Independent Restaurants Fight Growing Chains

The restaurant scene in Cleveland is getting a bit too crowded for chef Sergio Abramof's liking.

This fall alone, at least 10 new eating and drinking establishments have started up in the area, as one new shopping center opened and another upscale retail center expanded.

But it's not just the number of new restaurants that's bothering Abramof, owner of Sergio's in University Circle, a Brazilian restaurant that seats around 50. It's also the type of dining establishment — national chains.

Big chains like the Cheesecake Factory, the California Pizza Kitchen and Chipotle Mexican Grill all opened their doors with the the new Legacy Village retail center at the end of October. And Abramof says his small restaurant has already felt the hit.

"We clearly felt a drop of 20 percent during that week of opening," he laments.

Concerned about the future of independent restaurants amid an onslaught of new chains, Abramof quickly formed a Cleveland-based chapter of the Council of Independent Restaurants of America, or CIRA, a Lousiville, Ky.-based national organization that helps independents compete against larger chain restaurants.

Abramof is hoping the group will help him and other independently-run restaurants better compete for consumers' attention in a crowded market.

"We have been painfully aware of what's been happening in other industries such as the drugstores, the hardware stores and the coffee shops," says Abramof. "Many have just become extinct and they're all replaced by chains. It seems like if the restaurants don't do anything about it, we're next."

Casual Chains Gain Consumers' Cash

Chain restaurants hardly outnumber independently-run establishments — more than seven out of 10 eating-and-drinking places are single-unit, or independent operations, according to the National Restaurant Association.

But analysts say the growing popularity of chains, especially in the "fast-casual" or "upscale-casual" segment — sit-down restaurants that offer that offer reasonably-priced meals in large spaces often decorated in a theme to go along with the type of cuisine served — are catching on in popularity and giving fierce competition to mid-priced independent restaurants.

"Anything mid-scale and below; they have a very serious problem competing with chains because of the brand recognition and consistency of chains," says Bradford T. Hudson, professor of management and marketing at Boston University's School of Hospitality Administration. "Independents just don't have that."

The numbers bear it out. The top 100 restaurant companies' share of the $278.9 billion restaurant industry, as tracked by Chicago-based food service industry research firm Technomic, rose slightly in 2002 to 51.3 percent in 2002. Meanwhile, independents and small chains' share dropped half a point to 43.5 percent. The second top 100 companies' share also decreased slightly to 5.2 percent of the market.

And though fast-casual chains don't have the number of outlets that fast-food behemoths like McDonald's or Burger King have, they are among the fastest-growing segment of the restaurant industry.

Thirty-nine publicly traded casual dining chains tracked by Technomic saw an average of 12 percent increase in revenues, outpacing mid-scale restaurants' 3 percent growth. Among the more successful casual dining operators include P.F. Chang's China Bistro, which saw 32.4 percent revenue growth last year.

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