Casual-dining chains work to solve the quality-value equation as fast-casual, QSR competition intensifies

Nation's Restaurant News,  June 25, 2007  by Sarah E. Lockyer

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The casual-dining environment currently presents a tale of two segments and vastly changing dynamics. Older, mature concepts in the bar and grill segment, like Applebee's Neighborhood Grill & Bar and Chili's Grill & Bar, are facing such extreme pressures as market saturation, a loss of brand recognition among consumers, and sales slowdowns partly sparked by a "trade down" phenomenon that has consumers choosing quick-service over casual-dining alternatives.

On the other hand, brands with unique, contemporary positioning and value-oriented menus, like Buffalo Wild Wings and California Pizza Kitchen, are moving forward with unit growth and sales increases. Those kinds of chains have found a balance, some analysts say, between providing the experience of a full-service restaurant and the pricing and convenience of a fast-casual brand.

At the heart of the segment's challenges, as is the case for the entire restaurant industry, are consumers' spending habits. Their decisions to spend their dining-out dollars at the quickservice and fast-casual chains that are able to boast convenience, value and quality products has resulted in a slower rate of market share growth for the casual-dining segment in this year's Top 100 survey.

"Recent trends at quick service show positive and improving traffic, while casual-dining traffic trends continue to be negative despite very easy one- and two-year comparisons," securities analyst John Ivankoe of J.P. Morgan Securities Inc. said in a June research note. "This trade down to QSR shows no sign of abating near-term, especially in the face of what looks to be a difficult consumer discretionary environment."

Sweeping changes are occurring in the casual-dining segment as a result of pressures on the wallets of consumers facing higher gas prices, reduced housing values and creeping interest rates. Some brands are attempting to make their concepts more upscale and target less price-sensitive consumers, while others are trying to create more value, mirroring some of the successful initiatives within the quick-service sector. And some casual-dining brands are attempting to do both, like the "high-low strategy" often discussed by Applebee's officials.

Executives at Overland Park, Kan.-based Applebee's International Inc. have been working with Food Network star and celebrity chef Tyler Florence for almost a year to create "a new level of quality" within the Applebee's menu, the company has said.

The addition of signature items from Florence was part of Applebee's strategy to introduce new and improved menu items. In 2006 the company introduced 20 such offerings.

Nonetheless, in March the company said it would close 24 of its 528 corporate locations. Applebee's and its franchisees operated 1,841 U.S. units at the end of last year.

Florence's latest menu additions for Applebee's include grilled items under the banner Grilling Fresh with Tyler Florence, which will run systemwide through Aug. 12. Among the items are Tyler's New Yorker, a grilled strip steak served with "steakhouse-style" onion rings, and Grilled Shrimp Pesto Alfredo Fettuccine.

Applebee's has said the partnership, which was recently extended for an undisclosed period of time, has been a success, although it has not shared details.

At the same time that Applebee's has been working to upgrade its menu offerings in hopes of attracting new and less price-sensitive customers, the company also has been working to improve its chain's value offerings, especially during lunch.

A new lunch attraction, the Pick 'N Pair menu, allows customers to choose two lunch items from a selection of smaller-portion sandwiches, soup, salads and pastas, starting at $5.99 and available until 3 p.m. An executive at Applebee's who requested anonymity said the promotion has been well-received among customers and has helped the chain boost traffic during the lunch daypart.

Another segment leader, T.G.I. Friday's, also recently introduced smaller portions and lower price points in an attempt to lure consumers who are watching their wallets and their waist lines.

"At Friday's we're working on value from a couple of different perspectives...creating new, great-tasting menu products, the overall restaurant experience and offering price value," says Friday's USA president Mike Archer. "If value becomes all about discounting the experience, I think it's dangerous."

T.G.I. Friday's, which has about 577 restaurants in the United States, introduced its "Right Portion, Right Price" menu in March. It allows diners to choose from 10 items that are all one-third smaller than a normal portion and are priced between $6.99 and $8.99, compared with prices of $10 to $14 for regular-size entrees.

The move was made to boost traffic, a challenge for most of the casual-dining segment, even if the trade-off is smaller guest checks, Friday's has said.

"It's kind of scary," says Richard Snead, president and chief executive of T.G.I. Friday's parent Carlson Restaurants Worldwide, a division of Carlson Cos. Inc. "There are other people who have made reductions at lunch. This is a first bold step for all-day."