Fattening up in lean times: Fifteen businesses growing in the recession
Over the last few decades, "value" has been a synonym for "cheap," and many consumers have turned up their nose at stores that dared to use the v-word. But with discretionary income evaporating and job prospects disappearing, words like "bargain," "thrifty," and even "cheap" have gained fresh traction. In fact, many of the big recessionary expanders have managed to build their businesses by convincing customers that they are a viable option to more expensive purchases.
This trend has been particularly notable in the restaurant business. Over the past year, dining out has gradually transformed from a standard expense to a special occasion. At the same time, many big chains have moved to catch customers who like the convenience of restaurants, but aren't excited about the price.
Not surprisingly, the world's biggest fast food chain has been a major winner in this new market. In terms of growth, McDonald's (MCD) is leading the pack with between 800 and 1,000 new outlets this year, and is joined by Subway, Popeye's, Smashburger, Chick-fil-A and Arby's, all of whom are undertaking major recession expansions. On the higher end, mid-priced chain restaurants like Applebees, Jack-in-the-Box, IHOP (DIN)and Chili's are also taking advantage of lowered incomes to draw customers who are used to eating pricier fare.
The big recession restaurant winner, however, might be described as high-end fast food. Eateries like Chipotle (CMG), Yoshinoya and Panera Bread (PNRA) are all drawing customers with upscale ethnic-style menus at downscale prices. Offering distinctive, flavorful food for slightly more than most fast-food joints, they combine the best aspects of the fast-food and sit-down restaurant models, enticing customers who appreciate good food, but can't afford to eat out regularly.
Of course, many former restaurant-goers are choosing to eat at home, leading to a big boost in the grocery business. While several supermarkets are expanding, the industry leader is 7-Eleven, which plans to open 200 more locations in 2009. A combination of new stores, expanded franchises, and "conversions," the company's model seems to be less focused on crowding out existing corner markets, and more designed to maximize existing neighborhood loyalties.
In terms of value, it's hard to beat dollar stores, and bargain-basement retailers are drawing millions of new customers. Dollar General, for example, has used cheaper versions of many household necessities as a stepping stone for big growth. While its 450 new stores lead the dollar store pack, it is closely followed by Dollar Tree, Family Dollar and Big Lots, all of which are launching major expansions in 2009.
Vacations have become another recessionary casualty, with "staycations" replacing pricey trips. For recession victims who can't afford travel or pricey entertainment, gaming systems may be a viable option for relaxation and escape. While many consumers currently buy their games from Wal-Mart and other big box retailers, GameStop is betting that 400 new locations will make it the go-to place for players in search of the latest game. Competitor Play-N-Trade is following close behind, and consumer electronics stores like Best Buy and Apple are also spreading their footprints.
Another necessity, clothing, is witnessing some serious recessionary change. While high-end stores like Saks Fifth Avenue and Barney's are opening lower-priced branded stores, discount retailers are grabbing more and more market share. In this battle, the company to beat is TJ Maxx. However, the conglomerate's stores -- including Marshall's, Home Goods and AJ Wright -- are competing with other discount chains, including Ross, Target, and Kohl's, all of which are also launching major expansions. Meanwhile, hipper, low-priced chains like Urban Outfitters, Forever 21 and Aeropostale are also fighting for more space and market share.
In the same vein, the traditional, department store-based model for cosmetics is starting to seem restrictive to many consumers. With many big chain retailers on the decline, smaller cosmetic outlets are picking up the slack. Sephora, which has added 92 new stores since January 2008, is the big winner in this regard. However, it is closely followed by CVS Beauty 360, Ulta, and other specialty beauty retailers.
In many ways, the difference between good recession business and plain old good business is paper thin: ultimately, both involve giving customers what they want. However, with customers wanting to get more variety and value at a lower price point, with fashion, flavor, and style all working as additional considerations, it takes a smart retailer to find a model that can fill all the needs of the market. It will be interesting to see if these big recession winners can find a way to survive when paychecks start getting fatter!