What’s Happening with Casual?
The Future of Casual Dining: The Strong Survive
The once high-flying American casual-dining segment has been struggling, but savvy operators and newcomers are developing a new game plan.
The casual-dining restaurant segment had been an industry growth driver in the United States for several years, particularly through the ‘80s and ‘90s. But the segment has been struggling for the past four or five years. There are many factors contributing, and many concepts that are succeeding despite (indeed, because of) those factors. I will endeavor to outline what went wrong, what’s happening now and what to expect in the future.
Technomic defines casual dining as the segment comprising full-service restaurant concepts with a come-as-you-are atmosphere, primary but not exclusive focus on dinner, full bar and per-person average check between $12 and $50. The segment represents two-thirds of full-service restaurant sales in the United States, or $109 billion. Within the casual-dining segment, varied menu holds the greatest share (37%), followed by Asian (13%), Italian (11%), steak (10%), seafood (6%) and Mexican (5%).
The midscale segment (average check under about $12, breakfast orientation, limited alcohol) comprises 31% of sales, or $51 billion; and the fine-dining segment (average check greater than $50, dinner orientation, high-end food and alcohol) makes up 3% of sales, or about $6 billion.
While 66% of full-service sales is certainly a significant share, casual dining’s growth has stalled. In 1990, casual dining made up 47% of full service, in 2000 it was 58%, and by 2005 it reached 66%, where it has stabilized.
As the illustration below shows, casual dining has lost steam in the last three years. The segment’s healthy sales growth turned negative in 2008 and has yet to return to positive growth.
Some of its top players have seen a similar trend. Chili’s, for example, experienced a compound annual growth rate (CAGR) of 12.3% between 2000 and 2005, and 11.0% 2005 to 2007, but between 2007 and 2010 it saw 1.3% decline. Ruby Tuesday grew 10.8% from 2000 to 2005 and 6.2% between 2005 and 2007, but it declined 5.2% between 2007 and 2010. And Applebee’s CAGR was 10.0% in the 2000 to 2005 period and 3.0% in 2005 to 2007, but its CAGR was -1.3% in 2007 to 2010.
What Went Wrong
As with much of the restaurant industry, the economy has certainly had an impact. Disposable income growth has slowed and the unemployment rate is up, both of which affect food-away-from-home spending. And the segment’s heavy users—who tend to be between 18 and 34—have been hit particularly hard by the economy.
But the cracks in the segment began before the recession.
Casual dining’s quick growth outpaced the population, making saturation an issue. At the same time, the segment expanded faster than consumers’ disposable income—there were just fewer dollars. Making matters worse, many chains have taken aggressive price increases that are out of balance with consumer spending. For example, California Pizza Kitchen raised the price of its Margherita Pizza from $9.49 in 2005 to $12.99 in 2010, a 37% increase. Meanwhile, the Consumer Price Index on food away from home rose 17% over this period.
Another factor has been competition from other segments, particularly fast casual. These limited-service concepts fill a niche between fast food and full service, offering innovative food prepared to order, fresh (or perceived as fresh) ingredients and comfortable upscale décor. Examples include Chipotle, Panera Bread, Panda Express and Five Guys Burgers & Fries. In Technomic’s Consumer Brand Metrics study, fast casual outperformed casual dining on a number of factors, including craveable foods, unit appearance/ambiance and food taste/flavor. Their average checks (usually between $8.50 and $15.00) make them more affordable, and coupled with their appealing offerings and no need to tip, the price/value causes casual-dining chains angst.
Retail meal solutions also pose a competitive threat. Supermarket chains such as Trader Joe’s, Wegman’s, Whole Foods and HEB have created full prepared meals and components that rival those at casual-dining chains. Even convenience stores such as Wawa and Sheetz have gotten into the act.
What to Expect
While traditional casual-dining restaurants will continue to feel the squeeze from other segments, subsegments will prevail. Technomic has identified polished-casual restaurants as those at the higher end of the price and quality spectrum. Their gourmet menus with seasonal influences and advanced preparation techniques, coupled with a fine-dining experience and server expertise, make consumers willing to justify the higher prices. Examples include The Cheesecake Factory, Seasons 52, P.F. Chang’s and Maggiano’s Little Italy. Another successful subsegment, contemporary casual, includes concepts such as BJ’s Restaurant & Brewhouse, Yard House, Tilted Kilt and the upgraded Bennigan’s, which offer attentive service, focus on experience, innovative menu and cocktails and a contemporary atmosphere, but most of all are clearly differentiated brands.
Currently traditional casual-dining concepts comprise 83% of casual-dining sales, while polished casual makes up 11% and contemporary casual makes up 6%. But we expect traditional’s share to shrink as polished- and contemporary-casual concepts expand. Technomic expects contemporary casual to achieve 4.5% real 2010-2015 CAGR, polished to gain 2.5%, and traditional casual dining restaurants to grow 0.3%.
Those traditional casual dining restaurants won’t stand idly by as their customers are taken. To counter declining traffic, they will make their menus more specialized or continue to discount meals. To try to maintain check averages, they will create high-margin specialty beverages and add-ons. In an effort to avoid staleness, they will remodel units. Fighting against rising costs, they will offer smaller portions and more limited-time offers. Watching encroachment of fast-casual players, they will focus on takeout and test their own limited-service concepts. And because of over supply, they will close underperforming units sooner and develop smaller-footprint units.
The Casual-Dining Value Equation
However, these responses are short-term fixes. To stay relevant, casual-dining chains must evolve. And they must execute on several points, or a value equation of sorts: value = (food + hospitality + ambiance)/price.
Food should make up 40% of the equation and include a concept-appropriate blend of healthy options, novel preparation techniques, uniqueness, variety and, of course, taste. Seasons 52 excels with a health focus, offering a seasonal menu of local ingredients, supporting wellness and active lifestyles rather than sacrificing taste. Lazy Dog Café provides an example of uniqueness; its craveable menu items are sophisticated and inspired by global cuisines but have traditional casual-dining price points.
Price also should make up 40%. Discounts, meal deals and specials may succeed, but loyalty marketing and portion flexibility should dominate. A good loyalty marketing example is Lettuce Entertain You, which gives points, rewards and member-only offers. Such a program incents repeat business, attracts new customers and has the added benefit of providing the operator with guest intelligence. Olive Garden offers a lesson on portion flexibility. Its bottomless salad and breadsticks appeal to one customer, while its snacks and small bites offer a meal for a small appetite—at a low price—or an opportunity for sampling and sharing.
Hospitality, making up about 10% of the equation, must focus on accuracy, attentiveness and server knowledge, and to some extent speed of service and takeout. Excelling at attentive, friendly service is Tilted Kilt Pub & Eatery, whose mission is “spreading cheer and serving beer across the land.” It does this with the help of attractive servers in provocative outfits who aim to make every guest feel special. Bonefish Grill uses a different tactic; its servers discuss fishing practices and sustainable sourcing, making customers revere the food and appreciate its value.
Ambiance makes up the remaining 10%. A casual-dining restaurant should be comfortable, contemporary and entertaining, and, depending on the concept, family friendly and/or sophisticated. A good example is Cadillac Ranch, a large, adult-oriented concept with a Country Western theme. The dynamic environment includes live music, dancing and bull rides, so the concept gets a lot of special-occasion visits. Buffalo Wild Wings uses technology such as interactive video games, tabletop game systems and 3D sports viewing to create a family-friendly environment.
All these examples illustrate that casual dining is not on its way out. It is entering a new age, and many of the traditional players are already beginning to evolve to retain their relevance.
Darren Tristano is Executive Vice President of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.