Cost ReductionData Intelligence

Casual Dining on the Decline

It’s been about a decade since casual-dining restaurants began reporting a slump in sales. Despite this, and for reasons that are unclear to most seasoned industry experts, the number of restaurants continued to rise. From 2007 to 2016, casual-dining units grew by 19.2 percent. And just what did this growth create? A supply versus demand issue with diners having a plethora of choices and many of them choosing fast-casual, counter-service concepts.

According to Restaurant Business, that statistic changed last year when the number of casual-dining restaurants shrunk for the first time. Chains such as Applebee’s, Chilis, Joe’s Crab Shack and McCormick & Schmick’s found their numbers dwindling. Overall, casual-dining restaurants were down for the first time by 1.5 percent. In fact, more than half of the 186 casual-dining restaurants listed in Technomic’s Top 500 chain Restaurant Report, showed a unit decline or leveling off in 2017.

The NPD Group found the number of restaurants in the U.S. came in at 647,288 in the fall of 2017, a 2 percent decline from a year ago. This included a decrease of 10,952 in independent restaurants and a 2 percent decline in the number of full-service restaurants which includes casual, family and fine-dining.

Declining Numbers Leads to an Increase in Sales

This could be the reason that dwindling chains such as Applebee’s actually showed an improvement in sales. Restaurant sales rose 1.3 percent in the fourth quarter of 2017. Besides reducing their number, many casual dining restaurants are jumping on the delivery and mobile app bandwagon.

Despite their recent turnaround, Applebee’s is in line to close another 80 units after shutting down nearly 100 in 2017. Wallstreet seems to be in favor of culling the number of franchises. Stocks of Dine Brands Global, parent company to Applebee’s as well as iHop, rose from $50 at the beginning of the year to over $70 as of April 8.

Where are Diners Going?

It’s not as if the U.S. has decided to go on a restaurant diet. The second quarter of 2017 saw consumer spending at restaurants and other food vendors up 4 percent from two years prior—coming in at $605 billion.

Fast casual, the darling of the industry, was, once again, the leader in restaurant segments with an 8.9 percent sales growth in 2017. Consumers seem to be searching for a deal. While the average cost of a meal at a casual dining restaurant comes in at about $14, fast-casual, on the other hand, comes in at almost half the cost with an average of $8. According to Victor Fernandez, an executive at TDn2K, much of the growth seen in the fast-casual segment is coming from casual-dining’s market share.

Can Casual Dining Make a Comeback?

A shrinking middle class, declining shopping malls, the revitalization of city centers, chef-driven farm-to-table venues, and millennials have all been linked to the decline in the casual-dining segment.

Ruby Tuesday, a shopping mall fixture, went from a $15.8 million net loss in 2016 to a $38 million net loss in 2016. Garden Fresh Restaurant Corp., parent company of Souplantation and Sweet Tomatoes restaurants, filed for bankruptcy and sold its assets to an investment firm.

Is this simply the sign of changing times or can the casual-dining segment make a comeback? Some in the industry believe that it will take more chopping away at excess growth and closing more units before their sales numbers start to really show an increase. Others feel an update that includes a remodel and new menu items could make the difference.

An example of this is Chili’s who admitted that they had chased consumer trends and tried to be all-things to all customers. Attempting a new direction, they are cutting their menu items by about 40 percent.

What are other restaurant’s doing in order to turn the tide? Some are using the concept of transformation and opening up fast-casual restaurants. In 2015, Tony Romas opened TR Fire Grill, a restaurant in Winter Park, Florida that specialized in locally-sourced product with menu items like chicken waffles, pretzel braid appetizers, wood-grilled shrimp, black bean and quinoa burgers, and a Yappy Hour for dogs. They even won awards for their food…before closing the doors on February 26, 2018. So much for transformation.

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