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Fast casual chains steam ahead with expansion as other sectors pull back
Restaurant Dive, an Industry Dive publication ·Restaurant Dive·Industry Dive
In the span of about 18 hours this week, three major fast casual brands laid out ambitious unit growth plans for the coming year following successful developments in Q3.
Chipotle, Wingstop and Shake Shack all saw fairly strong quarters, with growing traffic and same-store sales. These chains are targeting a combined 700-plus units this year.
The success and long-term growth plans for major fast casual chains like Chipotle, Wingstop and Shake Shack stand in stark contrast to other parts of the restaurant industry, especially casual chains. Denny’s will close 150 underperforming stores by 2025, while TGI Fridays has closed scores of restaurants since September.
While the situation for QSRs has been less dire, they have not been exempt either: Wendy’s said during its Q3 earnings call Thursday it will close about 140 underperforming units this quarter.
With many chains still struggling for traffic, the expansion of store fleets by strong fast casual brands could widen the performance gap between restaurant winners and losers that has emerged in recent quarters.
Chipotle
Openings for Q3: 86, including 73 units with a Chipotlane
Anticipated 2024 openings: 285 to 315
The chain continues to push toward its goal of having 7,000 units in North America. So far this year, it has opened 185 restaurants compared to 149 restaurants this time last year, interim CEO Scott Boatwright said Tuesday during an earnings call. The chain had 3,615 restaurants at the end of the quarter, which is an increase of nearly 9% compared to Q3 2023.
Chipotlanes remain a key element for new builds. The company anticipates 80% of its new builds will include these digital order pickup lanes.
“Chipotlanes continue to perform well and are helping enhance guest access and convenience, as well as increase new restaurant sales, margins, and returns,” the company said in its earnings release.
The chain is also expanding outside of the U.S. and will pass the 50-restaurant mark in Canada in November, Boatwright said. Its unit-level economics in Canada are on par with the U.S. and the chain plans to accelerate growth in that country next year.
Chipotle's quarterly unit count s since Q3 2023
Q3 2024 units increased 9% compared to the year-ago quarter.
Boatwright expects Europe to provide a “sizable growth opportunity for Chipotle over the coming years.” With new leadership in place for the region, the chain is seeing better results and has better aligned its menu with North America standards, he said. It also expanded its presence in the Middle East with its first restaurant in Dubai in October and a second location coming early next year.
For 2025, Chipotle is targeting 315 to 345 units, he said. This amount of openings will bring the chain closer to its aspirational 10% net unit growth rate.
Wingstop
Openings for Q3: 106
Anticipates 2024 openings: 320 to 330 globally
Wingstop updated its projected year-total openings this quarter, according to its Q3 earnings results — an increase of about 30 stores over its previous guidance, which maxed out at 300 as of its Q2 earnings report.
Part of that expansion was driven by the performance of its new units, which have outperformed the average unit volume of last year’s class of stores, Alex Kaleida, Wingstop’s CFO, said on the company’s earnings call Wednesday.
Its quarterly openings were “a record for Q3, which follows records set in each of the prior four quarters,” Kaleida said.
Wingstop's quarterly unit count since Q3 2023
Q3 2024 units increased over 17% compared to the year-ago quarter.
The pace of openings has been facilitated by the brand’s unit economics, CEO Michael Skipworth said. Its AUV, which passed $2 million last quarter, now exceeds $2.1 million; the brand has its sights set on a $3 million AUV, Skipworth said.
“The average investment to open a Wingstop remains at around $500,000, and our brand partners are seeing unlevered cash-on-cash returns in excess of 70%,” Skipworth said. The brand has a 6,000-unit development target for the U.S., Skipworth said.
The vast majority of Wingstop’s development comes from within its existing franchisee network, with 95% of store openings from current brand partners, Kaleida said.
Shake Shack
Openings for Q3: 17, including three with drive-thrus and nine licensed stores
Anticipated 2024 openings: 75
Shake Shack’s percent unit growth for the year will be in the mid-teens despite the closure of nine underperforming units in September. The brand is on track to hit 75 store openings in the year, including licensed locations, CEO Rob Lynch said on its Q3 earnings call, which is a slight decrease from the 80 stores it anticipated opening for the full year as of last quarter.
The quarterly pace of openings will speed up next quarter, with 16 company-owned units and 11 licensed stores set to open, CFO Katie Fogertey said.
Lynch said that the chain has achieved meaningful reductions in the cost of its stores.
“Our new company units are tracking strong cash-on-cash returns as we continue to bring down build costs and pre-opening costs per Shack,” Lynch said. “We are on target for an approximate 10% cost reduction in 2024 build costs.”
Shake Shack's quarterly unit count since Q3 2023
Q3 2024 units increased over 11% compared to the year-ago quarter.
Shake Shack’s margins for new stores have grown as units exceeded sales expectations. This combination of reduced construction and better margins is pushing Shake Shack to estimate it will open about 85 stores next year, with the majority being company-owned, rather than licensed.
Lynch called the performance of its new stores “a testament to our ability and our marketing team's ability to generate excitement in the communities in which we're opening,” and said the chain has considerable white space in which to grow.
One limiting factor, Lynch said, is the availability of trained managers. Shake Shack only has about 330 company-owned locations, so 40 to 45 new stores in a year requires significant growth of its managerial corps.
To deal with that pace, the brand is “spending and investing and focused on the training and development necessary to really create a pipeline of leaders, not just at the GM level but below the GM level,” Lynch said.
