Nancy says...
It’s like déjà vu all over again, Peter, as forecasters line up to predict the disappearing middle. The middle in this case refers not to the latest dietary regimen, but rather to the midscale restaurant sector.
You can count on these predictions to sprout like mushrooms, especially in challenging economic times; and sure enough, the Washington Post among other sources offered an in-depth analysis of the post-pandemic restaurant environment in the closing days of 2022.
Among its prognostications was the “hollowing out” of the restaurant industry that will leave us with operations at either end of the spectrum, notably “super-expensive, bespoke opportunities that you’re paying through the nose for ... and fast-casual restaurants.” Unfortunately, in this scenario the hapless “middle restaurants will be much fewer.”
Yes, we’ve heard this song before, though the middle ground in this context appears to run the entire operational gamut from traditional family-dining chains to the burgeoning daytime-cafe segment to casual and polished-casual operations and even conventional fine dining. Yikes. It appears that a pretty big chunk of restaurant real estate is hurtling headlong toward obsolescence, where it will join hula hoops, VHS tapes and Mickey Rooney’s Weenie World restaurants.
But if we can leave aside this extraordinary overreach for the moment, it’s really just the latest in a long history of tired tropes that typically take aim at what RB’s sister company Technomic classifies as the Full Service/Midscale segment, which includes familiar diner and family-dining brands, as well as emerging all-day cafes.
It’s not surprising that the consultancy reports that many of these operators are struggling to regain their pre-COVID sales mojo. They typically draw a lower-income clientele, who’ve been especially hard hit by inflation in fuel and food prices. That said, however, these players have been stepping up with style and smarts and making some aggressive moves to maintain their relevance and appeal.
From the management POV, Denny’s has shored up its team with the notable addition of Kelli Valade as CEO. Formerly CEO at Red Lobster and brand president at Chili’s, she joins president John Dillon and his strong team of marketing and menu-development pros.
From the menu perspective, Arthur Carl II recently left Dave & Buster’s, where he headed menu R&D, to join IHOP in the same capacity. And arguably no one has done a better job of reading and responding to her audience than Cammie Spillyards-Schaefer, now SVP Operations, and her crew at Cracker Barrel. The former VP Culinary at Applebee’s regularly knocks it out of the park with savvy menu specials.
Can we talk menus for a minute? A quick perusal of selected bills of fare shows how these chains are repositioning themselves to appeal to a contemporary customer base. IHOP, for example, revived its iconic Rooty Tooty Fresh ‘N Fruity Combo breakfast as a winter limited-time offer in January. To deliver on the fruity part, it was updated with new toppings like seasonal mixed berries. This followed directly on the heels of the introduction of IHOP Mini Pancake Cereal into grocery stores late last year.
Cracker Barrel goes big with its series of holiday offerings like the upcoming Stress-Free Easter Meals that can serve a family of 10 and come with all the fixings, but also goes small with Biscuit Beignets, tasty bites with an addictive butter-pecan dipping sauce.
Denny’s shows how it has built a following among Gen Z and Millennials with nifty promotions like Friends with Benny’s (FWB), the sly Valentine’s Day special that provided a card, two-for-one eggs benedict and, perhaps, romance. The catchy new My Hammy Spice all-day breakfast sandwich plays off the long-running Moons Over My Hammy franchise.
I could go on, and I will for just a bit more: Pennsylvania-based Eat’n Park received an Achievement of Excellence award from the American Culinary Federation for its work with local farmers. Northern California-based Black Bear Diner plays up its fun, funky, back-woodsy decor, as the stores change their ambiance and server uniforms to court dinnertime diners with comfort classics like Housemade Meatloaf and Slow-Cooked Pot Roast.
Even venerable Waffle House, the butt of recent TikTok takedowns, continues to expand it storied hash-brown menu. The chains touts the skill of its grill operators, who take the dish from “spuds to studs.” While hash-brown cognoscenti simply ask for “browns, scattered,” more adventurous diners can order them smothered, covered, chunked, diced, peppered, topped, capped and country. The latter is topped with sausage gravy and is one of a reported 1,572,864 possible hash-brown combos.
I suspect you are way ahead of me on this, but I think the real question is not the tiresome will-this-segment-survive debate, but rather how it will evolve. I’m especially keen to watch the established players compete with the upstart, fast-growing daytime-cafe chains with whom they go head-to-head in the key dayparts of breakfast and lunch. Denny’s acquisition of Keke’s Daytime Cafe will likely provide some clues.
So I’m going to hand this off to you, Peter, with an observation and a question. The observation is that the supposed disappearance of the midscale-restaurant sector has officially assumed urban myth status, right up there with other big fakes like Bigfoot.
And the question is what do you see for the segment going forward? While you ponder, I’m jumping in the car and rushing off to Denny’s, where I hope to score an FWB card of my very own.
Peter says…
You may want to rearrange the pictures of me on your mantel now to clear space for the award that’s no doubt coming your way from the Institute for Pundit Sense. It’s not about to let pass your assurances here that the death of affordable full-service restaurants has been greatly exaggerated. Singlehandedly, you may have averted a run on Bloomin’ Onions, Grand Slams and $2 margaritas.
So why are some sages saying those staples of the full-service mid-priced market are about to drop below liver and onions in popularity, or at least availability?
They’re holding onto the indisputable takeaway from the pandemic that no sector of the restaurant industry was squeezed more during the crisis than the mid-market. Many limited-service operations actually enjoyed an increase in business during those dire times, especially if they sported a drive-thru.
High-end places weren’t as fortunate, but they fared far better than places a few notches down the pricing scale. The speculation held that consumers wanted to splurge on the rare occasions they opted for restaurant meals, and they assumed an upscale establishment posed less of a health risk than a corner-cutting operation staffed by teens. Everyday affordability was a less-important consideration, if it was one at all.
In that environment, the middle market was indeed crunched. But the millisecond dining-out restrictions were eased, consumers flocked back to casual-dining and eatertainment concepts. The public was starving for experience and the comfort of returning to their old haunts.
Family dining—the segment that includes the likes of Denny’s and Cracker Barrel—took longer to re-find its footing. But any gauge of sales suggested the middle sector was enjoying a boom.
Still doubt it? Consider that Golden Corral, a mid-market player whose survival was less than certain, posted a 37% leap in same-store sales for the first six weeks of 2023.
Maggiano’s, Chili’s Italian sister, generated a 21% leap in comps for the fourth quarter of 2022.
Indeed, it’s challenging to think of a mid-market brand that hasn’t surpassed or come close to where it was in 2019.
If there’s still a vise crunching the mid-market, it’s the labor situation, not consumer demand and acceptance. Operators can’t find enough help to handle what’s undeniably a boom.
There’s another glaring flaw in the argument that mid-market dining is doomed. According to the theory, the restaurant business is being polarized into a Rolls-Royce tier and a Lexus stratum, the latter commonly called the fast-casual market. No room is left for a robust middle sector.
But I’d argue that the segments aren’t disappearing. What’s actually fading are the boundary lines between them. You can get pretty good steak today in a Chipotle bowl. A menu signature of the renowned fine-dining chef Daniel Boulud is a burger, albeit one that contains foie gras.
A number of fast-casual upstarts feature lobster, though in roll form, while The Capital Grille runs a burger bar.
Add it all together, and I just can’t accept assertions the midmarket is in enough danger to merit its own Sarah McLaughlin PSA.
The only thing that’s hallowing out is the argument that mid-market dining is dying.
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