Is it Working?
Whether the strategy is working is unclear.
While deal-related traffic in casual dining was up by 1 percent in the first quarter of 2009, nondeal traffic—which accounts for 80 percent of the segment’s total business—was down 5 percent, according to NPD. Overall, traffic at bar and grill chains in the segment was down 6 percent from the previous year; casual Mexican restaurants saw 5 percent fewer customers; and casual-dining pizza players saw traffic down a whopping 8 percent.
“It might be stopping some of the bleeding, but it’s not driving traffic increases,” Riggs says.
But lower-priced items could be helping to drive sales. At the Cheesecake Factory, which in March debuted its “Small Plates and Snacks” offerings priced from $3.95 to $6.50, same-store sales went from negative 7.1 percent in the fourth quarter of last year to just negative 3.1 percent in the first quarter of ’09. As of the end of May, they were holding steady at that level.
“It sounds terrible to say, but we are less negative than we were, and that means growth,” says Mark Mears, the company’s chief marketing officer.
There are signs that casual-dining customers are adding on high-margin items, too. Alcoholic beverage sales in the segment rose 6 percent from a year ago in the first three months of this year, according to NPD. Heavy consumers of appetizers, however, have dropped from 40 to 24 percent over the past two years, according to Technomic. The average check on transactions driven by casual-dining deals is $11.80, Riggs says. While higher than the advertised deal prices, that’s still at the low end of the segment’s typical $10 to $25 range.
The extent to which these deals are helping chains win back business from limited-service is also up in the air.
When Burger King reported in late April that it saw customer traffic decline in March, some Wall Street analysts were quick to read the news as a sign that trade down to quick-service was slowing. Segment-wide, customer counts were down 1 percent from a year ago during the first quarter of 2009—the first quick-service traffic decline since 2003—according to NPD. An uptick in the consumer confidence index in May also fueled speculation that consumers might start to climb higher on the food chain, and though their numbers were far from good, some casual diners, including Brinker International, parent company of Chili’s, On the Border Mexican Grill and Cantina, Maggiano’s Little Italy, and Ruby Tuesday, outperformed Wall Street’s expectations for the first quarter of 2009.
On the other hand, fast feeders such as McDonald’s and Yum! Brands and fast-casual players such as Panera and Chipotle continued to perform well through early ’09. And though quick-service traffic declined in the first quarter, counts for the entire restaurant industry were down, with full-service customers trailing off the most, according to NPD.
“When McDonald’s [April U.S. same-store sales were] up 6.1 percent, it’s hard to argue that quick-service is starting to struggle,” Tristano says. “Everything I’ve seen and read indicates that people are continuing to trade down aggressively.”
Can it Last?
Only time will tell if the lower-priced options drive traffic, sales, and profits, but for now, casual-dining chains seem to have few other options.
“I think overall it’s a smart thing to do just because they don’t have a lot of alternatives,” Sandelman says.
But in some ways, casual-dining chains are going out on a limb in offering these deals. There’s always the chance that they can stray too far from their core and confuse their consumers.
“They have to avoid the risk of downgrading their image,”
Sandelman says.
Most are trying to accomplish that by pitching the deals clearly as LTOs or promotions that can be taken away at any time. Still, there could be some backlash if and when they pull the plug.
“How are they going to take away these kinds of deals without having consumers feel like they’ve been ripped off?” Riggs says.
There’s also the chance that chains will find a way to make them work and keep them around.