A photograph of The Keg Steakhouse and Bar is shown at Sherway Gardens mall in Toronto on Tuesday, January 23, 2018. THE CANADIAN PRESS/Nathan Denette

Cara’s Keg acquisition latest move in restaurant industry consolidation

Cara Operations Ltd.’s deal to buy The Keg restaurants is the latest consolidation move in an industry dominated by three operators

Cara Operations Ltd.’s deal to buy The Keg restaurants is the latest consolidation move in an industry dominated by three operators that account for one-sixth of restaurant sales in Canada.

Cara, MTY Food Group Inc. and Restaurant Brands International Inc. brought in an estimated $10 billion from a total $60 billion spent at restaurants last year, according to figures from market-research firm NPD Group.

And experts suggest the trio are likely to see their market share grow as the industry consolidates further — which could benefit consumers, but see some independent eateries disappear from the competitive landscape.

“They are the three largest restaurant consolidators in the marketplace,” said Robert Carter, NPD’s executive director of food service.

Together, they collectively operate thousands of restaurants in Canada under a variety of banners.

Cara — now the country’s largest full-service restaurant player — runs about 1,200 locations, including Swiss Chalet, Harvey’s and East Side Mario’s.

Canada’s food court king, MTY, owns more than 2,450 locations, with brands that include quick-service staples like Country Style, Mr. Sub, ManchuWOK, Extreme Pita, Pinkberry and Villa Madina.

Meanwhile, RBI — the parent company of Tim Hortons, Burger King and Popeyes Louisiana Kitchen — operates an estimated 4,100 restaurants in Canada.

As the restaurant market is relatively flat, said Carter, restaurant operators are focused on growing their portfolios by bringing established chains into their fold.

Last year, sales at full-service restaurants fell two per cent to $21 billion, while sales at fast-food outlets rose three per cent to $27 billion, according to NPD data.

In a move telegraphing the intended focus of its portfolio, Cara sold food court staple ManchuWOK to rival MTY in 2014.

Its latest choice to buy The Keg restaurants is ”consistent with Cara’s modus operandi over the last few years ,” said Sylvain Charlebois, dean of the faculty of management at Dalhousie University.

The operator also acquired the Pickle Barrel late last year and rotisserie chicken joint St-Hubert the year prior.

RBI, which formed from a merger of Tim Hortons and Burger King, expanded its portfolio by taking over fried chicken brand Popeyes last year.

Meanwhile, MTY closed out 2017 by acquiring Imvescor Restaurant Group Inc. — a franchise and licensing business with five banners: Baton Rouge, Pizza Delight, Scores, Toujours Mikes and Ben & Florentine.

“The strategy is to buy market share,” Carter said.

Additionally, restaurant consolidators are cherry picking brands that are high-performing and can help make them more profitable, he said. The Keg, for example, is among a small sub-segment of premium casual restaurants that is experiencing strong growth in traffic and sales, according to NPD.

With multiple brands, operators can streamline their strategies such as by creating one gift card that can be used at many restaurants — options to attract consumers that aren’t available to smaller companies, Carter said.

Consolidation could also benefit the consumer as the companies pass down savings from greater economies of scale to the consumer, he added, but independent restaurant owners may suffer as a result of increasing consolidation.

“I think what it does, ultimately, is continues to put competitive pressure on the marketplace in the form of making the smaller chains and the regional players strengthen their games,” Carter said.

More than 60 per cent of Canada’s roughly 72,000 restaurants are regional chains or individual units, according to NPD. Carter believes they’ll suffer from not having the huge marketing muscle that exists behind the big chain concepts and will have to become much more strategic to establish their difference.

“I think it’s going to be a situation where the strong survive and evolve,” he said.

“The ones that are not evolving and adapting to the market changes will struggle and go out of business.”

Companies in this report: (TSX:CARA, TSX:MTY, TSX:QSR, TSX:IRG)

Aleksandra Sagan, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

LETTER: The minority will control the majority

Existing electoral system is stable, simple and successful.

LETTER: Thanks to all who ran in election

To those that were elected, I look forward to your collective stewardship

Kettle Valley Steam Railway holds train ride of terror

Summerland tourist train will have Halloween-themed events

Ballet Kelowna to kick off 16th season with pair of premiers

Fresh off performances in Beijing and Toronto, company will perform at KCT Nov. 16 and 17

LETTER: Support candidates who will assist cannabis industry

Cannabis has often provided extra income for fruit growers or paid the bills for students

B.C. sailor surprised by humpback whale playing under her boat

Jodi Klahm-Kozicki said the experience was ‘magical’ near Denman Island

VOTE: Nature in Focus reader’s choice photo contest

The Penticton Western News Reader’s Choice photo contest

Who is running in Summerland’s election?

Introducing you to the candidates asking for your vote on Oct. 20

China opens mega-bridge linking Hong Kong to mainland

The $20 billion bridge took almost a decade to build while incurring major delays and cost overruns

Dangerous Cat 4 Hurricane Willa closing in on Mexico coast

Officials said 7,000 to 8,000 people were being evacuated from low-lying areas, mostly in Sinaloa state

Excessive speed named as cause of Taiwan train derailment

18 people were killed and at least 170 more were injured

VIDEO: Fire destroys historic Hitching Post restaurant in Hedley

Two people were injured as fire ripped through the Hedley restaurant around 2:30 a.m. Tuesday

Ovechkin has 4 points as Caps rough up Canucks 5-2

WATCH: Defending champs pick up impressive win in Vancouver

World Junior Hockey fever hits Vernon

Vipers spice up floor ball demonstration at OK Landing School

Most Read