Casual-dining chains had a difficult year

Price-conscious consumers began to shift away from sit-down restaurants in 2023 after embracing them a year earlier. That made growth difficult to come by.
Texas Roadhouse bucked the casual-dining trend last year with strong sales growth. | Photo courtesy of Texas Roadhouse.

If 2022 was a reminder of why Americans love casual-dining chains, 2023 showed why it may be the most challenging segment in the industry.

Last year was a tough one for affordable, accessible sit-down restaurants, as stubborn inflation, price-sensitive consumers and difficult comparisons to the year before combined to make growth elusive.

Overall sales increased 4.7% year over year in 2023 for casual-dining chains on Technomic’s Top 500 Chain Restaurant Report. The growth came mostly from higher menu prices, and traffic fell 1.6%.

It was a marked deceleration from the prior year, when sales rose 9.1%. Some of the slowdown is due to the fact that casual dining had a solid year in 2022, as consumers were emerging from multiple waves of COVID-19 and eager to dine out.

In 2023, that pent-up demand had largely dried up. Instead, many consumers began to cut back on their restaurant spending and visits in response to mounting inflation.

“In 2022, you still had that rebound happening,” said Kevin Schimpf, director of industry research at Technomic. “As things have semi- returned back to normal, with the exception of inflation still being so high, that growth has somewhat flattened out.”

That caused problems for even the biggest brands last year. Average sales growth among the top 10 largest casual-dining chains was 4%, and that includes double-digit increases at Texas Roadhouse and LongHorn Steakhouse. Without those outlier performances, average growth was just 2%.

At 1,536-unit Applebee’s, sales declined 0.1%, and it fell behind Texas Roadhouse to become the third-largest casual-dining chain in the nation. No. 5 Buffalo Wild Wings managed just 0.5% growth and was leap-frogged in the rankings by Chili’s Grill and Bar.

The difficult environment also dealt a crippling blow to some old guard brands. Sales at Red Lobster, the ninth-largest casual-dining chain, declined 8.1%, and the brand declared bankruptcy. TGI Fridays closed 20% of its stores, while O’Charley’s footprint shrunk by more than half, from 142 locations to 64.

Casual-dining growth is limited

Though macroeconomic challenges affected the entire restaurant industry in 2023, casual dining fared far worse than its counterparts in fast food and fast casual. Limited-service sales grew 8.5%, or almost twice as fast as casual dining, according to Technomic's Top 500 report.

That’s in part thanks to strong years from established brands like Starbucks, Chick-fil-A and Chipotle. But limited service sales also got a boost from growth chains such as 7 Brew, Dave’s Hot Chicken and Just Salad. 

Upstarts like that are rare in casual dining, Schimpf said, and for obvious reasons: Sit-down chains require bigger restaurants, more equipment and more employees than brands that specialize in to-go coffee or salad.

“That’s why the big players who are doing well have only grown by a couple locations each year,” Schimpf said.

Combine those inherent limitations with a harsh economy, and you get stunted growth. Indeed, among the 10 fastest-growing chains in the Top 500 last year, only one—55-unit KPOT Hot Pot & Barbecue—was a casual-dining brand. (In 2022, there were two.)

And although the number of casual-dining locations did increase slightly last year, to 16,880, the total has still not recovered to its pre-pandemic level of more than 17,300, according to Technomic. 

Roadhouse and Darden buck the trend

Nonetheless, the segment had its bright spots. Louisville-based Texas Roadhouse continues to defy the odds, growing sales by 13.8% and units by 3.8% in 2023. With systemwide sales of nearly $4.8 billion, the steakhouse brand became the second-largest casual chain in the U.S., even though it has just 638 locations, far fewer than other brands its size.

Not to be outdone, Olive Garden defended its position as the king of casual dining with sales growth of 8.8%, and its sister brands under the Darden Restaurants umbrella followed suit. Sales rose 10.2% at LongHorn Steakhouse, 12.6% at Yard House and 9.1% at Cheddar’s Scratch Kitchen. 

What Texas Roadhouse and Darden have in common, Schimpf said, is good management and a keen focus on operations. Notably, neither company relies on deep discounting to drive traffic, as some of their competitors do, and they are among the few chains that don’t offer on-demand delivery. Rather, outstanding staffing and execution have helped them steal share from peers.

Alcohol also proved to be a differentiator last year. Booze-forward brands such as Cooper’s Hawk Winery, Yard House, Miller’s Ale House and Lazy Dog Restaurant & Bar all enjoyed healthy growth. The 62-unit Cooper’s Hawk had a particularly impressive year, opening six new restaurants and growing sales by 19%.

There are some exceptions to the rule, such as Buffalo Wild Wings and BJ’s Restaurants. “But by and large, chains that have more of an emphasis on alcohol, whether it’s wine or beer, seem to be doing better,” Schimpf said.

Asian concepts also shined. The aforementioned KPOT, which appeals to group occasions with its hands-on Korean hot pot format, saw sales increase by 251.6% on 243.8% unit growth, making it the second fastest-growing chain on the Top 500. 

Kura Sushi, Gen Korean BBQ, Jinya Ramen, Hawkers Asian Street Food and Blue Sushi Sake Grill also had double-digit sales increases. Many of them offer experiential and shareable meals, which have resonated with consumers post-pandemic.

But these pockets of growth were not enough to jolt the stagnant category.

“There are success stories, but some of the bigger chains are dragging things down,” Schimpf said. “We’re always kind of destined for a mix of results in this space, at least for the foreseeable future.”

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