5 reasons for bar and grill chains' nightmare 2017

Shifting consumer demands have hammered the likes of Applebee's and Chili's, and their recovery is uncertain, says RB's The Bottom Line.

The Bottom Line

In the 1980s and 1990s, a generation of bar and grill chains emerged along with America’s burgeoning mall culture.

Applebee’s, Chili’s, TGI Fridays and Ruby Tuesday were the Chipotle, Panera Bread, Noodles & Co. and Raising Cane’s of their day, giving consumers a place to hang out and have a drink after a long day of shopping.

But as the mall culture has diminished, those chains have declined. And 2017 was a nightmare for them, based on Technomic's Top 500 Chain Restaurant Advance Report.

Last year, the four chains alone lost $700 million in total system sales. Their combined system sales declined 6.3%, and their unit count declined 4.7%.

Their system sales declined from a range of 3% at Chili’s to 15.2% at Ruby Tuesday.

It’s not all about the mall, of course. Consumers have shifted their demands. They’re getting takeout and delivery far more often. But they’re also spreading their money around, eating at independents and small chains that provide more variety, often for the same price.

“The consumer has changed,” says Joe Pawlak, managing principal with Technomic. “They’re very time-pressed. They want to eat off premise. They want to watch TV and binge-watch during the week and order a meal from Grubhub and have it delivered.”

Here’s five reasons the four bar and grill chains have struggled so badly.

1. The decline of the mall

The rapid growth of Amazon has led to a steep decrease in mall foot traffic, which has in turn hammered specialty retailers—more than two dozen such retailers have filed for bankruptcy. Many other retailers, such as J.C. Penney, Sears and Macy’s, have closed numerous locations.

The decline of retail is an underrated factor in industry sales weakness the past two years for a simple reason: Fewer shoppers means fewer people out to get something to eat. Bar and grill chains have been a big victim.

2. Takeout nation

As Pawlak mentioned, consumers are harried and don’t have the time any longer to dine out. Casual-dining chains have been built for the dine-in consumer.

While many chains have been increasing their focus to target more takeout consumers, the increasing prevalence of takeout has hurt bar and grill chains in particular because they were built to handle large numbers of dine-in customers.

With the dine-in occasion becoming more of a specialty, consumers are abandoning the midpriced varied-menu chains first.

3. Independents

With dine-in occasions becoming increasingly rare, consumers are shifting their spending toward smaller chains and independents that provide more variety and more of an experience.

Social media and online reviews have helped ease some of the uncertainty around visiting lesser-known chains, while also helping to build enthusiasm among local consumers.

To be sure, there are few good sources for sales at independents, but large-scale distributors such as Sysco and US Foods have suggested that those restaurants are gaining share over chains. This is especially true in more urban areas where indies are particularly popular.

4. Fast-casual chains

Higher quality fast-food chains have been exploding over the past decade, with success at chains such as Panera Bread and Chipotle Mexican Grill inspiring a generation of well-funded growth concepts.

While some of these chains have struggled more recently, fast-casual chains in the Top 500 still led all sectors in terms of system sales growth last year, at 8.9% (compared with 0.1% growth for all of casual dining). They’ve helped feed consumers’ growing appetite for higher quality takeout, giving them reason to abandon mass-casual chains.

5. The chains’ own mistakes

In many respects, the bar and grill subsector has been its own worst enemy.

Bar and grill chains focused too much on discounts to win over their customers. Many cut food quality as commodity and labor costs increased.

But there were other mistakes, such as Applebee’s misguided wood-fired grill in 2016 and Ruby Tuesday’s move toward upscale casual in 2009. You are who you are in this business, and in both of those cases, the chains abandoned their identity. Ultimately, both of them returned to their heritage.   

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