A long slide
Restaurant chains struggle to reverse decline in customers
Like the retail stores that they are forever linked to in modern developments, restaurants are having a rough go of it.
In the quarter that ended in June, restaurants across the U.S. saw another dip in traffic. It was the sixth quarter in a row that traffic fell or was flat, according to the NPD Group, a marketresearch firm.
That stretch of weakness for restaurants is the longest since the depths of the recession in 2008-09.
Although consumers have not shunned every restaurant, the flight is widespread. Of the 69 publicly traded restaurant chains, more than half reported a decline in traffic in the second quarter, according to Jonathan Maze, financial editor at Nation's Restaurant News, a trade publication.
The hardest hit are the full-service, casual-dining outlets such as Columbusbased Bob Evans, Bravo Brio and Max & Erma's.
The trend has tripped big national chains such as Applebee's and Ruby Tuesday's as well. Applebee's has said it will close more than 100 stores this year. Ruby Tuesday's has closed more than 100 stores in the past year and is undergoing a “strategic review,” a fancy way of saying that the struggling chain is for sale.
Bravo Brio has noted declines in customer visits in its quarterly earnings reports, including a 4 percent drop in its most recent quarter. Bob Evans Farms, after a long decline in sales and traffic at its restaurants, sold its entire restaurant division to a private-equity firm this year.
Restaurant suppliers also are affected. Westervillebased Lancaster Colony noted in its recent quarterly report that sales in its food-service business, which includes Marzetti salad dressings, were weak because of “overall lower store traffic.”
“I think in general, there are some headwinds,” said Jamie Richardson, vice president of White Castle and chairman of the Ohio Restaurant Association. “The one force that is evident is that grocery-store prices have been flat or down, while restaurant food and labor costs have risen.
“The value has shifted to the grocers.”
As traffic waned and costs increased, restaurants responded by raising prices — which has probably made business worse, according to Bonnie Riggs, NPD's restaurant analyst. NPD reported that menu prices jumped 2.6 percent in the most recent quarter from a year earlier, the largest increase in years.
“No doubt the rising cost of a restaurant meal is weighing heavily on industry traffic performance,” Riggs said.
Casual-dining chains have struggled to keep up with customer expectations and provide good value, said Tim Powell, vice president at Q1 Consulting, a foodservice analyst. High-flying fast-casual concepts such as Chipotle have found consumers beginning to question whether higher prices are worth it.
“Casual dining has been in a rut since 2007; it is a sea of sameness,” Powell said. “And after 15 years of rapid growth in fast-casual, consumers have tired of the higher prices and are not seeing the differentiation or value they once did.”
Chains with more distinct concepts, such as Cheesecake Factory and Buffalo Wild Wings, have fared better than others, he added.
Like the retail sector, the restaurant industry also is overbuilt, especially when taking into account the thousands of restaurants built in the past decade by chains such as Jimmy John's and Five Guys. There are only so many consumers, and those consumers still have just one mouth each.
“Oversupply is the biggest issue,” said Darren Tristano, a food-service analyst formerly with Technomic. “And there is no indication that restaurant expansion is slowing down.”
Even fast-casual concepts, which fueled much of the industry's growth in recent years, have hit speed bumps. Chipotle has battled various issues, some of them healthrelated, and hot concepts such as baked-in-minutes, made-to-order pizza have saturated markets.
One of the few bright spots in the industry is one of the oldest: fast food. Wendy's and McDonald's, among others, have found a formula to attract consumers: a highlow strategy, as Wendy's CEO Todd Penegor often puts it. The menu has biggerticket items, such as Wendy's Pretzel Bacon Cheeseburger, but also bedrock value deals that undercut anything available outside of fast food.
Wendy's and similar chains also have worked hard to update stores, tailor menus and adapt to a digital, socialmedia world.
“The years Wendy’s and McDonald’s spent to 'fastcasualize' their restaurants have finally paid off,” Powell said.
But even though menu items such as the pretzelbun burger were huge hits, Wendy's found greater long-term success with its 4-for-$4 value meals, which every competitor copied, often comically, such as Burger King's 5-for-$4 offering.
“Sometimes you just need to stay the course,” Richardson said. “And keep doing what you do best.”