Casual Dining – Who Will Win the Coming Battle for Consumer Dollars?
For over 40 years, casual dining operations of all kinds have enjoyed incredible growth and success. Starting with restaurants like Red Lobster, Steak & Ale, and TGI Friday, this segment of the restaurant industry has carved out a dominant role in hospitality and a warm place in the hearts of Americans. Casual eateries like Olive Garden and PF Chang’s have introduced millions of people to accessible interpretations of food and culture that weren’t available in many places. The segment, as a whole, has provided countless hours of pleasure and escape from the daily grind.
This is exactly why a recent article in the Nation’s Restaurant News caught my attention. The article, by 35-year industry veteran and training expert Jim Sullivan, offered an interesting perspective on the future of casual dining. Mr. Sullivan draws a striking parallel between the economic events of the 1970s, which helped give birth to the casual dining segment, and today’s dramatic economic changes affecting the segment. He rightly points out that this is by no means a run-of-the-mill “recession,” where things return to normal in 18 months or so. Instead, the segment is likely to see a shakeup unique to anything seen since the birth of casual dining. This raises the question, what will it take to survive in this “New Order”?
Two points must be made to keep such a discussion in perspective. First of all, the long-term outlook for casual dining is quite positive. There are now two generations of American adults who have grown up in dual-income families, where potlucks are a prized activity. Second, major operators such as Darden Restaurants, Buffalo Wild Wings, and Brinker International have weathered the early stages of the current “recession” well. Their results support the view that we are not talking about a drastically shrinking segment; rather one that may not enjoy the exceptional growth of the recent past.
That said, there are legitimate challenges to the long dominance of casual dining. The Fast-casual, Family-dining, and Quick-service segments are making evident efforts to attract potential casual customers with up-to-date menus, decor, advertising, and discounts. For example, there’s very little light between Panera Bread’s current decor package and many casual dining operators, IHOP continues to push dine-in, and Pizza Hut has begun delivering pasta entrees.
If this wasn’t enough, food retailers are also aggressively getting into the game. Whole Food’s now has seating areas, Kroger’s supermarkets sell heat-and-serve molten lava cakes, and Bertolli’s TV ads claim their pasta entrees are “Restaurant Quality.” I think the fancy economics term for all of this is “Increasing Availability of Substitutions.” Whatever you call it, it can’t be good for casual dining operators, who don’t differ in the future.
Looking back just two years ago to the good old days of casual dining, none of this meant much. Anyone with an “A” site, a “Me Too” menu, and cute ads, could expect solid guest traffic. With housing subdivisions and adjacent commercial space springing up like wild mushrooms across the country, along with historically low unemployment and easy credit; respectable growth was almost certain. Now in an economy in readjustment, characterized by an imploding housing market, high unemployment, and credit crunch; the operator will have to adapt to survive and thrive.
Given the radically changed environment, I believe the casual dining leaders of the future will be those with the courage to drive innovation, the discipline to drive execution, and the determination to manage change.
Jim Collins, author of Good to Great, recounts the story of James Stockdale in his best-selling book. Vice Admiral Stockdale was a prisoner of war in Vietnam. He attributes his survival in difficult conditions to his solemn belief that he will eventually return home. When asked which captives did not survive, he surprisingly said “The optimists.” “Optimists kept hoping to be rescued at some scheduled date… when these dates came and went, they lost hope and died of broken hearts.” Like Vice Admiral Stockdale, the winners of tomorrow’s potlucks will be those who accept the brutal reality of this new day and rise above it no matter how long the challenge.
