Casual-dining chains step up to the plate
Sales begin to rebound at sit-down restaurants amid upgrades to ingredients and decor
Casual restaurant chains are staging a comeback.
The sit-down restaurants known for large portions and dim lighting, such as Ruby Tuesday and Red Lobster, had been losing customers to eateries offering faster and healthier options. In the past two years, declining sales forced dozens of chains to close locations or file for chapter 11.
But after changing hands, changing management or restructuring, many casual-dining chains are reinventing themselves to be more contemporary. They are swapping out giant portions of food for small plates, and upgrading ingredients and decor.
Recent sales trends across the sector show promise. Samestore sales at casual-dining restaurants rose half a per cent this year through April, compared with a 1.1 per cent decline in the prior-year period, according to restaurant consultant Malcolm Knapp.
Casual-dining restaurants had their heyday in the 1990s when diners sat down for a meal and had fewer options from which to choose. With the rise of fast-casual chains — places like Panera Bread that offer food from a counter but are considered a step up from fast food — time-pressed consumers now have a range of quick-dining choices. Casual sit-down restaurants, however, still make up 34 per cent of the $560 billion in total restaurant industry sales, according to Technomic Inc.
Restaurant veteran Bradley Blum said the sector has merely been dormant. “There just hasn’t been much innovation lately,” he said. Mr. Blum in May bought casual-dining chains Brio Tuscan Grille and Bravo Cucina Italiana in partnership with Brazilian investment firm GP Investments Ltd. and plans to revive the chains by switching to better quality olive oil and pasta, and adding more seafood and plant-based foods. He also plans to remodel the venues to be open and light.
TGI Fridays, a 53-year-old brand that came under new management last summer, is working to improve the dining experience for people who eat at the restaurants. TGI Fridays is also focusing on its to-go business, which has reached as high as 11 per cent of sales, up from 6 per cent a year ago.
“Some brands in this sector have focused on one and not the other, but it’s important to do both,” said Stephanie Perdue, the company’s marketing chief.
The privately held company has redesigned about half of its 440 U.S. restaurants, some of which now have open kitchens. It switched to a blend of chuck and brisket for its burgers, from ground sirloin and chuck; launched a meatless burger; and moved to meatier ribs. The chain has seen a 15 per cent sales increase from menu items that have been improved since October 2017, Ms. Perdue said.
Casual-dining chains are taking cues from Olive Garden, which showed how a struggling brand can turn around. The chain, owned by Darden Restaurants Inc., was the focus of an activist coup in 2014 that resulted in the ouster of the board and a renewed focus on restaurant operations. After streamlining food preparation, boosting alcohol sales and serving fresher bread sticks, the chain reversed a sales decline. In June, Olive Garden reported its 15th consecutive quarter of same-store sales growth, with a 2.4 per cent increase.
Red Lobster had declining sales when it was owned by Darden, but it has been gaining back customers, opening new restaurants and growing its takeout business since being acquired by Golden Gate Capital in 2014, according to Red Lobster Chief Executive Kim Lopdrup.
The company added smaller tasting plates with more urbane dishes like tuna poke. It began offering online ordering in January and is experimenting with new store designs that include a dedicated takeout area. The 749-unit chain also is delivering food.
Josh Benn, managing director at corporate-finance advisory firm Duff & Phelps Corp., said there will likely be more restaurant closures before the sector can fully regain health.
Some restaurants still are experiencing sales declines. Chili’s Grill & Bar’s U.S. restaurants posted a same-store sales decrease of 1.1 per cent in its fiscal third quarter, compared with the prior-year period. The chain, owned by Brinker International Inc., remains in the midst of a turnaround effort as it has changed its menu and is looking to provide “a faster, more consistent and convenient experience,” Brinker CEO Wyman Roberts told investors in May.
Applebee’s second-largest franchisee filed for chapter 11 bankruptcy protection in May. Applebee’s parent company, Dine Brands Global Inc., last year named a new CEO and decided to focus on its middleAmerica customer base with menu items that have broad appeal.
Things are starting to look up for the chain, which reported a 3.3 per cent increase in samestore sales in the first quarter, its second consecutive quarter of sales improvement. “We’re stealing share from our competitors and delivering the best sustained traffic performance we’ve experienced in more than a decade,” said Applebee’s President John Cywinski, who added that the chain is taking customers from other casual-dining brands.
Private-equity firm NRD Capital Management bought the struggling Ruby Tuesday chain last year, after it closed 100 restaurants. The first step is to differentiate itself, said Aziz Hashim, the firm’s founder and managing partner. “There’s this joke that you could retitle the cover of any casual-dining restaurant menu and not tell the difference,” he said.
Ruby Tuesday, which started in Knoxville, Tenn., is developing healthier dishes and returning to its Southern roots with new menu items such as the Smoky Mountain chicken sandwich and Hickory Bourbon salmon. Mr. Hashim said: “Casual dining is not going anywhere, it just has to be reinvented.”