Chain restaurants are out. Restaurant groups included
Picture this: You walk into a new, bustling, chef-driven restaurant. It is the only place of its kind and looks like an independent place.
But digging a little deeper reveals that the independent restaurant is actually one of more than a dozen owned by the same company.
Of course, the business model of a restaurant “group” has existed for years.
But expert sThese groups are becoming big players Industry struggling after pandemic decline in liquor sales and lower customer spend,
They say that being bigger provides better purchasing power and protection from risk.
“There’s strength in numbers,” said Vince Sgabellon, food industry analyst at market research firm Circana Canada.
“It’s very difficult for an independent restaurant owner.”
Unlike a restaurant chain, where every location has the same name, menu, and decor, customers of a restaurant group business may never know that the location they are dining at is part of a broader company.
But some say that even after a certain scale, the trend can include a certain amount of homogenization, where even seemingly standalone restaurants start to look and taste a little bit alike.
a chain that is not a chain
It is difficult to ascertain the extent of the growth of the restaurant group model. Restaurants Canada does not track this; Nor does Statistics Canada.
But Sagabellon said Circana data shows that between 2020 and 2024, small chains and independent restaurants in Canada (restaurant groups are tracked as part of both categories) grew at more than twice the pace of larger restaurant chains.
And experts like Bruce McAdams say the trend is growing as part of a generational shift around the concept of chain restaurants.
There’s certainly a fine line (and potentially, some overlap) between a company running a chain of restaurants and a multi-concept restaurant group.
But broadly speaking, while in the 1970s and 1980s it was desirable for restaurant owners to bring their own local joint to every city in the country, that’s no longer the case, said McAdams, associate professor of hospitality at the University of Guelph.
“The entire dining marketplace has changed dramatically,” said McAdams, who worked for Toronto-based restaurant group Oliver & Bonacini before becoming an academic.
As the country has become more diverse, Canadians have been exposed to a greater variety of food. Customers are more interested in trying the next new thing, and less eager to settle for the familiar (though McAdams notes that some larger chains like The Keg and Earl’s still do quite well).
For sit-down rental companies, this means they can get more buzz by opening a variety of restaurants with different types of cuisine, rather than trying to repeat the same restaurant over and over again.
economies of scale
Purchasing power is a huge advantage for restaurant groups. Compared to independent restaurant owners, groups can achieve better economies of scale by operating in larger quantities.
For Calgary’s Concord Entertainment Group, the company’s size means it’s managed to set up its own downtown commissary kitchen that makes ingredients, like cocktail syrup, that it can ship to all of its locations. This can be done in a more economical way than ordering items from different suppliers.
It also allows the company to ensure that everything meets a certain standard of consistency and quality, said John Molyneux, the company’s vice president of business development, sales and events.
“People don’t understand how thin the margins are and how our costs are going up on everything,” Molyneux said. “Anytime we can save a dollar here, a dollar there, it really helps.”
Concord began with a single college bar in 1987 and has since grown to include nearly two dozen locations, including an acclaimed steakhouse, a Japanese restaurant, a Pacific-inspired restaurant, and a restaurant-group chain of brewhouses.
The company has also expanded outside of Calgary by bringing some of its more popular restaurants to Canmore and Toronto.
At the Concord Restaurant, there is no sign announcing that the business is part of a group, but it is easy for customers to tell if they visit. website Or buy a gift card.
,wWe’re not trying to keep it a secret,” Molyneux said.
‘Dominate’ the market
Another advantage of the business model is proximity. While businesses like Concord have, at times, expanded beyond the boundaries of a particular city, groups usually begin by opening several restaurants in the same area.
“Maybe they’ve got a sushi place. Well, now they can open a steakhouse right across the street,” said Circana analyst Sagabelone.
“It allows them to really monopolize and dominate geography.”
This means that companies benefit from some of the same economies of scale as chain restaurants, but they don’t have to deal with the logistics of trying to keep a restaurant concept consistent across multiple cities, especially in a country as vast as Canada.
McAdams recalls the difficulty of doing this when he worked for Red Lobster during a period when the company was expanding rapidly across the country.
“It was a great show,” he said.
Being part of a group means restaurants can also consolidate some of their back-office functions. Multiple locations can use the same human resources, marketing and payroll departments.
At the same time, Sgabellone said, the model offers some protection against changes in consumer preferences. If a restaurant in the group stops doing well because a dish has gone out of fashion, the company has other concepts to fall back on.
“If they have more restaurants, they’re more likely to be in the leading position,” he said.
Pros and cons
Calgary restaurateur Tony Migliarese looks at the advantages and disadvantages of the restaurant group model. He now owns five restaurants in the city (an Italian bistro, a wine bar, a noodle shop, a tavern, and a pizza place), and considers his business not a full-fledged restaurant group, but a close one.
Migliares says he understands why the model is becoming more common.
“You are too big to fail in a sense,” said Migliares, known as the owner of DOPO.
In a way, this model also works as a staff retention tool, he said. If someone working for a restaurant group wants to open a new location, they can do so without leaving the company.
But at a certain scale, Migliares said, there is a risk of softness and “everything looking the same.”
Restaurant industry analyst Robert Carter agrees. That said, consolidation in any industry comes with a certain risk of homogenization, perhaps especially where private equity is involved.
“There’s a fear of losing that kind of independent feeling and becoming a corporate kind of structure,” said Carter, managing partner of restaurant consultancy The Strattonhunter Group.
what consumers look for
Restaurant owners aren’t the only ones to benefit from the group model; People who are eating them can also eat them.
If larger groups can get better deals on ingredients, this could lower prices.
And for consumers troubled by the high cost of living, spending money at a restaurant associated with a known favorite may seem less risky than taking a chance on something entirely new, Sagabellone said.
In the current economic environment, businesses are also trying to minimize risk.
According to a recent report from Restaurants Canada, food, labor and staff costs continue to rise, putting pressure on restaurant owners, while consumers are choosing to spend less on discretionary items.
Experts say this means the restaurant group model is likely to continue to grow. They say, when times are tough, growing up helps.
