Restaurant companies getting bigger by consolidation
Cara’s acquisition of The Keg leaves three dominant operators with increasing market share
Cara Operations Ltd.’s deal to buy The Keg restaurants is the latest consolidation move in an industry dominated by three operators that account for one-sixth of restaurant sales in Canada.
Cara, MTY Food Group Inc. and Restaurant Brands International Inc. brought in an estimated $10 billion from a total $60 billion spent at restaurants last year, according to figures from market-research firm NPD Group.
And experts suggest the three are likely to see their market share grow as the industry consolidates further — which could benefit consumers, but see some independent eateries disappear from the competitive landscape.
“They are the three largest restaurant consolidators in the marketplace,” said Robert Carter, NPD’s executive director of food service.
Together, they collectively operate thousands of restaurants in Canada under a variety of banners.
Cara — now the country’s largest fullservice restaurant player — runs about 1,200 locations, including Swiss Chalet, Harvey’s and East Side Mario’s.
Canada’s food court king, MTY, owns more than 2,450 locations, with brands that include quick-service staples like Country Style, Mr. Sub, ManchuWOK, Extreme Pita, Pinkberry and Villa Madina.
Meanwhile, RBI — the parent company of Tim Hortons, Burger King and Popeyes Louisiana Kitchen — operates an estimated 4,100 restaurants in Canada.
As the restaurant market is relatively flat, said Carter, restaurant operators are focused on growing their portfolios by bringing established chains into their fold.
Last year, sales at full-service restaurants fell two per cent to $21 billion, while sales at fast-food outlets rose three per cent to $27 billion, according to NPD data.
In a move telegraphing the intended focus of its portfolio, Cara sold food court staple ManchuWOK to rival MTY in 2014. Its latest choice to buy The Keg restaurants, announced Tuesday, is “consistent with Cara’s modus operandi over the last few years, ” said Sylvain Charlebois, dean of the faculty of management at Dalhousie University.
The operator also acquired the Pickle Barrel late last year and rotisserie chicken joint St-Hubert the year prior.
RBI, which formed from a merger of Tim Hortons and Burger King, expanded its portfolio by taking over fried chicken brand Popeyes last year.
Meanwhile, MTY closed out 2017 by acquiring Imvescor Restaurant Group Inc. — a franchise and licensing business with five banners: Baton Rouge, Pizza Delight, Scores, Toujours Mikes and Ben & Florentine.
“The strategy is to buy market share,” Carter said.
Additionally, restaurant consolidators are cherry picking brands that are high-performing and can help make them more profitable, he said.
The Keg, for example, is among a small subsegment of premium casual restaurants that is experiencing strong growth in traffic and sales, according to NPD.
With multiple brands, operators can streamline their strategies such as by creating one gift card that can be used at many restaurants — options to attract consumers that aren’t available to smaller companies, Carter said.
Consolidation could also benefit the consumer as the companies pass down savings from greater economies of scale to the consumer, he added, but independent restaurant owners may suffer as a result of increasing consolidation.
“I think what it does, ultimately, is continues to put competitive pressure on the marketplace in the form of making the smaller chains and the regional players strengthen their games,” Carter said.
More than 60 per cent of Canada’s roughly 72,000 restaurants are regional chains or individual units, according to NPD. Carter believes they’ll suffer from not having the huge marketing muscle that exists behind the big chain concepts and will have to become much more strategic to establish their difference.
“I think it’s going to be a situation where the strong survive and evolve,” he said.
“The ones that are not evolving and adapting to the market changes will struggle and go out of business.”