On the Margin
Applebeersquos has trained roughly 6000 employees as meat cutters to ensure the steaks and chops are cut and cooked consistently Applebee's Neighborhood Grill & Bar

Current trends leave bar and grill chains behind

Blog: Steep sales declines leave chains scrambling for answers

This post is part of the On the Margin blog.

Casual-dining chains have not been performing well, which anybody reading this blog probably knows all too well.

Yet it’s been particularly troublesome for bar and grill chains. In the last three months of 2016, their same-store sales on average fell 3.5 percent, based on the performance of publicly traded chains.

By comparison, average casual dining same-store sales fell 1.5 percent. And total industry same-store sales among publicly traded companies fell by 0.7 percent.

The problems in bar-and-grill chains have cost three CEOs their jobs — Applebee’s and parent company DineEquity Inc., Red Robin Gourmet Burgers Inc., and Ruby Tuesday Inc.

Another is under the watchful eye of an activist investor (Buffalo Wild Wings Inc.) and another is rumored to be an acquisition target of Darden Restaurants Inc. (BJ’s Restaurants Inc.).

It could be easy to dismiss these chains as lacking in quality, yet that is too simplistic. Last year, Applebee’s tried significantly upgrading its quality by hand cutting steaks and shifting to wood-fired grills and its same-store sales worsened. 

But broader trends might be leaving this particular group of restaurants behind. 

The biggest is consumers’ rapid shift toward more takeout. This is not a perfect explanation — after all, fast-casual chains’ same-store sales weren’t that much better than casual dining.

Yet consumers are clearly opting for more to-go fare. Even traditional dine in concepts, from Bloomin’ Brands’ various chains to Darden Restaurants Inc. and even Bob Evans Restaurants are getting much of their growth from takeout.

People are staying home more. They’re watching Netflix. They’re shopping online.

Bar-and-grill chains have certainly worked on delivery and takeout themselves. And Buffalo Wild Wings Inc., in particular, have plenty of potential in that regard.

Yet bar-and-grill chains’ business model is based on people staying, eating, and having drinks. Even if people opt to get takeout from, say, Applebee’s, they’re not ordering a couple of high-margin beers.

The influx of fast-casual burger restaurants has also drained customers from the segment. As Bernstein Research Analyst Sara Senatore wrote in a note this morning, growing competition is part of the reason bar and grill chains have struggled recently.

At the same time, we remain convinced that independent concepts and small chains are taking away customers looking to spend time with friends. During a recent trip, some colleagues and I tried Chicago-based restaurant and winery Cooper’s Hawk. The restaurant was packed and the wait was three hours.

We instead walked to a nearby casual-dining chain and were served right away.

Yelp and social media give local concepts more attention. Consumers are spreading their dine-in dollars around. So they spend less at mass-casual restaurants.

There certainly are other factors. Yesterday, we wrote about a survey indicating that consumers believe they have less discretionary income and have pulled back on restaurant spending recently.

This hurts bar-and-grill chains the most, because the consumers doing the pulling back are most likely middle-class diners who are more likely to frequent chains like Applebee’s and Chili’s.

None of this is to say that bar and grill chains can’t come back. Yet, at least for now, industry trends have put them in a big hole.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

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