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What is a limited-service restaurant?

An in-depth overview of the U.S. restaurant industry (Part 2 of 22)

(Continued from Part 1)

Limited-service restaurants

In the last part of this series, we learned that all restaurants can be classified in two broad categories: limited-service and full-service restaurants.

What is a limited-service restaurant?

As we saw earlier, limited-service restaurants make up 55% of the market share in the United States. Limited-service restaurants usually serve lunch and dinner menus, and some offer breakfast, afternoon, and late-night meals. Usually you pay upfront before you eat the food. Limited-service restaurants may or may not offer a seating area . It usually has a drive-through ordering facility where customers can place their orders and obtain food to go in a few minutes. Customers may also get to customize their orders. Items on the menu are not expensive compared to items on the menu of other restaurant formats such as fast casual, casual, and family dining.

Limited-service restaurants can be further classified into fast food or quick service, fast-casual restaurants, pizza restaurants, and cafés.

Fast-food restaurants

Some famous fast-food restaurants include McDonald’s (MCD), Yum! Brands (YUM), Burger King (BKW), Wendy’s (WEN), Popeyes Louisiana Kitchen (PLKI), Jack in the Box (JACK), and Chick-fil-A, to name a few. Food is served quickly, and the companies offer items as low as $1.

Fast-casual restaurants

A fast-casual restaurant is a new concept in the restaurant industry. It combines concepts from the fast-food and full-service casual dining restaurants. Some famous fast-casual restaurants include Chipotle Mexican Grill (CMG), Panera Bread (PNRA), Noodles & Company (NDLS), Potbelly Sandwich Works (PBPB), and Subway. Customers receive their orders quickly, and food usually costs more. For example, in 2013, customers spent $8 on average at Noodles & Company.

Limited service also includes café and pizza restaurants

Other restaurants such as Domino’s Pizza (DPZ), Papa John’s Pizza (PZZA), and café chains such as Starbucks (SBUX), Dunkin Brands (DNKN), Tim Hortons (THI), and Krispy Kreme Doughnuts (KKD) also fall under the limited-service restaurant category.

Some of the above names are also held by a broader portfolio exchange-traded fund (or ETF) Consumer Discretionary Select Sector of Standard and Poors depositary receipt (or SPDR) ( XLY ).

Continue to Part 3

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