If there's one moment that crystallizes the sorry state of the casual dining industry, it's Ruby Tuesday's (RT) gambit this summer to blow up a store "live" online.
Kaboom! Bye-bye, old store.
There's growing sentiment that this is something the whole $75 billion casual dining industry needs to do. We know their names — such as T.G.I. Friday's, Chili's (EAT), Applebee's (DIN) — but over the years, too many of the nation's 81,000 casual dining restaurants have come to look, taste and feel the same.
The segment's same-store sales (a key retail measure comparing stores open at least 16 months) are down 1.8%, and same-store traffic is down 4.3% through the first eight months of this year, reports Knapp-Track, which tracks industry sales.
And that was before the economy really went south. Now, who's got dough to blow at a sit-down restaurant with prices rising at a rate that will make you sit up?
Ruby Tuesday didn't really blow up a store. It was a made-to-go-viral online video stunt supposedly ending with a rival's store being blown up by mistake. And it was a Web hit that was a Hail Mary attempt to shine lights on the fact that Ruby Tuesday just spent $70 million to reinvent itself with new décor, a new menu and even new duds on its servers.
Even with the publicity bump, the chain's same-store sales are off.
"We rested on our laurels too long — and now we're paying for it," says Sandy Beall, CEO of Ruby Tuesday, speaking not only of his company, but of all casual dining — known for full service, alcoholic beverages and check averages of $10 to $23 a person.
These tough times are forcing the industry to rethink, retrench, reprice, redesign and even re-imagine — just as the credit squeeze has been choking access to financing to do it.
Meanwhile, competition is coming from all directions. Improved fast-food menus are stealing business.
So-called fast-casual chains such as Panera Bread and Chipotle — no waiters and higher quality than fast food — keep stealing share. Ever-expanding prepared foods sections in supermarkets keep gobbling business.
"What worked yesterday isn't going to work tomorrow," says Doug Brooks, CEO of Brinker International, parent to Chili's. He's in the midst of reinventing Chili's with new décor and menus, along with technology to speed service.
Casual dining's leaders may want to mimic what McDonald's did five years ago when the then-struggling chain went on a tear to improve food quality, speed up service and boost public perceptions. It worked.
"McDonald's (MCD) is the poster child for proper strategy," says consultant Malcolm Knapp. "They were written off as dead, but they found a way to become relevant."
That's where casual dining wants to get. But it won't be easy. Even McDonald's has recently felt the pinch of tightening credit. Last month, it warned franchisees that Bank of America had squeezed lending to restaurant owners but later said sufficient credit was there.
Reducing the glut
With way too many restaurants serving far too few customers, at least 1,000 casual dining units will close over the next 12 months — helping to lessen the glut of casual dining spots, says Ron Paul, president at researcher Technomic. "In the eyes of consumers, these restaurants are the same. There are too many. They are too similar. And their prices got out of whack."
That may be an understatement. Just three of 30 restaurant companies that offer guidance on same-store sales trends see improvement before 2009, says a report from securities analyst Jeffrey Farmer at Jefferies & Co.
The Bennigan's and Steak and Ale chains made Chapter 7 bankruptcy filings this summer, shuttering hundreds of stores. Pizzeria Uno is in financial hot water. Lone Star Steakhouse closed 26 stores earlier this year.
Darden, thought to be above the fray, has felt the pain. The owner of Olive Garden, (DRI) Red Lobster and four other chains says same-store July sales at Red Lobster were down 3.7%.
Last year, Darden closed 56 Smokey Bones units and sold off the rest. Applebee's closed 24 underperforming restaurants last year, and parent DineEquity has struggled to sell company-owned units to franchisees to pay down debt.
"In a crowded marketplace, we are working very hard to stand out from the crowd," says Julia Stewart, DineEquity's CEO.
What do these chains need to do to survive and thrive? Here's what top casual dining executives, consultants and consumers told
•Stand out. Casual dining's long-term problem is one that vexes all companies as they age: how to stay fresh, while offering a unique draw to which no one else in the category can lay claim. Such as Cheesecake Factory's (CAKE) giant portions. Outback's high-quality steaks. Olive Garden's Tuscan-like ambience. And Seasons 52's bite-size desserts.
"Each concept must stand for something unique to survive," says Christopher Muller, an industry consultant.
Chili's turned its familiar chili pepper into a towering icon outside its stores to symbolize that things also have changed inside. "It's all about getting out of the sea of sameness," says Brooks.
•Lower prices. More than anything, high prices are what rile
"The prices used to be reasonable, so you could go out more often," says Marcia Lafferman of
To save money, Brace Cain, an events planner from
While most casual dining chains continue to raise menu prices 1% to 3% every six months — with commodity and labor costs rising — many have been trying splashy specials. Some of the biggest chains are touting $9.99 dinner deals and $5.99 lunch specials.
Seeking more than a temporary — and profit-zapping — boost from discounts, others are trying new tactics. T.G.I. Friday's "Right Portion, Right Price" dinner menu offers smaller entrees starting at $6.99.
One day this summer, Cheesecake Factory rolled back cheesecake prices to $1.50. It resulted in huge lines, says marketing chief Mark Mears. Now, the chain is rolling out a customer loyalty card with incentives to return.
Small freebies — even a free cup of coffee — are a restaurant's lowest-cost marketing with the highest returns, says Dennis Lombardi, executive vice president at consultant WD Partners.
•Fix the food. Casual dining's takeoff 20 years ago was driven a lot by the fact that the food quality far exceeded fast-food offerings — but the prices did not.
That changed drastically in recent years, says Jeff Davis, president of Sandelman & Associates. Fast food's quality has gone way up, but the prices have risen relatively slowly
.
At the same time, casual dining's food quality and innovation stagnated, even as its prices kept creeping up, he says.
Few are making a more concerted effort to improve the food than Ruby Tuesday.
Four years ago, its flimsy, paper menu focused on finger foods and $6.99 burgers. Earlier this year, it replaced that with a stiffer cardboard menu featuring luxurious photos of its $13.99
Ruby Tuesday is gambling big time that quality ultimately will trump price.
When the economic storm clouds clear, says Beall, "Consumers will focus less on price, price, price and more on food quality."
•Improve service. Slow service and discourteous staff have given casual dining a black eye.
Lengthy waits for meals "don't reflect how Americans eat," says Kyle Kieper, vice president at FRCH Design, a consulting firm.
Chili's is trying to knock 15 minutes off the typical 45-minute lunch for customers who want to save time, says Brooks. It's testing new, handheld BlackBerry-like devices that directly connect the front desk and servers to the kitchen, says Brooks.
It's also testing new ways to screen potential employees. Instead of managers hiring by instinct, it's testing applicants with skill questions. As a result, the turnover rate is down 25%.
Ruby Tuesday's staff no longer wears casual shirts and jeans but long, black aprons. "It's more professional looking," says Beall.
Nickole and Ron Ketterer are more concerned about how servers behave than what they wear. The couple haven't been back to Outback Steakhouse in more than two years since a server and a manager very publicly argued with them about how steak was cooked. That's too bad, because the couple from
•Spiff up stores. "We have an entire industry of 20-year-old locations," says Marc Buehler, CEO of Lone Star Steakhouse. "They need more than a coat of paint."
Even Lone Star, which has had a rough financial year, is slowly spiffing up. This year, it's remodeling six of its 153 stores. Out with the beat-up concrete floors and in with polished wood. Out with fading tablecloths, in with oak tables. More locations will follow.
Ruby Tuesday, meanwhile, has redesigned all of its company-owned restaurants over the past six months. The dark, knickknack décor has been replaced by contemporary designs and lighter colors.
•Get kid-friendly. Families are a big part of casual dining's business, and for many parents, what matters most is how happy their hungry kids are.
Parissa and Derek Eggleston of
And when they do go out, says Parissa, "We hold our breath."
Looking for casual dining spots to be more kid-friendly, she wonders if they could install kid playgrounds. Or maybe they could lend kids handheld video games at the same time parents are handed those electronic pagers.
The last time they went to Chili's, her son dumped the salt and pepper shakers into his water glass while awaiting dinner.
One small victory: She stopped him before the sugar went, too.
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