There's still profit in casual dining

The casual dining segment is experiencing an 'echo chamber' effect in the US, but, as Howard Riell discovers, it remains a firm favourite for worldwide dining

In the US, the blurring of traditional segments and consumers’ appetite for new and different dining experiences are among the pressures on casual eateries. At the same time, restaurant operators in Europe and Asia are reporting that the segment is on the upswing, with increased menu variety, a proliferation of fresh and exotic ingredients, open kitchens and more. So for foodservice consultants, casual restaurants represent a potentially profitable area if they can show operators ways to improve their game, provide value and bolster their bottom lines.

In May, market research firm NPD Group reported that consumer traffic to US casual dining restaurants had reached a six-year low, citing price sensitivity, customer experience, increased competition from the fast-casual category and a focus on promotions and value deals as contributing factors. “It appears casual dining operators’ promotional offers have been in place for too long,” says Bonnie Riggs, NPD’s restaurant analyst, at the time. “For example, the ‘two-for-$20’ craze is now available in some variation at nearly every casual dining chain. Some liken it to an echo chamber because there’s no competitive differentiation. Relying on existing promotional tactics may no longer be a viable option.”

Riggs adds that casual dining concepts have been pigeonholed into a less frequent, more special meal occasion destination. The solution? Casual dining operators “must reinvent offerings that have lost their lustre and introduce new promotions and menu items to attract customers and encourage repeat visits. Consumers will wait you out once you have shown your willingness to provide regular discounts. Until you reach the price point that delivers the value they have come to expect, they will stay away or find other restaurants that meet their value expectations.”

Last year was “not a particularly good year” for the casual dining segment, says Malcolm Knapp, president of New York-based Malcolm M Knapp Inc and publisher of the Knapp-Track report, which focuses on the casual-theme and dinner-house segments. Year-to-year systemwide sales for the 26 casual dining chains in Knapp’s survey rose just 2.3%, to $37 billion. The top five casual-dining chains in the US, based on systemwide sales, according to the National Restaurant Association, are Applebee’s, Olive Garden, Chili’s, Buffalo Wild Wings and Outback Steakhouse.

While Technomic’s most recent look at the casual dining segment began on an upbeat note – “There’s good news to report for the casual-dining segment: customer enthusiasm is up” – it also outlined a host of challenges. For example, lines continue to blur between limited-service, fast-casual restaurants and full-service, casual dining chains. As a result, consumer expectations are shifting as customers continue to trade-up and trade-down across the casual dining spectrum.

“Consumers in search of a casual dining occasion have plenty of choices, and their expectations are changing,” says Darren Tristano, executive vice president of Technomic, about the findings of the firm’s Future of Casual Dining Consumer Trend Report. “Whether their needs are driven by price, food quality, overall value or simply the dining experience itself, operators need to know how to stay competitive.”

Technomic’s findings

• More than four out of five casual dining consumers in the US say they visit fast-casual (85%) and traditional casual dining restaurants (82%) at least once a month. And 40% of casual dining consumers visit upscale casual dining restaurants just as often.
• Consumers’ traditional casual dining visits appear to be cutting into fast-food and upscale casual dining visits, as consumers trade up from quick service and trade down from upscale casual dining restaurants to these locations.
• Consumers today “are more likely to visit casual dining restaurants for a variety of occasions, including, but not limited to, routine lunches, special occasions and meals with colleagues and family members”.
• Approximately one-third of consumers (34%) say they are ordering from the healthy menu at traditional casual dining restaurants more often than they did a year earlier. Only 27% of consumers say the same for upscale, casual dining restaurants.
• While price is a major deterrent for some upscale casual dining consumers, 41% of consumers “indicate that meals at these locations are worth the price because of the overall dining experience”.

Today, Technomic’s senior consumer research manager Kelly Weikel has noted, casual dining includes three major sub-segments: fast casual (such as Panera Bread or Chipotle), traditional casual dining (Applebee’s or Olive Garden) and upscale casual dining (The Cheesecake Factory and P F Chang’s). “During the recession, fast-casual concepts benefited from consumer trade-downs while the full-service sectors faltered. But today’s consumers are feeling more optimistic about the economy and casual-dining operators are intensifying their efforts to compete for share, repositioning major brands with concept and menu revamps and continuing to lure diners with value-oriented promotions.”

“Casual dining is still struggling,” says Juan Martinez FCSI, the principal of Profitality, a consultancy in Miami, Florida, US. “My opinion is that fast casual and even QSR brands are filling the needs of the customers, including the price/value equation and the convenience.”

Some casual concepts are applying technology, Martinez notes, “such as Chili’s remote customer-order terminals. Others are trying to differentiate with deals.” Additional innovation will go a long way toward helping the category, he adds. Looking ahead, he reckons casual concepts “have to keep re-inventing themselves and offer the additional service that the customers need, while reducing cost and price of the meal”.

“Traditionally, guests wouldn’t have thought about a buffet restaurant as competing in the casual dining segment,” says Alice Crowder, vice president of marketing for Ovation Brands in Greer, South Carolina, “but one of the things we’ve learned is that what is considered ‘casual dining food’ isn’t some elevated concept any longer. It’s an expectation that has inherent in it a certain level of flavour, of quality ingredients, of appealing presentation. In our brands, we’ve committed ourselves to offering that type and level of food, but in an all-you-can-eat format that differentiates our business from the rest of the field.”

Ovation Brands operates 335 restaurants in 35 states: 325 steak-buffet restaurants and 10 Tahoe Joe’s Famous Steakhouse restaurants. “Looking at menu development across the casual dining segment, it is apparent that better-for-you options are growing in response to guest demand,” says Katherine LeBlanc, marketing and communications manager for Smoothie King, a smoothie bar and nutritional lifestyle concept with more than 600 units in 32 states, the Caymans and the Republic of Korea and Singapore.

“The attitude of guests towards casual dining are reflected in these menu shifts”. The key trend influencing behaviour, she believes, is the shift “from dining out as an indulgence to looking for better-for-you, or healthier, options across all dining (concepts). Food is prepared to highlight the ingredient, showcasing its benefits. Menu descriptions are also shifting to accommodate this key trend.”

Global casual

Operators across the globe are finding lots of activity in the casual segment. “We see an upwards trend in casual-dining menus,” reports Marianne Wachholz, managing editor of FoodService Europe & Middle East magazine, based in Germany, “with more freshness, more up-to-date and flexible offers and bolder recipes and presentation.” As far as quality is concerned, Wachholz continues, she and her colleagues have detected “a move towards fine dining yet with a relaxed approach – blurring the frontiers. This can also be seen as a strategy to gain room against the pressure of fast casual concepts which tend to enforce the casual motif versus the fast.” Across Europe too, restaurants are incorporating “more and more open kitchens for show cooking,” she says. “A hot trend, depending on the concept, is open grills within the restaurant’s seating areas.”

From a culinary perspective, there has been and will continue to be more of a focus on local and regional products and recipes, but with a cosmopolitan twist, Wachholz says. “High-quality, dry-aged beef is a big thing,” as is the source of the product. “The transparency-equals-trust-equals-quality argument is important,” she says, “be it
a farmer in southern Germany, Austria, Scotland or Australia.”

When it comes to beverage service, Wachholz points out, more casual operators are offering an extensive selection of liquors, particularly gin and whisky, “which are very much a trend,” as well as a comprehensive wine card. “Typical is the integration of lounge/bar zones to push beverage profile and beverage sales, as well as to create a homely, lively feel and to keep people in after dinner,” she says.

The casual restaurant sector in the Asia Pacific region continues to grow rapidly, reports FCSI’s Asia Pacific chair Toni Clarke FCSI: “Many fine-dining or high-end restaurants are reinventing themselves with softer dining options in existing venues or opening second venues.” In China, the impact of restrictions on bureaucratic spending has seen a large number of top-end restaurants close.

“Casual dining tends to have different interpretations across the Asia Pacific region,” Clarke says. “In Australia and New Zealand it covers the vast majority of restaurants, pubs and cafes – everything excluding fast food and high end. Unlike the US, we don’t have a lot of quality branded restaurant chains.”

In Asia, the major shift is the increase of independent operators, “as opposed to restaurants in the four- and five-star hotels, and the emergence of the celebrity chef venues”. Patron attitude is what is driving the change, Clarke continues. “Less formal, no tablecloths, etc. Diners continue to expect a high level of customer service and good fit-outs.”

“Casual dining is popular here in Southeast Asia, and the market is growing at a fast pace,” reports Brandon Kua, an FCSI associate, of Citrus Consult Sdn Bhd in Kuala Lumpur, Malaysia. “The new, younger generation is more open to casual dining and the growing trend is cafes and coffee houses. They are rapidly sprouting due to the current coffee trend in the region.”

The same youthful consumers, he adds, “also have less time to cook at home, and often eat out. At least 60% of the population in Malaysia eats out, hence, there is a great acceptance towards casual dining. I can only say that it will definitely grow in the Asian market.” Kua, whose clients have included Le Meridien Hotel Coimbatore India, Four Points by Sheraton Sandakan Sabah and Traders Hotel Puteri Harbour Johor, explains that helping fuel the trend has been social media: Twitter, Instagram and Facebook.

“Information travels so quickly these days that trends can be created within a matter of seconds if you have the right concept to capture a majority of the population,” he notes. Especially in Southeast Asia, he continues, “we are a rapidly growing region in economic terms. Most of us are still in the developing country category, and the middle class is slowly growing, so spending power is increasing. From here, the demand for casual/new concept dining will also increase.”

Casual is also an area of potential for consultants. “It may not be as profitable as some others, but it is definitely an area worth exploring to create awareness and demonstrate the importance of hiring a consultant to help guide operators in their business decision-making,” Kua says.

In order for casual brands to succeed, Kua says, they are “slowly beginning to understand the importance of creating their own unique concept and menu. The way to survive is to be original and not a copy of another already successful food-and-beverage outlet, because every outlet, every brand is unique.”

Throughout Asia Pacific, Clarke reports, the growth of casual tends to be across the entire region. “The primary emerging markets are China and India due to the rapid growth of the middle class.” Brands are not so much part of the industry in APD, she adds, apart from fast-food chains such as McDonald’s, KFC, Pizza Hut and Starbucks. “And they have to vary the product to suit the change in demographic. In Asia, they also have to compete with the imitators,” she says.

In APD, the casual dining market outside of hotels and large shopping malls generally consists of owner/operators and smaller venues that tend not to use consultants for the advisory component of their development. “The expectation is that the kitchen consultant will step up a level to provide a one-stop shop,” she explains. The corporate, government and institutional catering markets – schools, universities, hospitals – remain strong. Clarke explains that patrons in her region have less disposable income “but still want to go out two or three times a week. They want more variety and extended trading hours.”

Social media – and the instant feedback, both good and bad, that it provides, including “sharing photos and comments – is having a significant impact”. Locally grown, seasonal product has proven popular, due to increased awareness of sustainability. Key cuisine trends include Vietnamese, Korean, South American (Brazil/Argentina), barbecue and Mexican.

Growth in the casual segment is predicted to continue in Asia, Clarke says. Younger patrons want more flexibility, with large plates to share entrees such as barbecue, large cuts of meat, whole fish and other dishes; small plates that are tapas style and fusion dishes such as Asian/Western.

“In India, there is even a trend for Chindian – Indian-influenced Chinese food”. She also predicts better chances of success for “small operations that are future proofed in terms of equipment to allow change of concept”. No matter the geography, casual restaurants will continue to provide both opportunities and challenges for restaurateurs and consultants alike, which makes them not so very different from those in every other dining segment.

“The future of casual dining looks, in many ways, like the rest of out-of-home dining,” Crowder of Ovation Brands concludes. “The winners in every segment will be those concepts that bring freshness and flavour to their guests, but in a way that lets the guest customise and control the experience, and at a price that’s good value in whichever way they define it.”

Howard Riell

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