Burger King, Wendy's reap financial benefit of small stores

The stores operate more efficiently and allow chains to stake their claim both in sparsely populated areas and urban areas.

COLUMBUS, Ohio -- Fast food is slimming down.

Two of the biggest burger chains -- Wendy's and Burger King -- are developing restaurants with smaller kitchens and seating areas that operate profitably in small towns, cost less to build and fit into cheaper parcels of land. A third chain, Popeyes Chicken & Biscuits, also is trimming the square-foot fat, and even Applebee's, a sit-down chain, has reduced restaurant size in rural areas.

Analysts said the smaller stores operate more efficiently and allow chains to stake their claim both in sparsely populated areas that generate less traffic and urban areas where large plots of land are scarce and have become increasingly expensive.

"The rent goes down, the labor goes down, the entire overhead shrinks, but the product keeps moving out," said Arlene Spiegel, a restaurant-industry consultant in New York City. "They really don't have the luxury of big real estate opportunities any more."

'We needed to change'

Fast-food executives said the slimmer restaurants can save up to a third of construction costs and can be squeezed on to half the acre usually needed.

"When we really sat down and started talking to franchisees about why they weren't building new restaurants it became clear that we needed to change," said John W. Chidsey, president of the Americas for Burger King Corp., based in Miami.

The burger chain has cut overall square footage by about a third, reducing the size of the kitchen and cutting the seating roughly in half to 40 seats. The new design will account for the majority of stores built in the future, Chidsey said. The chain has 11,000 locations, about 90 percent of which are franchised.

Such stores are meant to go in smaller towns or areas between larger stores, Wendy's president and chief operating officer Tom Mueller said. The chain, based in suburban Columbus, also has a new design that's roughly a third smaller than its traditional restaurant.

"Yet it's designed to be more labor-efficient, et cetera, so it can be profitable potentially at lower volume of sales," he said.

Atlanta-based Popeyes this year introduced smaller building designs -- one with only pickup windows and a 28-seater -- to complement its 1,800-restaurant chain, made up mostly of restaurants with 48 seats.

"We did that because given real estate economics today and given that in some markets there's a scarcity of real estate sites, we thought it was important that we provide some type of flexibility," said company spokeswoman Alicia Thompson.

Besides, most fast-food meals are handed directly into the window of a car. About 80 percent of fast-food sales are takeout, said Tom Miner of restaurant consultants Technomic. Sit-down chains such as Applebee's, Chili's and Outback Steakhouse also have emphasized takeout, with separate entrances and phone lines.

So, with fewer customers sitting inside to eat, it's no surprise that some fast-food chains are paring down seating areas by as much as 50 percent. Popeyes and Wendy's also are experimenting with stores that have only pickup windows.

But these designs still are dwarfs in the Goliath fast-food industry.

Of Wendy's 6,700 locations, about 30 stores have the smaller seating area and smaller kitchen. In addition, there are 14 pickup window-only restaurants.

Wendy's plans to increase the small store presence. Mueller estimates the two smaller designs will make up 10 percent to 15 percent of all new Wendy's stores.

Some of the 14 pickup window-only locations, which are still being tested, have posted higher sales than those with dining rooms, Mueller said. Those sites require only 10 to 12 workers during peak hours, about 40 percent less than at a larger restaurant.

Some customers said they appreciate the larger stores, even if they don't always dine in.

"It's kind of nice to come in and not have it be completely packed inside," said Josh Obert, 19, of Pataskala.

Analysts have noted similar trends among other retailers, particularly among department stores scaling back their freestanding outlets. But the smaller restaurant design is different, they said, because it's been fueled by a drop in customers who dine inside.

Analyst Amy Garber, of the Nation's Restaurant News, said she had not heard of McDonald's making an effort to reduce restaurant size. And Carl Sibilski, of Morningstar Inc., said he only has heard of the company operating low-maintenance satellite stores, such as those in airports and malls. McDonald's officials did not return calls for comment.

Applebee's, based in Overland Park, Kan., has in recent years placed 150 restaurants in cities of less than 50,000 people, Phil Crimmins, senior vice president of development, said in an e-mail. The chain operates about 125 stores that are between 3,600 and 4,300 square feet, compared with the standard 5,000 square feet, he said.

Technomic's Miner said people in rural areas appreciate the chain's efforts.

"It's like a coming of age for their town when they get to the population size that they're big enough for their own Applebee's," he said.

However, super-sized fast food restaurants are nowhere near extinction. Miner said a store's largeness can bolster its sales by making a big impression on customers.

"There's a lot of value to impact," he said. "If the site is small, the store is small, you don't get that impact," he said.