(Business Insider)
The casual dining industry is in hot water.
2016 was the worst year for the restaurant industry since the recession, according to data from industry tracker TDn2K. The year saw a 2.4% drop in same-store sales — the biggest decline in more than five years.
The weakest link in the industry was casual dining, which was the bottom performer in all but two months of the year. And, some of the biggest names in the casual dining business are feeling the negative effects.
Ruby Tuesday is in search of a new CEO and in the process of selling 95 restaurants amidst falling sales. Bloomin’ Brands, the parent company of casual dining chains including Outback Steakhouse and Carrabba’s Grill, announced plans in February to close 43 locations after a “challenging” 2016. Buffalo Wild Wings — where same-store sales fell 2.4% in 2016 — is engaged in a power struggle with activist investor Marcato Capital. Stocks of Chili’s parent company, Brinker International, reached their lowest price in almost four years in late January after the company missed analysts’ predictions and cut full-year guidance.
“It’s tough to find one [chain] that’s doing alright,” Wedbush analyst Colin Radke told Business Insider.
Casual dining’s pit of despair
The casual dining industry’s slump is rooted in new competitors better suited to meet customers’ changing tastes.
“In terms of casual dining, a lot of it kind of comes down to the brands that are just kind of dated,” Radke said.
Increasingly, customers — especially younger customers — are craving convenience, coming in the form of trendy and inexpensive fast-casual chains like Chipotle and Shake Shack.
The fast-casual industry grew by 550% from 1999 to 2014, The Washington Post reported. By 2020, the fast-casual market in the US is expected to reach $66.9 billion, according to the market-research company Technavio.
“They have more of a healthy perception, there are quicker service times,” Radke said. “The healthiness and the speed of service — that’s been taking market share from casual dining.”
The decline of the shopping mall has also hurt casual dining chains, many of which have a large proportion of locations in or near suburban malls and depend on traffic from hungry shoppers. TGI Fridays CEO John Antioco, for example, told Business Insider that the chain’s decision to open more locations in the suburbs seven to eight years ago contributed to the brand’s current struggles and sales slump.
Lower grocery prices are convincing more customers to eat at home instead of spending more to eat at casual dining chains. Going out to eat, diners’ options seem almost limitless, with CEOs worrying that the country is “over-retailed,” creating too much competition in the restaurant industry for chains to succeed. Plus, when customers are willing to spend a little more to sit down for a meal, they’re gravitating towards independent restaurants.
“When you think about the options people have today for food — prepared food whether it’s a restaurant or the high-end supermarket that’s ever increasing its selection, or it’s meals being shipped to your door from online services — our goal has to be to create an experience in the restaurants that makes Fridays being worth going to,” Antioco said.
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