That "neighborhood bar & grill" chain might not be in your neighborhood much longer.
As food prices rise, these dining chains are struggling. To stay alive, many have been forced have to raise prices - and high prices go against many of these restaurant's branding as fun, inexpensive trips out to eat.
Additionally, restaurant spending habits are shifting. Diners are now choosing to either purchase quickly-prepped meals at a fast casual restaurant or go all out at fancier or differentiated restaurant concepts.
Neither unbelievably fast nor totally unique, these casual dining chains populating every strip mall in America are struggling.
So, is this the beginning of the end of casual dining?
The Downfall of Causal Dining Chains
Maybe you think there's no plague affecting these casual dining restaurants. Well, let's look at some recent trends.
- Applebee's is in the process of closing 135 locations before the end of the fiscal year after same store sales dropped over 6% in Q2 (source).
- IHOP (another subsidiary in the parent company controlling Applebee's) will close an expected 25 branches (source).
- Joe's Crab Shack has recently closed over 1/3 of their locations (source).
- Buffalo Wild Wings' stock stock is down 15.8% since their last earnings report (source).
- Ruby Tuesday closed 95 locations in 2016 and is up for sale (source).
All of these nationwide causal dining businesses are showing a declining performance. But why?
So What's the Problem?
There's no one reason why casual dining chains are struggling - it's a combination of factors. Here are just a few of them.
Food Costs are Rising
For starters, food prices are rising, so it's getting tougher for these restaurants to keep their brand positioning as tasty but affordable dining experiences. When in hot water, some of these chains would offer aggressive discounting like combo meals for a fixed price or half-off appetizers. With soaring food costs, these offers are no longer reasonable to the businesses anymore.
This trend is hitting all restaurants but particularly chains that trade lower margins for higher volume. When restaurants are forced to up their own prices to make ends meet, the reputation they have worked so hard to attain is now questioned. For example, in the wake of higher chicken wing prices, B-Dubs has nixed their popular half-price wings deal. Diners did not take this well, and apparently, neither did their stockholders.
Differentiation is Difficult
The casual, family-friendly bar-and-grill chain concept has simply been done to death. Now that the brand positioning that has turned many of these businesses into household names is in question, these businesses need to differentiate themselves in a new way. But that's more easily said than done.
After all, what really separates one casual chain that serves beer, burgers, and salads from another? Many are scarily similar in terms of menu offerings, atmosphere, and branding.
Casual Chains are Stuck in the Middle
Because of higher prices at restaurants, going out to eat has become harder for many Americans.
Now, when people do go out to eat, they want something quick or something unique.
Stuck in a straddled situation, casual dining chains can't meet the speed of fast casual restaurants or the originality of a true neighborhood location. As independent FSRs outnumber chains 8 to 1 in the U.S., there's always a new place to try, and it looks like most would rather spend a little extra at a more unique concept.
Location, Location, Location
Think of your favorite local casual dining restaurant. Chances are it's in or by a mall. As mall traffic continues to decline thanks to online shopping, the spillover traffic these restaurants see is also on the decline. When the restaurant isn't right around the corner, the convenience that was once offered by location is now an inconvenience.
Diners Want Fresh, Local, and Healthy
Ribs and bacon cheeseburgers aren't the selling point they once were, especially if they're from bulk suppliers. It has been found that 88% of Americans are willing to pay more for healthy food, while 70% will pay more for locally sourced food. Casual dining chains focused on churning out as many plates as possible at the best price aren't necessarily meeting modern diners where their demands are.
The Outliers: Casual Chains Beating the Odds
While many of these restaurant chains seem to be like Jack and Rose on the Titanic, it seems a few of them found their way to a lifeboat.
Chili's is making big moves when it comes to their menu. Through rigorous menu engineering, Chili's has made substantial changes to their food offerings. Ditching trends and focusing instead on health, Chili's has made efforts to cut 40% of their menu.
Fewer menu items increases efficiency in the kitchen and boosts profitability, as the menu killers that slow down operations are cut. While the stock for their parent company Brinker is still at a low point, it will be interesting to see if these efforts made will help Chili's regain some traction.
TGI Fridays has made enormous strides to recover sales due to their online ordering program. According to Food and Wine, takeout sales are up 30 percent since the addition of online ordering...while over 70 percent of those online orders in the past year have come from new customers."
Meeting customers' demands for food faster through a restaurant online food ordering system has helped TGI Fridays stand out from their sea of competitors to grow customer satisfaction and repeat visits.
Moving forward it will be interesting to see if casual dining chains continue to cannibalize each other for the last remaining bit of chain-loyalists or if they will each differentiate themselves for the future of dining.
Seeing as over 90% of restaurateurs have a positive outlook for their business, it wouldn't be surprising to see these enterprise leaders start to meet customers where they are and exceed their expectations.