Have burger chains reached their peak?

April 9, 2014

Burger chains have finally reached maturity as limited-service burger segment sales contracted in 2013, according to Technomic. Although the burger chains in the 2014 Technomic Top 500 Chain Restaurant Report tallied U.S. sales of more than $72 billion, they recorded nominal growth of only 1.2 percent. Adjusting for price inflation, the segment's sales declined. Overall units increased by only 1 percent, to 42,853 locations.

Quick-service burger chains accounted for $69.7 billion in sales but increased only 0.9 percent in sales volume with weak U.S. performance from McDonald's (whose sales are up just 0.7 percent, to $35.9 billion), Wendy's (up 1 percent, to $8.8 billion) and Burger King (down 1 percent to $8.5 billion).

Some brands demonstrated strong sales growth, including Culver's (8 percent), In-N-Out Burger (6 percent) and Freddy's Frozen Custard & Steakburgers (42 percent). Growth for Culver's and Freddy's has been supported by the consumer appeal of their frozen custard, while In-N-Out Burger continues to provide a simple menu, good quality and a strong value price point, according to Technomic.

Fast casual better burger chains continued to generate strong sales growth of 10.4 percent. However, their $2.4 billion in sales represents only 3.3 percent of Top 500 ranked burger chains. Five Guys Burgers and Fries continues to lead the segment with sales of $1.1 billion, but the chain's slowing growth (5 percent in 2013 compared to 14 percent in 2012) illustrates the segment's maturity as larger metropolitan markets hit saturation. Smashburger is gaining ground with sales growth of 32 percent, to $214.9 million, and 54 new stores in 2013.

Strong U.S. sales growth continues from smaller, regional chains like Habit Burger Grill (35 percent), Shake Shack (40 percent) and BurgerFi (178 percent). Better-burger brands provide high-quality protein, toppings, sauces and buns combined with craveable french fries and strong beverage platforms including craft beer, wine and customizable soda, a news release said.

"Consumer demand for health and wellness will drive success for brands that differentiate by quality, and innovation efforts will continue to drive impulse visits for trial," said Darren Tristano, EVP of Technomic.

Tristano added that burger blends, such as the ground beef and ground bacon mixture at California-based Slater's 50/50, will present new flavor profiles. Non-beef alternative proteins as well as gluten-free and high-quality buns will become standard fare on menus, giving consumers more customization options. Although American consumers' demand for burgers will not decline, the biggest shift will occur in where they indulge themselves with a burger.

Cost a culprit?

Aside from market "maturation," a subtle shift away from beef to other proteins such as chicken could also be driven, in part, by cost. Beef prices this week reached all-time highs, as a drought continues to thin out cattle herds in the West.

A recent analysis from CattleFax projected prices to increase from 10 to 15 percent in the U.S. due to a shrinking cattle herd. According to a Bloomberg survey, the cattle herd in the U.S. dropped to a 63-year low last year. Higher grain prices last year made the issue even worse.

In 2013, ground beef was up about 5 percent. Experts agree that elevated prices aren't going anywhere. Kevin Good, a senior analyst at cattle research firm CattleFax, told MarketWatch that higher prices should continue into 2016.

Cover photo: Courtesy of Wikipedia

Topics: Food Cost Management , Trends / Statistics

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