OPINIONFinancing

Customers come back to casual dining

In a ho-hum quarter, some full-service chains stood out, says RB’s The Bottom Line.
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The Bottom Line

It’s official: The second quarter was not a good one for the restaurant business, at least based on data from publicly traded concepts.

On average, same-store sales rose 1%, and many chains have struggled to generate traffic growth. Considering that menu prices are up 2.8% this year, we can surmise that restaurants lost a fair amount of business.

But neither was it all that bad. Most publicly traded restaurants have reported same-store sales growth in their most recent quarter. And there were some surprising results as chains shift strategies and find what works.

What’s more, a lot of those surprising results belonged to a number of casual dining concepts, including chains like Applebee’s and BJ’s Restaurants that had at one point been struggling and struggling badly.

But I would not necessarily call this a comeback for casual dining, as you’ll see when we go over this quarter’s winners and losers.

Winner: Casual dining

Of the 10 strongest performances for the quarter, six of them belonged to casual dining restaurants.

That includes some typically strong performers, notably steak purveyors Outback Steakhouse and Texas Roadhouse, along with Stoney River. But it also includes some varied-menu chains, like Applebee’s and BJ’s Restaurants, that have struggled in recent years.

The strength of those full-service concepts proves that customers will definitely go out to a place with wait staff if they like the offer. Or perhaps the economic strength we’re seeing this year is playing out in better sales for casual dining.

2Q Winners


Loser: Casual dining

As I said, don’t call it a comeback.

As well as those chains have done, the overall sector among publicly traded chains remains weak overall.

Same-store sales for full-service chains rose just 0.7% on average. That’s not a small sample size: It represents 31 different concepts that have reported earnings.

By comparison, limited-service chains’ same-store sales rose 1.5%.

For every chain like Applebee’s (5.7%) and Stoney River (6.2%), there is a Cheddar’s (-4.7%) and a Kona Grill (-12.1%).

2Q Losers


Winner: Fatburger

We recently wrote that burger chains’ same-store sales have not performed well. There have been some exceptions to this, none more so than Fatburger, the burger chain owned by newly public Fat Brands.

The chain’s same-store sales rose 9.5%, driven by a 4.2% increase in transactions thanks to delivery and its introduction of the Impossible Burger.

Loser: Kona Grill

For the most part, upscale chains and especially upscale steak chains have done relatively well in recent years because people with money have done well in the economy and business travel is up.

One big exception of late is Kona Grill and its 12.1% decline, the worst performance of any chain this quarter. On a two-year (stacked) basis, its same-store sales are down 17.4%. That’s generally not good.

Winner: Domino’s

The second-best performing concept last quarter was, you guessed it, Domino’s, which generated 6.9% U.S. same-store sales growth and continues to demonstrate to the restaurant business how to do things in 2018.

Its biggest challenge going forward is meeting its sky-high expectations. It’s tough to be as successful as Domino’s has been for as long as it has been.

Loser: Other pizza chains

The other three pizza chains for which we have earnings averaged a 2.8% decline, led by the massive dropoff by Papa John’s, which fell 6.1% in the U.S. But Pizza Hut was flat and Papa Murphy’s same-store sales fell 2.4%. None of those chains are adding units with any conviction at the moment, either, at least in the U.S.

Essentially, Domino’s primarily rivals underperformed the company by nearly 10%.

Indeed, we look at those numbers and wonder whether delivery is having an impact on pizza, and that Domino’s has just been able to withstand that onslaught because of its strong digital offering.

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