Segment shows signs of life as consumers find new uses for dine-in concepts
In October, the long-beleaguered casual-dining segment reported something few expected: Sales growth.
To be sure, in the nearly 12 years that full-service restaurants have struggled with declining traffic and questions about their future, false positives gave operators hope of a turnaround.
Most recently, in January 2015, casual-dining chains surged as consumers, rich with savings from a steep drop in gas prices, decided to eat out more often.
But there’s reason to believe that the 1.4-percent, same-store sales growth the segment reported in October, according to the monthly MillerPulse Index, was the most hopeful sign for such chains in years.
The reason is, primarily, the same one that caused such chains to lose all of that business in the first place: Convenience.
Consumers, it seems, have been changing how they use casual-dining chains: They are increasingly taking their food with them instead of dining in. And restaurants have finally figured out how to take advantage.
A long decline
In general, casual-dining same-store sales have been in decline since before the recession.
According to MillerPulse, casual-dining same-store traffic has averaged a decline of 1.6 percent every month since May 2012.
Over that period, there have been only four months in which the segment has reported positive traffic — including the 0.6-percent growth in October. Three of those months came during the low gas prices/good weather period from December 2014 through February 2015.
Explanations for the decline have abounded. Price was one problem, and particularly the 15- to 20-percent tip expected of casual-dining customers. Meanwhile, an influx of rapidly growing fast-casual concepts promised higher-quality fare in a limited-service environment that many consumers prefer.
Another problem: Consumers simply don’t leave the house anymore.
Rapid growth of online shopping in recent years has drained foot traffic from many of the retail areas around which casual-dining chains developed. Increased use of Netflix and similar services, spending on giant televisions and the use of social media have given consumers fewer reasons to leave the house.
The result of all of this: Casual-dining chains have closed locations and filed for bankruptcy protection.
Joe's Crab Shack
Earlier this year, Joe’s Crab Shack owner Ignite Restaurant Group Inc. filed for bankruptcy, blaming it in part on “broader concerns that surfaced in media and analysts’ reports regarding the casual-dining and restaurant sector as a whole.”
Also this year, onetime Ignite concept Romano’s Macaroni Grill filed for bankruptcy protection, blaming the filing in part on consumer preference for “cheaper, faster alternatives.”
A ray of hope
Throughout the period of weakness, casual-dining chains have worked to build off-premise business and take advantage of heightened consumer demand for convenience. Many companies tried curbside delivery, viewing it as a great hope.
But it appears that consumers have figured things out. Or operators have figured out how to target consumers eager for casual-dining takeout.
Olive Garden’s takeout orders increased 12 percent in the most recent quarter, for instance. Takeout orders at the chain have increased 70 percent over the past four years.
The casual-dining Italian chain owned by Darden Restaurants Inc. is working to improve processes to handle increased volume, including more technology support and improving to-go stations to better the experience.
“I think this is a growth driver for us,” Darden CEO Gene Lee said during an earnings call in September. “The consumer satisfaction of our to-go product is extremely high, and that’s one thing our team is really, really focused on.”
At Applebee’s, the bar-and-grill chain owned by DineEquity Inc., off-premise represents about 8 percent of sales, but the company is making a big push to increase that percentage.
“We’re very optimistic about the opportunity to grow this platform,” Applebee’s president John Cywinski said in November.
Sister chain IHOP is making similar moves. The chain’s takeout same-store sales increased 8.3 percent in the third quarter ended Sept. 30, on top of 7.1-percent growth last year. The company launched online ordering and is testing delivery.
BJ’s Restaurants Inc. said off-premise sales increased 17 percent in the quarter ended Oct. 3. The company is working to simplify takeout offerings and improve the ordering process both online and on its app.
Red Robin Gourmet Burgers Inc. said in November that off-premise business was up 41 percent over last year.
“Guest demand is shifting to off-premise, particularly via home delivery, more rapidly than any of us might have anticipated,” Red Robin CEO Denny Marie Post said during an earnings call that month.
At Buffalo Wild Wings Inc., off-premise sales now represent more than 19 percent of total sales, and the company is making big moves in delivery and online ordering.
Buffalo Wild Wings
Bloomin’ Brands Inc., owner of Outback Steakhouse and Carrabba’s Italian Grill, has opted to make a big push into delivery this year, saying it could represent up to 25 percent of sales.
“Off-premise represents a significant and incremental structural tailwind for the industry,” Bloomin’ Brands CEO Liz Smith said in October.
Even some generally upscale chains are working to improve the off-premise business.
The Cheesecake Factory Inc. hopes to have delivery in 90 percent of its 195 restaurants by the first half of next year, and is working to improve takeout with better online ordering.
Risks and rewards
To be sure, there are risks associated with an increase in takeout business. For one thing, such sales are less profitable.
In short, casual-dining chains were not established with takeout in mind, with some exceptions. Brands tend to operate restaurants with big boxes, lots of employees and bars. But takeout orders don’t usually include alcohol or drinks, making them less profitable.
The orders can also be a distraction, shifting some focus from more profitable dine-in tickets to less profitable takeout.
Still, this is how consumers want to eat. Casual-dining executives generally say takeout sales are incremental, meaning they don’t lose dine-in sales by offering the service. That means chains are recapturing sales they would have lost to fast-casual chains.
And there’s evidence that these efforts may be working. Several chains reported same-store sales growth in October. That includes Applebee’s, where same-store sales had been falling by more than 7 percent all year, and Bloomin’ Brands’ four concepts, which also include Bonefish Grill and Fleming’s Prime Steakhouse.
Applebee's Neighborhood Grill & Bar
Executives have high hopes that takeout sales can also turn around their holiday fortunes, adapting to a new world in which shoppers aren’t physically present as they once were.
“People are very house proud,” Smith of Bloomin’ Brands said, noting that consumers have spent good money to improve their homes. “They want the quality of casual dining, but sometimes they want it in the privacy of their home. We think that’s a huge opportunity for the holidays, when you’re gathering with friends and family and you desire to have that occasion, but maybe you don’t want to go out specifically.”
By Jonathan Maze
December 1, 2017
Contact Jonathan Maze at email@example.com
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