement, Merchant Cash Financing, No Interest Merchant Loans, Unsecured Business Loans, Business Cash Advances, Merchant Cash Advance Loans, Merchant Cash Advances

How does a Merchant Cash Advance Work?

An agreement is made between the business owner and the MCA provider regarding the advance amount, payback amount, hold-back and term of the advance. Once an agreement is made, the advance is transferred to the business’ bank account in exchange for a future percentage of credit card receipts.

Each day, an agreed upon percentage of the daily credit card receipts are withheld to pay back the MCA. This is called a “holdback” and will continue until the advance is paid in full. Access to the business owner's merchant account eliminates the collateral requirement required for a traditional small business loan.

Because repayment is based upon a percentage of the daily balance in the merchant account, the more credit card transactions a business does, the faster they’re able to repay the advance. And, should transactions be lower on any given day, the draw from the merchant account will also be less. This means that during times of slow business, the business’ payback is relative to their incoming cash flow.

If you are interested in exploring this option to grow your restaurant, but are questioning the ROI, here is a breakdown on how a $50,000 merchant cash advance can GROW your business.

Example: Advance Amount $50,000

Use of Funds:
• 10 Tables and 40 Chairs: $10,000
• Dry Bar (Includes Install): $10,000
• Heating & Lighting: $10,000
• Structural Renovations: $15,000
• Table Supplies & Décor: $5,000

Sales Increase Breakdown:
$240 in Daily Sales for every 1 Table Added
(Above Based Upon $40 Average Ticket Per Table x 6 Daily Operating Hours)

$240 in Daily Sales per Table x 10 Tables = 
$2,400 in Daily Sales

$2,400 in Daily Sales Minus 81% for Expenses (National Average) = 
$456 in Additional Daily Profit

$456 in Additional Daily Profit x 5 Days per Week x 52 Weeks = 
$118,560 in Additional Profit Annually By Adding 10 Tables

Restaurants like yours, all over the U.S. are savoring their success thanks to merchant cash advances from LVRG. The beauty of a merchant cash advance to grow your restaurant is, there is no collateral required, no minimum credit score and you can get your funds in a day. 

If you believe in your restaurant, we’ll help you take that next step to realizing your goals. Get started today and we’ll take care of the rest! Give us a call (855)998-5874, we're here to help!

Reference: http://www.nightclub.com/industry-news/independent-restaurants-growing-faster-than-chains (by Jack Robertiello | Jun 5, 2017 5:00am)