Casual Dining Has Lost A Lot Of Customers
No wonder Darden Restaurants is struggling.
Casual dining restaurants have lost about 7.1 million visits since 2009, according to a new report this morning from the market research firm NPD Group. The dine-in eateries have been losing visits at a rate of about 2 percent a year over that time.
And it's not getting better: Visits to casual diners reached a six-year low in the year ending in February this year, according to NPD. And various indexes have pointed to an ugly spring, too: The Knapp Track index of casual dining same-store sales found that April traffic fell 2.4 percent.
Here's the upshot: For all of this industry-wide talk of "pent-up demand" for restaurants, it has yet to materialize in the form of higher traffic. There are various reasons for this.
First, the customer has a tight budget. Higher gas prices, rising communication costs, and stagnant wages have all played a role.
For another, families have reduced their consumption of restaurants—by as much as 1.5 billion since 2008, according to NPD.
And there is a ton of competition, from fast-casual restaurants, from QSRs that have upped their game, from grocery stores and convenience stores selling prepared food, and from Ikea selling meatballs and Costco selling hot dogs.
To us, it seems, there is a price-value conundrum in the sector. A meal at Red Lobster for a family of four can easily reach triple digits, especially after the tip is taken into account. And yet cost cuts have hampered quality, or at least the perception of quality. Many customers have likely looked at how much they're paying for how much they're getting and are looking elsewhere.
All of which emphasizes the shocking strength of Red Robin, which this morning said that its same-store sales in the first quarter, which ended April 21, rose 5.4 percent—making it one of a small handful of chains that overcame weather concerns to post surprisingly strong comp numbers. And the company did so without sacrificing profits: Restaurant level margins rose to 22.4 percent from 21.5 percent. This is a chain that many, including myself, figured would be bound for the trash heap in an era in which fast-casual burger chains have been growing. Instead, the concept is thriving.
Still, for the most part, casual dining chains have been spending a lot of money on ads and marketing and product development and technological innovation and have largely spun their wheels. Until the economy starts generating income growth, and maybe even afterwards, that's going to continue.