Full-service: A tough year, but not for every brand

Small, regional brands are outpacing their large-chain counterparts.
Restaurant Business

Top 500

Before the CEO of Dine Brands Global detailed the first quarter results for his company’s two full-service brands, he had a blunt message for the investors and other industry observers who’d tuned in for the review. “I’d like to put to rest false news about the death of casual family dining,” Steve Joyce declared.

Dine Brands’ Applebee’s posted its best same-store stales gain since the beginning of 2011 and its best traffic performance in a decade. Comps for sister brand IHOP were up 1%. Denny’s were positive by 1.5%, Outback’s rose 4.3% and The Cheesecake Factory’s comps were better by 2.1%.

The recent results clearly suggest a break from the buzzard watch in 2017, particularly for casual dining. As Technomic’s Top 500 data shows, sales for casual brands were essentially flat, edging upward by a scant 0.4% after rising 1.4% in 2016.

And for the first time, more Top 500 casual restaurants closed than opened during 2017. The biggest news in the sector seemed to be bankruptcies and wholesale closings.

“I didn’t see a lot of life there whatsoever,” says Kevin Schimpf, manager of industry research for Technomic. “Casual dining was in its third year of decline.”

The question is, what happens now?

Schimpf acknowledges that a number of big casual players, from Outback to Applebee’s, posted positive sales comps and traffic gains at the start of 2018. But “a lot of them had pretty easy comparisons from last year,” he says.

Still, he says a polarization is underway in casual dining. Some small, young, regional brands showed head-turning sales growth: “Cooper’s Hawk ... grew 30%. Bareburger was up over 20%. Brass Tap, up over 20% as well,” he says. “It’s really the big national casual-dining players that seemed to be struggling.”

Regardless of size, gainers seemed to share certain characteristics. “Most of them don’t feel like chains,” Schimpf says. “They’re not so concentrated that you’re likely to see a second unit in your area.” They also make their bars the star, and “tend to have a lot of ethnic items on the menu without being an ethnic concept.”

And size does matter. “If you’re operating with 40, 50 locations, it’s a lot easier to turn on a dime than it is for an Applebee’s or a Chili’s,” Schimpf says.

Some family-dining strength

“We weren’t really seeing that in the [family-dining] side,” Schimpf says of the edge smaller casual chains enjoyed. “The biggest of the big, they actually did OK—IHOP, Denny’s, Cracker Barrel.”

Overall, Technomic pegged the segment’s sales growth at 2.1%, up from 1.2% in 2016.

Although the category killers fared well, the head-turning growth came from regional players. First Watch, the daytime-only chain, generated a sales increase of 32%. Black Bear Diner saw a rise of 22%, and little-known Metro Diner enjoyed a 70% increase.

Family-dining expansion slowed a bit, with overall unit count increasing by 0.7%, after a 0.8% creep in 2016.

But, like the retraction of casual dining, that might be a blessing in disguise, Schimpf says. “Saturation is one of the key challenges right now,” he says. A brake on expansion and the pruning of underperforming units will be beneficial.

“Everyone is struggling for traffic right now,” he says. “There are just too many seats.”

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