Millennials on Chains’ Menus?

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Millennials on Chains’ Menus?
Starbucks in Los Feliz: Chain topped list with 631 locations in L.A. County.

It’s no surprise that the Business Journal’s list of the top restaurant chains is again dominated by fast-food and fast-casual restaurants – concepts based on large-scale operations.

There’s cause for some surprise, though, in anecdotal indicators that more millennials are emerging as owners of fast-food and fast-casual franchises.

The top 25 chains, as ranked by the number of units in Los Angeles County, together saw a 1.6 percent year-over-year growth in 2017 – no great increase given the strong economy, but notable in the face of food trucks and a foodie culture that can be tough on established brands.

At least one industry observer sees a lean from fast-food toward fast-casual – a concept defined by restaurants that don’t offer full table service but advertise higher quality food than fast food restaurants. A high-profile example: Denver, Colo.-based Chipotle Mexican Grill Inc., which ranks No. 15 on this week’s list with 107 locations in L.A. County, up 11 from a year earlier.

“Fast-casual concepts are a global trend,” said Johnny Choi, a senior associate and expert in restaurant real estate at downtown-based real estate brokerage firm CBRE Group Inc. “We see this happening all over, and in L.A. too. It’s the largest segment that’s growing.”

Only five of the 25 restaurant chains on the Business Journal list are headquartered in L.A. County. The locally based operations include No. 10’s Panda Express in Rosemead, No. 11 Coffee Bean and Tea Leaf in Mid-Wilshire, No. 17 Yum Yum Donut Shops Inc. in City of Industry, No. 21 Yoshinoya America Inc. in Torrance and No. 23 Waba Grill in City of Industry, a newcomer to the list.

Restaurant sales in California amounted to $82.2 billion last year, according to the National Restaurant Association. Restaurants chains, specifically the franchisees, represent a big segment of the market. The Washington D.C.-based International Franchise Association estimates that franchising represents 76,000 locations in California that support nearly 730,000 jobs.

Next gen restaurateurs

Millennials, the first generation to come of age in the new century, are expected to become the largest generational group by 2019, according to the Pew Research Center. They are also sprouting up as parties interested in owning fast-food and fast-casual restaurant space.

“I see a lot of millennials coming out of school, joining together and starting their own thing,” CBRE’s Choi said. “Experience is a big factor for this generation. Even as customers, there’s an expectation for good quality service but also a quick turnaround.”

Franchising can be a gradual entry to entrepreneurship for millennials who are underexperienced but want to get in the restaurant business, said Salar Sheikh owner of West L.A. restaurant consultancy Savory Hospitality Group.

“They can learn the business through a structured format, a lot of these companies have trainings, they learn how to deal with customers, make food, the whole process,” Sheik said, adding that he’s seeing more millennials interested in running eateries. “It’s a very good way to get into the business; it’s a safer bet for some people.”

The top spot on the list is Seattle-based Starbucks Corp. which saw a 7.5 increase in local units last year over 2016 by adding 44 for a total of 631 stores in L.A. County.

Starbuck’s growth doesn’t surprise Sheikh.

“(Real estate) developers are favoring these chains, as they have the financial power and marketing budget,” he said. “For them (Starbucks), it’s easier to spread than an individual small coffee chain.”

Jersey Mike’s

The biggest gainer on the list was No. 24’s Manasquan N.J.-based Jersey Mike’s Subs with 70 units, which increased those numbers 12.9 percent last year compared to the year prior. Rival sandwich shop and No. 2-ranked Subway’s local unit count fell 2.3 percent to 594 from 2016.

“Jersey Mike’s offers an elevated service,” Choi said. “They have taken a lot of Subway’s market share. Subway has prepackaged deli meats that they put on to baked breads. (Meanwhile) Jersey Mike’s has higher quality sliced meat, where they cook their own, say roast beef. They slice it in front of you and offer hot and cold sandwiches. They sell a different experience.”

It’s also easier to open a Jersey Mike’s franchise than some other brands, according to Sheikh, who nevertheless cautions against reading too much into Jersey Mike’s growth.

“Any franchise that’s quick to rise can be very volatile,” he said. “I wonder if they’ll take the same trend as Chipotles did a few years back with a slowdown.”

One way smaller chains can compete, Sheikh said, is to offer updated food trends.

“There are places that still offer quinoa kale salad,” he said.

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