Is a casual dining restaurant crisis looming?
Most of the largest restaurant chains in the country are either "quick service" restaurants like McDonald's or "fast casual" restaurants like Chipotle or Panera Bread. "Casual dining" restaurants like Ruby Tuesday or TGI Friday's have more competition than ever and need to adjust to the changing market. How are they doing?
Applebee's is probably the largest and most successful casual dining restaurant chain in the country with almost 2000 locations and over 4 billion dollars in annual sales. Applebee's has previously enjoyed fairly consistent growth and expansion each year, but over the last couple of years it has seen an alarming drop in their sales and has decided to close over 100 locations. Their slumping sales figures have been attributed to a loss of core customers due to format changes in their restaurants, but is that the only reason? Many other large casual dining chains are starting to suffer as well, and it may be an indication that the casual dining market is changing.
Olive Garden is probably the second most successful casual dining restaurant chain in the country, with over 800 locations and almost 4 billion in annual sales. While Olive Garden has not suffered the same sort of sales reductions that Applebee's has suffered, they have experienced changes. Over the last year or two their sales figures have not grown as much as in previous years, and they have changed the pace of their expansion. In previous years Olive Garden would open a dozen or more new locations annually, but over the last year and a half they have actually reduced the number of their locations. They are obviously not floundering, but they do seem to be tightening their belts and making adjustments for a changing casual dining market.
Buffalo Wild Wings is probably the third most successful casual dining restaurant chain in the country with over 1200 locations and just under 4 billion in annual sales. Their sales have not increased as expected over the last few quarters, and while they have not expressed any plans to close any restaurants they do not seem to be seeking to add more locations at their previous pace. They seem to be taking steps to ensure their success in a changing casual dining market. They are agressively developing sales initiatives and refining their cost structures to increase their sales while reducing their costs so that they can safely continue to add new locations and hopefully continue to see quarterly increases in their sales in a more competitive casual dining market.
Chili's Grill & Bar is another large, successful casual dining chain and is similar in size and sales to Buffalo Wild Wings. Chili's has seen a small but consistent drop in their sales each quarter for the last year and a half. They have been around for a long time, and have survived larger variations in their sales, but they are taking the situation seriously and making adjustments. Previously Chili's would open as many as 35 new locations in a year; they now intend to be a bit more cautious and less agressive in their expansion. They are also refining their menu by cutting it almost in half, removing many underperforming items and focusing on their core offerings. They intend to try to maintain their customer base and not fall victim to similar mistakes made by Applebee's who lost a large portion of their core customers by following fads and changing their base format too much in an effort to chase the millenial market. It will be interesting to see what affect these changes have on their overall performance.
With almost 1000 locations and over 2.5 billion in annual sales, Outback Steakhouse is included among the largest casual dining restaurant chains in the country. Like others, Outback Steakhouse has experienced a reduction in their sales figures. In previous years they would see fairly consistent sales growth and open new locations like clockwork. In the last couple of years their sales have begun to drop a bit, and for the second time in the last 4 years they will be closing more locations than they open, reducing their overall number of locations. They seem to be making an effort to "trim the fat" and hopefully ensure their future success in a more competitive casual dining market.
Texas Roadhouse currently has close to 600 locations and sees over 2 billion in annual sales. They have enjoyed consistent growth for years and seem to be continuing this trend. They are still expanding and opening new locations. They expect to open 24 new locations in 2017 which is 3 more than they opened in 2016. It seems as though the constricting casual dining climate has had little to no effect on their sales or their expansion. Is it because they have carefully cultivated a loyal customer base through their community-first mentality? It will be interesting to see how their 2017 year turns out.
It seems as though there may be troubling times ahead for many of the largest casual dining restaurant chains as the market seems to be changing. Some seem to be planning ahead and making smart decisions to maintain the success of their business in the shifting casual dining climate, while others seem to be floundering somewhat and may struggle in future months. Hopefully these industry leaders have offered us some useful examples from which to learn.
Does your company intend to stay competitive in a challenging and ever-changing market? Do you need some free consultation from industry professionals with decades of experience? Call us, we would love to help!
Michael Becher PhD • President
Epicures Inc. • Columbus, Ohio
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