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Restaurant chains have a dine-in problem

Some casual-dining chains and fast-casual restaurants are navigating consumers’ shift to takeout, says RB’s The Bottom Line.
Photograph: Shutterstock

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A decade ago, when I worked for a different publication, I spoke with numerous fast-casual chains that were early in their development.

One question I always had was this: What makes you different? What is your concept’s point of differentiation?

Many executives responded with this: “We have real plates and table service.”

I think of those comments often these days because, in the years since, the restaurant business has gone in the opposite direction—to foil plates and foam boxes—as takeout has largely taken over the industry.

The result has clearly upended chains that were built with the dine-in customer in mind.

Earlier this month, for instance, I wrote about fast-casual pizza chains that have turned to larger-sized pizzas in their bid to keep up with clearly rising demand for takeout.

“We think going forward we’re also going to work hard at this off-premise option,” Bob Bafundo, president of Pie Five parent company Rave Restaurant Group, told me. “That’s going to be key in terms of moving the brand forward.”

Fast-casual pizza chains were created with experience in mind. You go into the restaurant, order your pie, watch it get made and then get a drink as it cooks for three minutes. Theoretically, you eat it in the restaurant to take advantage of the experience.

And many executives have been hesitant to be anything but. Yet demand by consumers for takeout has been too much to ignore. Blaze Pizza, the fast-growing chain based in Los Angeles and backed by LeBron James, has gone so far as to hire former Nestle executive Daniela Simpson to be general manager overseeing delivery and carryout.

In other words, a group of businesses that emerged for the largely dine-in individual lunch business is now shifting to handle group delivery and carryout orders, making them look an awful lot like traditional pizza players.

But it’s not just pizza. Noodles & Co., the fast-casual noodle chain, built its business based on dine-in customers, with alcohol and table service. But its sales were sluggish as customers wanted takeout.

So that’s where it shifted its focus last year, which the company credits for stronger sales. “We continue to believe that Noodles & Co. is uniquely positioned to win in this rapidly growing demand for convenience among restaurant consumers,” CEO Dave Boennighausen said in October, according to a transcript from financial service Sentieo.

The takeout demand even has more fast-casual chains looking at something they never wanted to add: drive-thru windows. Panera Bread did it. Pie Five is doing it. And so, too, is Chipotle Mexican Grill. So, much like fast-casual pizza is adopting ideas of traditional pizza delivery companies, these other chains are taking on ideas that make them look more like fast-food concepts.

Fast-casual chains were built with this idea that customers wanted counter service but still wanted to dine in. It’s increasingly apparent that fewer of them want that latter option. And those chains have had to reconfigure their models and rethink operations to fit with that demand.

To be sure, it’s easier for such chains to do so. Counter service lends itself more to takeout.

It’s a bigger problem for casual-dining chains that have been facing this reality for years. Chains such as Applebee’s and Chili’s Grill & Bar last year clearly got the message. “We’re accelerating, in big numbers, our off-premise business,” Stephen Joyce, CEO of Applebee’s parent Dine Brands Global, said on that company’s earnings call last week.

The problem, however, is that steeply falling dine-in business can create problems for chains that still need that business.

Which brings us to Red Robin, which is coming off a “disappointing year,” despite nearly doubling its off-premise business over the past three years to almost 10% of sales last year.

But, CEO Denny Marie Post said, dine-in business fell 4.2% last year. That is “clearly not sustainable and undermines the growth of our off-premise business,” she said, according to a transcript.

As someone who prefers eating in a restaurant, I’ll admit the takeout thing sort of escapes me. But we have comfortable houses and televisions with Netflix, and its clear younger consumers would rather eat there, or in the office, than in a restaurant.

For generations of chains built with real plates and table service, that’s a massive shift.

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