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The robust US economy is failing to boost the fast-food industry as chains grapple with a saturation of retail outlets, consumer demands for deep discounts and declining footfall. Numbers visiting US fast-food outlets in September dropped 2.6 per cent from a year ago, according to restaurant industry data provider MillerPulse, a steeper decline than the 0.8 per cent year-on-year drop recorded the previous month. Industry executives and consultants cited a series of factors, including consumer demand for healthier alternatives to burgers and pizzas and lower construction activity, which means fewer building workers are picking up fast food on lunch breaks. The tough landscape has taken its toll on several operators. Last week, the New England-based owner of Papa Gino’s and D’Angelo Grilled Sandwiches filed for bankruptcy protection. Papa Gino’s Holdings Corporation said it had struck a deal to sell itself to Wynnchurch Capital, a private equity group, and had closed about 95 struggling restaurants. Taco Bueno, a 169-strong chain based in Texas, also said last week it had filed for Chapter 11. Under a “prepackaged” restructuring plan, the franchisee company Sun Holdings would take control of the Tex-Mex fast food company. Todd Penegor, chief executive of the Wendy’s burger chain, said last week that poorer customers were failing to benefit as much as the better off from the strong US economy. About 40 per cent of so-called quick-service restaurants’ customers earn $45,000 or less, said Mr Penegor as he presented his company’s third-quarter earnings. Wendy’s like-for-like sales in North America ticked down 0.2 per cent in the three months to September. “We are seeing the lowest unemployment levels in a long time, high consumer confidence . . . but as you look at that income growth, it skewed significantly to higher-income households,” he said. “On the low end, you start looking at folks with rent and healthcare costs starting to rise that are really eating into some of the headway that they are making.” Chains are under pressure to offer customers discounts. Burger King recently advertised 10 chicken nuggets for $1, McDonald’s introduced a $6 meal deal and Applebee’s grill and bar chain offered $1 cocktails. Larry Miller, the co-founder of restaurant industry data provider MillerPulse, said competition was intense. “Everyone wants to be their own boss and thinks they can run a restaurant, and access to capital is pretty easy with interest rates still fairly low,” he said. Nick Setyan, an equity analyst at Wedbush Securities, said: “We’ve been seeing a divergence between QSRs [quick-service restaurants] and higher end chains. We’ve really seen QSRs disappoint.” He cited lower immigration, which has led to fewer lower-income customers, and lower construction rates as causes for the squeeze. Housing construction declined 5.3 per cent in September from the previous month.


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