Established concepts aim to invigorate images, sales: the climate for full-service chains is anything but casual as the segment's prolonged sales slump forces mature concepts to adapt to new competitors and customer preferences

Nation's Restaurant News,  Nov 5, 2007  by Carolyn Walkup

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Veteran casual-dining chains are overhauling everything from the way their restaurants look and feel to the food and drinks they serve and, in some cases, the leadership directing the changes, in an effort to snap the dismal sales trends that have plagued the segment for more than two years.

Chains such as T.G.I. Friday's, Applebee's International, Bennigan's Grill & Tavern, Ruby Tuesday, Damon's Grill, Max & Erma's, Lone Star Steakhouse & Saloon and Houlihan's are employing dramatic reimaging strategies to win back customers from newer competitors as well as those forced away by rising fuel costs and interest rates. Others are trying on new incarnations. Sizzler, a grill chain, is entering the full-service dining arena, and Uno Chicago Grill recently debuted an upgraded prototype and is preparing to introduce a more downscale fast-casual operation called Uno Due Go early next year.

Many of these chains, which burst onto the emerging casual-dining scene in the 1960s and 1970s, have seen better days. Several even saw systemwide sales drop considerably in their last full fiscal year, according to the Nation's Restaurant News 2007 Top 200 Chain and Company Rankings. For instance, systemwide sales at Damon's Grill fell 13.64 percent, Lone Star Steakhouse saw an 11.86-percent decline, and systemwide sales at Max & Erma's decreased 2.94 percent, according to the report. Bennigan's saw a slight uptick of 0.05 percent, and T.G.I. Friday's posted a 1.74-percent increase.

Ruby Tuesday fared better with an 8.85-percent increase, and Applebee's scored an 8.37-percent uptick, according to the Top 200 survey. Nonetheless, same-store sales have been negative for both chains, with Ruby Tuesday predicting a drop ranging from 3 percent to 5 percent for the year, and Applebee's reporting a drop of 0.9 percent for its second quarter ended July 1.

"The whole market has shifted," says Mike Archer, president and chief operating officer of 896-unit T.G.I. Friday's, a forerunner of the casual-dining genre when founder Alan Stillman unveiled the original restaurant in Manhattan in 1965. Archer cited newer competitors, including The Cheesecake Factory, P.F. Chang's, Yard House and BJ's Restaurants, along with fast-casual players, as doing a better job of "meeting the guest where they are today."

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Sales at the 70 percent of Friday's restaurants that have been remodeled recently have risen an average of 5 percent, say officials at the chain, part of Carrollton, Texas-based Carlson Restaurants Worldwide Inc. Consumer reaction also has been positive to recent menu changes that include an appetizer trio of mini burgers, the Grilled Portobello Pasta and Asian Garlic Chicken entrees, and a "better for you" menu section of five entrees containing approximately 10 fat grams and 500 calories, officials say.

While most chains remodel at least every decade and routinely change menu items, the rebranding efforts now occurring across the segment are more radical--but necessary--observers say.

"Brands need to update, or they will continue to get weaker and weaker," says Dennis Lombardi, industry analyst with Columbus, Ohio-based WD Partners. "A new design can increase revenue by 10 percent."

For most casual-dining chains, the goal of rebranding is to differentiate themselves from the pack.

"We saw a morphing of casual dining a few years ago of sameness," says Rob Lindeman, president of Columbus, Ohio-based Max & Erma's, founded in 1972. "Chili's, Applebee's, Houlihan's, Friday's, Bennigan's -- all were doing the same thing."

Beginning with design and decor, these chains have shared similar elements, such as walls cluttered with eclectic collectibles, brass railings, Tiffany-inspired ceiling fixtures and exteriors outfitted with striped awnings. Menus have not differed too much, either.

"Our facilities were worn and tired," Lindeman admits. "We have a lot of work to do. It's not easy, but we are not using that as an excuse. It's an exciting time of transition."

To help lead that transition and to rekindle franchising, Max & Erma's recently brought in as chief operating officer industry veteran Michael Nahkunst, who previously accomplished similar goals at The Cheesecake Factory, Chili's and BJ's Restaurants.

"We needed to bring in someone from outside to lend extra perspective," Lindeman said.

Max & Erma's and other chains are not reimaging merely to become more attractive to customers, especially younger adults, but also to appeal to existing and prospective franchisees. Max & Erma's, for instance, which currently franchises just 24 of its 101 units, wants to shift the balance of franchised stores to about 65 percent.

To help finance company store remodeling, Lindeman says he has a "secret capitalization strategy" in the works that he could not reveal.