Financing

O'Charley's closes 18 restaurants in one day as sales struggle

The chain has been hit hard by changing trade areas and, more recently, soaring inflation. It believes the "pruning" will help its 91 remaining stores.
O'Charley's unit count has shrunk by more than a third since 2017, according to Technomic. | Photo: Shutterstock

O’Charley’s closed 18 struggling restaurants on Sunday, punctuating what has been a rocky return from the pandemic for the 91-unit casual-dining chain. It said the closures were necessary to set it up for success going forward.

“We likened it a little bit to pruning the vines at a winery,” CEO Craig Barber said in an interview. “They do that every year. You get a better higher quality grape, you get more growth, and you have to do it for the health of the vineyard overall.”

It had already closed another 33 restaurants in the second quarter for a total of 51 this year—or more than a third of its total unit count.

The closed stores were suffering from both long-term and immediate problems. Over as many as five decades, the areas around them changed. Malls and other large retailers closed or moved, taking customers with them. That trend was exacerbated by a big shift toward online shopping during the pandemic. Meanwhile, rent was going up. 

Then last year, O’Charley’s commodity costs ballooned 19%. It raised menu prices, but not enough to fully offset the towering inflation. 

“For our industry in general, and for our brands, it was very challenging to understand how to best maneuver that,” Barber said.

O’Charley’s is not alone, judging by the spate of chain restaurant closures this year. Boston Market has closed at least two-dozen stores; Applebee’s is planning dozens of closures; Qdoba intends to shrink by as much as 1.5% annually; and Veggie Grill has closed 40% of its locations in recent months.

But O’Charley’s struggles predate even today’s harsh environment. From 2017 to 2022, systemwide sales fell 34%, and unit count declined by nearly a third, according to data from Technomic. 

However, 2021 was its best year since 2016, Barber said. And despite a rough 2022, the chain was feeling optimistic at the beginning of this year.

January was pretty good, Barber said. But sales began to slow down in February, and then even more in March. “April, it backed up a lot,” he said.

“It seemed like the whole industry, late March, early April, like somebody blew out the parachute at the back of the dragster and slowed things down really quick,” he said. “And I don’t think anyone saw it coming.”

To stop the bleeding, the Nashville-based chain decided to close 18 stores in one day. Some declined to renew their leases, while others worked with landlords on “what could be a better opportunity for both of us,” Barber said.

The closures were spread across O’Charley’s footprint, which is primarily east of the Mississippi River. Some were geographic outliers, like its lone Missouri outpost, which were more difficult for the chain to market and support.

Now, O’Charley’s is turning its focus to its 91 remaining restaurants, almost all of which are company-owned. Same-store sales are still negative year over year, but they’re improving, Barber said, and have turned positive early in the week thanks in part to several new value offers.

One is a partnership with Coca-Cola and NASCAR that offers guests a $5 meal deal on Mondays if a Coke-sponsored driver finishes in the top five over the weekend.  

O’Charley’s also brought back its popular Free Pie Wednesday promotion—albeit reconfigured to deliver better margins.

“We made it a little higher bar to jump over to get to the free offering,” Barber said. “And not only are we up six straight weeks on Monday, we’re up six straight weeks on Wednesday.” The improvements are on both the top and bottom lines.

Weekends remain a perplexing challenge. This week, O’Charley’s launched a Shrimp Lovers Weekend promotion that offers three shrimp dishes for $10.99 to $15.99 on Friday, Saturday and Sunday. Customers can also add fried shrimp to any entree for $3.

The deals appeal to price-conscious diners as inflation drags on, and they have a simple goal: “How do we get guests to come to our restaurant versus the other alternatives?” Barber said.

Indeed, he believes O’Charley’s has lost some customers to lower-priced limited-service brands. “Part of that’s just the convenience aspect and the value pricing,” he said. 

But he also blamed the media for stoking anxiety about the economy and scaring off customers during that difficult March and April period.

“I still laugh about all the talking heads arguing about whether we were in a recession or not in a recession,” he said. The impact for consumers “was a little bit of fear and a little bit of concern … and people just kind of dialed it back.” 

Those fears have yet to fully materialize. And today, Barber likes where things are trending at O’Charley’s. But there is a lot of ground left to cover.

“We’ve got 14 dayparts—so far we’re winning four. And actually in the last two weeks, we’re winning six,” he said. “You get an attaboy and attagirl and thank you very much, and now we’ve got eight more dayparts.”

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