- Amy Claxton/Flickr
Casual-dining chains like Buffalo Wild Wings, Applebee’s, and Ruby Tuesday are expected to have a difficult 2017.
Nation’s Restaurant News recently singled out the three brands as chains facing a tough year.
In 2016, Applebee’s persuaded franchisees to spend $40 million on a brand revamp to compete with fast-casual chains that has so far failed to bring in customers. Buffalo Wild Wings is caught up in a fight with activist investor Marcato Capital. And Ruby Tuesday was recently forced to close more than 95 locations and is on the hunt for a new CEO to turn business around.
However, while each company has its own set of struggles, there is one overarching problem: Casual-dining chains are dying.
Only 34% of casual-dining brands recorded by the industry tracker TDn2K had positive comparable restaurant sales in the third quarter, according to the food business publication FSR Magazine.
Instead, since the recession, two factors have drawn business away from casual-dining chains: the rise of fast-casual restaurants and more people eating at home.
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.
“[Fast-food and fast-casual] restaurants are eating these sit-down restaurants’ lunch all across the board, I think,” Harold Kestenbaum, a restaurant-franchise lawyer, told FSR Magazine. “The price points are lower, the food quality happens to be better at a lot of these places, and people don’t want to sit, wait, and get served and sometimes get bad service.”
Fast-casual restaurants are seen as trendier places to eat that typically beat casual-dining chains when it comes to convenience and pricing. To compete, chains like Applebee’s have attempted to copy fast-casual competitors by updating restaurant designs and building out their lunch and takeout businesses. So far, the changes have not resulted in increased sales.
In addition to competing with fast-casual chains, casual-dining chains have to win over consumers who increasingly are choosing to eat at home, as grocery prices plummeted in 2016.
“The already challenged restaurant industry has been hit with slowing overall economic growth and the gap between the cost of dining at home compared to dining out,” Dine Equity CEO Julia Stewart said in a call with investors in November. “The result has been a high level of promotional activity in the marketplace competing for consumer attention.”
In other words, with grocery prices dropping and consumers looking for ways to save money, casual-dining chains are forced to offer huge discounts to persuade customers to visit locations.
During the recession, Americans were resistant to purchase anything at full price, a problem that has haunted the retail industry. Now it looks as though bargain shoppers are once again controlling the restaurant industry – something that is driving consumers away from casual chains in favor of eating at home or at fast-food and fast-casual chains.
Going into the new year, the casual-dining segment is caught between a rock and a hard place. While casual-dining chains have been struggling for years, the industry is now on the cusp of a new restaurant recession – and casual chains will likely be hit the hardest.