Competition | March 2011 | By Jody Shee

What Happened to Table Service?

The recession served casual-dining chains some serious blows. But quick serves and fast casuals shouldn’t get too confident. 

In many cases, it’s a different consumer out there today deciding where to dine when the urge hits. Throughout the recession, full-service restaurants offered so many fire-sale bargains that those little affected by the economy could almost feel guilty for practically stealing meals when they would have just as willingly paid regular price.

The meal deals that spelled survival for sit-down restaurants were like Black Friday to consumers, says David Morris, author of the report Dinner Trends in the U.S. Foodservice Market for Packaged Facts. The upshot was giddy guests (higher guest traffic) with lower guest checks. Great for the consumer, but depressing for operators who are now trying to unwind themselves from the spiral.

Brinker-owned Chili’s stands as the poster child for the casual-dining dilemma. It offered a three-for-$20 two-person promotion featuring a shared appetizer, two entrées, and a shared dessert. Crowds came. But once the promotion went away, the love was lost and the crowds moved on. With traffic down, the promotion came back in some locations. And after some pencil sharpening, the deal was revised, sans dessert.

Traffic increased, but profits did not. Brinker revenues for the first quarter of fiscal 2011 were down 6 percent year over year. Comparable restaurant sales were down 4.2 percent. And that’s only one casual-dining story.

The good news is that brighter days for casual dining are emerging, Morris says. “Look at the increase over time of discretionary income consumers have enjoyed,” he says. “It parallels growth of casual dining.” He looks to economic indicators like the recent increase in consumer savings, improved loan performance, stabilization in housing prices, and a positive stock market. It adds up to more discretionary income and spending among typical casual-dining customers, who skew to the middle to upper-middle income demographic.

Consumers overall aren’t quick to say they are ready to go out and spend a lot of money at restaurants any time soon. According to the report Dining Out: A 2011 Look Ahead put out in January by Chicago-based Mintel, only 10 percent of the 1,725 survey respondents who had been to a restaurant in the previous month said they were willing to spend more at restaurants this year than they did in 2010. In fact, nearly a quarter (24 percent) said they would be spending less at restaurants in 2011.

Part of the reason might be that consumers are conditioned for deals. How to wean them off the promotions while maintaining and building guest traffic and improving margins is the question of the day.

“Hopefully, these chains haven’t been sitting around doing nothing with new menu development,” says Eric Giandelone, director of research for Mintel Foodservice. “There should be a pipeline of new things to introduce when they can—new items priced higher than what’s on the menu now for a time when consumers are more willing to spend for it.”

That pipeline is one of the focal points at Cracker Barrel, which introduced new products to build variety and eliminate the veto factor, says Julie Davis, senior director of corporate communications with the company. Without discounting, revenues from continuing operations were up 1.6 percent, and comparable store restaurant sales increased 0.8 percent in 2010.

Cracker Barrel chose to focus on the deeper question coming out of the recession—how to define and convey value.

Prerecession, value never meant low prices for full-service brands, but necessity changed that for many. “Our competitors resorted to discounting and all sorts of deals. We have maintained the value proposition we have always offered,” Davis says. That is, offer quality, maintain portion sizes, and focus on service and hospitality. The company’s new “Seat to Eat” program aims to have customers seated and eating in 14 minutes or less. Making that happen required an investment in the kitchen: changing equipment and streamlining procedures to allow the servers more time with guests, which goes toward hospitality, Davis says.

Casual-Dining Dinner Entrée Prices

Average dinner prices were up nearly $1 in 2010, with the highest jump for combo entrées. These items include two types of protein, such as surf and turf.

  Average Price Difference
EntrÉe Type 2009 2010 Cost Percent
Beef $17.08 $17.46 $0.38 2%
Chicken $11.22 $12.17 $0.95 8%
Combo $16.35 $18.40 $2.05 13%
Pasta $11.61 $12.52 $0.91 8%
Pork $13.70 $13.83 $0.13 1%
Salads $8.78 $9.51 $0.73 8%
Sandwiches $8.42 $8.86 $0.44 5%
Seafood $17.82 $17.60 -$0.22 -1%

Source: Intellaprice 2010 Casual Dining Pricing Study

“Operators really want to focus on the broader picture—the environment and fresh-prepared wonderful recipes. But we don’t underscore that when we say, ‘Come on in, this thing only costs $5,’” says Leslie Kerr, president of Intellaprice, a Boston-based pricing advisory company.

She notes worthy efforts of table-service restaurants to take the value focus off price: small plates, late-night happy hour menus, tasting events, menu makovers, social media marketing, and loyalty cards.

The Cheesecake Factory, Mimi’s Café, and California Pizza Kitchen are a few that have come on board with chic, more affordable smaller-portion menus.

As for loyalty cards, Kerr says they are “the pot of gold at the end while not coming across as a hard-driving message to come in for a low price point.” Besides Starbucks and Dunkin’ Donuts, quick serves and fast casuals like Denny’s, Qdoba, Hardee’s, Carl’s Jr., and, most recently, Panera Bread have wooed customers with such programs.

But inevitably, the way out for table-service restaurants is higher checks. “Commodity costs are going up and input costs in terms of labor are going up. They are going to have to raise prices,” Giandelone says. “And the thing is, they can’t raise prices without a good reason. There has to be something behind it to justify it. That has to come through the menu with better ingredients and better items that consumers can justify spending more for.”

It’s a light that Chili’s has seen. According to the company’s annual report, the brand’s “strategy is to balance value and innovation and enhance [the] menu at Chili’s to improve quality, freshness, and value by introducing new items and improving existing favorites.” Going forward, it plans to modernize the brand by remodeling many company-owned stores this year.

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