Summary
Driven by the recession and tighter credit terms, restaurant new unit development will slow in 2009. Some weaker operators will have unit contraction, for the first time in decades, particularly those franchisees that feature single unit operators (mom and pops). The chief opportunity for future development will be outside of the US.
Analysis
While we can't audit the IFA numbers exactly, the slowdown in restaurant development noted looks about right. I would expect there to be greater weakness in the non-QSR sub-sector, however.
The United States is way over restaurant developed, and in a recession, weaker operators will (1) lose units and franchisees (2) slow development. The restaurant sector sales basically peaked in 2004/2005 and has been on a slow decline ever since.
The powerhouse operators doing well--McDonald's, Burger King and Yum (brands excluding KFC), among others--will have slow United States growth but target overseas development, particularly where economies are still building (China).
Other restaurant operators such as Jack in the Box and Sonic, while strong, are increasing their US refranshising efforts--converting company units to franchisee owned units--because percentage profit returns are higher and the company avoids future CAPEX, under that scenario.
This trend will be complicated by the tight availability of capital. All of the major lenders--GE Capital, CIT, etc-- have tightened standards, and increased borrowers equity and interest coverage requirements.
I attended the Restaurant Finance and Development conference in November 2008, and the Wedbush Morgan Investment Conference thereafter. Bigger, cash flow positive, well established franchisees are getting acess to capital (albeit the process has slowed) but the small single-unit focused operators aren't.
