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Restaurant Chains Poised for Growth in 2012

Restaurant Chains Poised for Growth in 2012

With consumers feeling more secure about their jobs and more optimistic about the U.S. economy, restaurant executives are ramping up their opening plans, according to brokers who specialize in the sector.

After a few years of hunkering down and holding on to their money, national restaurant chains feel pressure to expand again, says Marty Kotis III, president of Kotis Properties Inc., a real estate development firm that specializes in restaurants. He forecasts that restaurant openings in 2012 might be 30 to 35 percent higher than in 2011. One of the main reasons is that national chains can finally secure the necessary financing to invest in new locations.

The sector is also getting a boost because it has experienced lower price inflation and less wage increase pressures in the past year than the grocery segment, according to Doug Hermanson, an economist at Kantar Retail, a Columbus, Ohio-based consulting firm. When consumers see that cooking at home has become almost as expensive as going out to eat, they start dining out more, he notes.

“There has been a lot of activity, a lot of people out looking for space,” says Andrew Moger, president and CEO of Branded Concept Development, a New York City-based outsourced real estate, design and construction firm for the development of restaurants and retail. “In 2011, it was more tenuous. There seemed to be a lot of closings. This year, while restaurant operators are not optimistic [in general], they are more optimistic than last year and I think there’s more stability.”

Prospects for the future

The 2012 Restaurant Industry Forecast from the National Restaurant Association estimates that in 2012, total restaurant industry sales will reach $631.8 billion—a record-setting number and a 0.8 percent real increase over sales in 2011. The Association projects the highest sales growth for catering halls, at 2.9 percent, and snack bars, at 1.4 percent.

Sales growth will be unevenly distributed among states. Texas and North Dakota, for example, should experience the strongest growth in the country, at 4.1 percent. Florida will likely post growth of 3.9 percent, and Wyoming of 3.7 percent.

In contrast, West Virginia will only see restaurant sales growth of 2.2 percent, the Association predicts. Sales growth in Iowa, Kansas and Missouri will also be under 3 percent.

While the iron is hot

In addition to getting a boost from an improved economic outlook and greater credit availability, restaurant executives are beginning to feel that if they don’t take advantage of favorable leasing rates today, the moment to do so will have passed, says Moger. Landlords across the country have been less willing to offer rental discounts, but in prime markets like New York rents may be rising to unsustainable levels, he notes.

That’s why restaurant operators are ready to lock-in new deals sooner rather than later.

And it’s not just McDonald’s and Subway that are growing this year, according to Kotis. While in 2010 and 2011 most of the chains that were opening new locations were lower-priced quick-service restaurants, today brokers see more casual dining establishments enter the fray. Kotis brings up Texas Roadhouse and The Greene Turtle as examples, while Moger points to Maestro Steakhouse and Dinosaur Bar-B-Que.

Family restaurants were among the top four retailing segments that registered the greatest increases in store opening plans over the past few months, according to theMarch National Retailer Demand Monthly report from Retail Lease Trac and RBC Capital Markets. In December, family restaurants as a group planned to open 5,924 new locations in the next two years. In February that number rose 0.5 percent, to 6,134.

What’s more, Five Guys Famous Burgers and Fries, Dickey’s Barbeque Pit, Golden Krust Caribbean Bakery & Grill, Which Wich and Sandella’s Flatbread Café are among the top 30 chains planning to grow the most as a percentage of their existing store base.

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