Dunkin' Donut's CEO says America has too many restaurants — and that's a bad sign for chains (DNKN)
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There's an obvious answer to why the restaurant industry is struggling in the US.
"Not many categories are truly growing," Dunkin' Brands CEO Nigel Travis told Business Insider.
"The country is probably over-restauranted," Travis continued.
"Over-restauranted" means that there are simply more restaurants in the US than customers care to visit. Basically, the supply of restaurants opening outpaces the demand — and it's resulting in slumping sales.
Restaurant customer traffic has been in decline for 17 months straight. In July, restaurant-industry tracker TDn2K reported that restaurant comparable sales fell 1% and traffic dropped 3% in the most recent quarter.
"We believe there is an oversupply of restaurants out there," Victor Fernandez, the executive director of insights for TDn2K, said earlier this year.
Travis and Fernandez aren't alone. Executives at restaurant chains including Starbucks and Darden, Olive Garden's parent company, have said the US is "over-retailed."
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Restaurant chains are under constant pressure to increase system-wide sales, especially publicly-traded companies expected to grow shareholder value. One of the most straightforward ways to do that is to open more locations — and further contribute to the nation's oversupply of restaurants.
Even though McDonald's traffic dropped in 2016, the largest chain in the country opened more than 350 net new restaurants in the US last year. Starbucks' US store count increased by 321 in 2016, despite the CEO's concerns that there were too many retail and restaurant locations opened in the US. Even Chipotle, struggling to recover following an E. coli scandal in late 2015, opened 240 new restaurants last year.
Retailers like Sears and Macy's are currently dealing with an oversaturation of brick-and-mortar stores. More than 6,400 store closures have been announced by retail chains so far in 2017.
The restaurant industry is unlikely to face such an explosive apocalypse. Plus, CEOs like Travis, who are in growing categories like coffee, say their businesses don't need to worry about an industry implosion.
However, competition is increasingly cut-throat, both from other restaurants and from a growing number of external threats like grocery store's selling prepared food and new delivery players. Chains need to make some major changes to grow sales — and not every restaurant is going to survive.
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