Why Casual-Dining Restaurants Are Endangered Species
Stuck in the middleThe past few quarters have been good for restaurants in fine dining, quick service, and especially fast casual (the sector grew 12% year over year). The one area that is struggling is casual dining.The numbers back this up. Just look at Darden Restaurants closely. Casual brands like Red Lobster and Olive Garden recently had comparable sales declines, of 4.5% and 0.6% respectively. Yet, the rest of their brands, including the up-scale Capital Grille, have done very well. More consumers are opting for either cheaper (fast casual), or more expensive (fine dining), options which don't bode well for casual dining. This segment just seems to be stuck in the middle.The casual-dining restaurants are losing market share to fast-casual. They're not offering a compelling enough value proposition, and they have expenses and capital expenditures (additional staff, equipment, long menus) that fast-casual chains do not have. Casual dining chains need to reconnect with customersIn my opinion, the biggest reason these chains are struggling is that they are missing what customers are looking for right now. While casual dining has cooled, chains that serve products customers want, like Buffalo Wild Wings, have flourished with similar cost structures.The National Restaurant Association's recently released its trends for 2014, which include locally grown produce, and a focus on natural ingredients. This could be an area that these restaurants, especially the Italian chains, could try to adapt to. If either restaurant chain can serve food that seems fresh, vibrant, and more natural, they may be able to justify their higher price tags.At the very least menu and brand innovation is needed. I don't think Olive Garden's new burger will be enough to move the needle. Something needs to change, preferably in the menus, to reengage customers.Foolish conclusion: focus on trendsYou go to Chipotle because you know what you want; you go to Buffalo Wild Wings because you know what you want. So, do people only eat at Darden's restauarants, BJ's, and Bravo Brio, when they can't decide what they want? The customer is gravitating to higher-end, and lower-end, options. If these restaurants want to compete, they'll need to offer something compelling to off-set this competitive drag. It starts with menu innovation, focusing on trends, and reengaging the customer.They need to offer a compelling reason to eat at their restaurants, until they do, they're an endangered species.