How Many Restaurants Are Enough?

While concerns haven’t reached the level of a stadium roar, I’m starting to hear more and more of them within the industry, that there are “Just too many restaurants.” In order to answer this question, it occurred to me to look at what we do have, and see what some qualified sources say about this. Then perhaps I can come to a conclusion.

Fred G. Sampson
Fred G. Sampson

I have gathered some statistics that will give you an idea of how large we, as an industry, are: sales, $782 billion … employees, 14.4 million … restaurant locations, one million, of which seven out of ten are single units.

To bring it closer to home, here is similar data for New York, New Jersey, and Connecticut. New York State: $42.5 billion in sales … 821,000 employees … 45,000 eating and drinking places; New Jersey: $16 billion in sales … 243,000 employees … and 18,000 eating and drinking places; and Connecticut: $7.3 billion in sales … 160,000 employees … and 7,800 eating and drinking places. I selected these three states due to the density they create within a radius of 100 miles of New York City. The New York State figures include the Buffalo-Niagara area with a population of over 1,250,000. Buffalo is the state’s second-largest city.

In a recent issue of Nation’s Restaurant News, Jonathan Maze, senior financial editor, discussed the topic of casual dining, saying it faces an oversupply of units. Referring to Andrew Strelzik, a BMO Capital Markets analyst, Maze reported: “The segment’s share of the supply of restaurants in the U.S. has shrunk since 2007. Yet there are still too many locations.” Strelzik estimated that the market is oversupplied by as many as 4,500 units, based on demand trends since the recession. “When you look at the chains, they’ve been slow to adapt to the changing environment,” Strelzik said.

Casual-dining restaurants are having a hard time for several reasons. A growing number of competitors, such as fast-casual concepts, have been growing at a breakneck pace. As such, the share of casual-dining markets has been steadily declining. The segment’s share of restaurant industry transactions has fallen 20 percent over the past eight years, according to Strelzik, but the segment’s share of locations has declined only 10 percent.

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That brings us to the question of what to do with locations that are not producing. How many chain operations does one see with a “We are closed until further notice” sign posted somewhere on the premises? Few, if any. The major chains rarely allow a franchised unit to close, even if it means their taking it over until they can find a new operator.

One of the more recent companies faced with closing units is Ruby Tuesday; their number of such locations was 95. Of the 724 units remaining, Ruby Tuesday owns 646.

Then there are those brands—for whatever reason—which allow their units to take on a tired look: carpets need replacing, the parking lot is not marked, the décor is dated, and so on. Such is not the case for Ruby Tuesday. They have tried various theme menu changes and price adjustments. I would not write them off; while they might downsize, I believe they will prevail.

As to the question, “How many restaurants are enough?” My response is simply, “It depends on your location.” I offer a look at five congressional districts in New York State and the number of restaurants and employees they represent, and then you make the call. Each congressional district represents approximately 717,000 people.

Carolyn Maloney (D), Manhattan: 4,898 restaurants, 68,512 employees; Jerry Nadler (D), Manhattan: 3,604 restaurants, 50,000 employees; Louis McIntosh Slaughter (D), Rochester: 1,400 restaurants, 19,000 employees; Brian Higgins (D), Erie and Niagara: 1,553 restaurants, 21,727 employees; Chris Collins (R), Erie: 1,521 restaurants, 21,145 employees.

Obviously, population dictates the number of restaurants in these various areas. In fact, I believe Carolyn Maloney has more restaurants in her district than any other member of Congress.

What is my purpose in making these comparisons? It is to say that it is practically impossible to determine how many restaurants are enough or too many. With 5,000 restaurants in Congresswoman Maloney’s district, it would seem saturated with restaurants—and it is—yet, note that her district has many apartment buildings where the population resides upward, not spread outward.

While there is a continual turnover of eating places, the problem for most of them is not competition as much as rising rents and employee turnover.

It is not my intent to minimize Mr. Strelzik’s findings. I feel certain they are correct. However, even if there are 4,500 too many casual-dining operations spread out over 48 contiguous states, I think our economy will eventually absorb them.

Fred G. Sampson is the retired President Emeritus of the New York State Restaurant Association. He began working with NYSRA in 1961. Within the next four years the NYSRA more than tripled its membership and expanded from one regional chapter to eight. Sampson played roles in representing restaurants on issues including paid sick leave, minimum wage, liquor laws, a state-wide alcohol training program and insurance plans. Comments may be sent to fredgsampson@juno.com