Casual-dining restaurants have a value problem

Consumers say they’re getting less bang for their buck at sit-down places. Operators are working to change that while still protecting their margins.
Applebee's uses TV ads to "scream value" to customers. | Photo: Shutterstock

Consumers say they're getting less bang for their buck at casual-dining chains these days, even as those chains are doing their best to give it to them.

The average night out at a casual-dining restaurant costs just a little less than $15 per person, according to data from researcher Technomic. That also happens to be right around what consumers say is a good deal for a sit-down dinner and a drink.

And yet overall, the public’s value perception of the sector fell 2.4% last year, Technomic found, compared to a 1.3% drop in quick service.

Casual dining “actually saw one of the largest dips in value perception, and that I would say is troubling,” said Rich Shank, vice president of innovation for Technomic, during a presentation at the Restaurant Leadership Conference on Monday.

Just hours earlier, a panel of full-service restaurant executives was grappling with that very problem in front of an audience of operators and suppliers, who hit them with questions as existential as whether tableside service adds any incremental benefit to the business at all—a notion that was quickly shot down.

“If you’re in casual dining, you have to believe that there’s value in service,” said Scott Gladstone, chief development officer of Applebee’s and IHOP parent Dine Brands. “Otherwise you can’t fully compete on food quality with QSR.”

Still, the fact the question was even asked underscores just how difficult the situation has become for full-service restaurants. Menu prices in the sector have risen by somewhere in the neighborhood of 20% since 2021, and consumers are showing that they’re maxed out by shifting some business to lower-priced fast-food concepts.

Continuing to protect margins while still giving diners some value has proven to be a difficult balancing act. And as Gladstone pointed out, “you can’t really unwind price.” 

Applebee’s and IHOP are instead looking at different ways to merchandise the menu with things like bundles and special offers that are designed to compete with fast food, Gladstone said. And they are continuing to use their large marketing budgets to remind people that they offer full-service meals for a reasonable price. “On television we really scream value,” he said.

But the menu is just one part of the casual-dining value equation, as Walk-On’s Sports Bistreaux discovered. The 80-unit chain known for dishing out heaping portions of sports bar fare got a reality check when it did a deep dive on how consumers think about value.

“People don’t care about the portions of the food. That’s not what they’re referring to,” said COO Kendall Ware. “They’re referring to the whole experience.” 

At Union Square Hospitality Group, the owner of New York City restaurants such as Gramercy Tavern and Union Square Cafe, value is primarily delivered through showing guests hospitality rather than unbeatable prices, said Chief Technology and Supply Chain Officer Kelly Macpherson.

Consumers’ appetite for experience has been evident in the recent success of eatertainment chains such as TopGolf and Pinstripes as well as highly interactive concepts such as Kura Sushi and Fogo de Chao. All four saw systemwide sales increase by more than 20% in 2023, according to Technomic.

Throwing a wrench into the segment's value efforts has been the addition of service fees into the equation. The charges tacked onto customers’ bills are usually intended to help offset costs for things like labor and packaging.

“Meals are getting very expensive for consumers beyond what’s just on the menu,” said Joe Pawlak, managing principal of Technomic. “These other fees are taking consumers aback.”

The panelists seemed to view these fees as a harsh reality of doing business in today’s environment. “Given rising costs pressuring margins, as operators, you have to find a way to pass that off,” Gladstone said. And yet they will not help the segment’s struggles with value.

“I feel like consumers are gonna start to deal with fee fatigue,” said James O’Reilly, CEO of Huddle House and Perkins parent Ascent Hospitality Management. “We all have margins we want to go and protect, but it feels like something where there’s a reckoning coming.”

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