10 reasons bar-and-grill chains are in crisis10 reasons bar-and-grill chains are in crisis

This post is part of the On the Margin blog. 

It’s difficult to look at recent sales numbers and not come to the conclusion that bar-and-grill chains like Applebee’s are in crisis.

The venerable chain just reported a 7.9-percent decline in same-store sales in the first quarter. It was the second straight quarter in which Applebee's same-store sales declined more than 7 percent. And it wasn’t as if comparisons were difficult: On a two-year basis, same-store sales have fallen 11.6 percent.

It’s not a whole lot better for Applebee's rivals. At Chili’s, traffic at company locations fell 6.2 percent in the first three months of the year, and declined more than 10 percent on a two-year basis. Same-store sales fell 4 percent at perpetually struggling Ruby Tuesday Inc. in the third quarter ended Feb. 28. The company is now for sale. 

The casual-dining segment has had problems for a decade now. But bar-and-grill chains have struggled the most in recent years. Go back to the fourth quarter, in fact, and bar-and-grill chains’ same-store sales fell 4.7 percent on average. All other casual-dining chains averaged a 1-percent decline.

Why are bar-and-grill chains struggling so much? Some of the problems are of their own making. But in many respects, the segment is the victim of an ever-changing restaurant industry. 

Sea of sameness

You cannot talk about the bar-and-grill segment without mentioning this phrase. To many consumers, there’s little difference between an Applebee’s, a Chili’s, a TGI Fridays or a Ruby Tuesday. While there may be 15 Chili’s in a market, to a consumer there might be 50 Chili’s-like concepts out there. That’s a problem as demand for such chains falls. (Pro tip to fast-casual pizza developers: Pay really close attention to this.) 

Consumers are not eating in

People just don’t eat inside restaurants like they once did. That’s true whether the restaurant is a casual-dining chain or a quick-service concept. These days, 61 percent of all restaurant visits are takeout. While casual-dining concepts are working to increase their takeout business, they are designed as dine-in restaurants. 

Economic problems

Sure, the economy is growing. Unemployment remains low; wages are going up. But consumers have a lot of things to spend money on, like cell phone bills and higher housing costs. The middle class has suffered for many years. And these middle class consumers are frequent users of bar-and-grill chains.

The retail collapse

It’s no secret that these problems are occurring at the same time retailers are closing locations and filing for bankruptcy at rates not even seen during the recession. Many bar-and-grill concepts were built around shopping centers and depend on retail traffic. That decline has hit these chains hard. 

Not enough closures

When the great recession hit in 2008, restaurant sales plunged, and there was a lot of talk about oversupply. Casual-dining concepts did not close as many restaurants as perhaps they should have, and that has left the segment oversupplied. This probably changes, at least somewhat, absent a major sales reversal.

Fast casual

The development of higher quality quick-service options (which we call fast-casual because everybody does, and not because we have any particular fondness for the term) has provided busier consumers with better limited-service options. That has sapped a lot of casual-dining business, especially at lunch. The better burger segment in particular has hurt bar-and-grill chains.

Broad menus

Bar-and-grill chains generally have broader menus, but consumers have shifted spending toward more focused concepts. These broad menus make it more difficult for chains to stand out with a specific product offering, like quick-service chains can.

The tip

Yes, a 20-percent tariff on the cost of a meal keeps customers from dining out at your bar-and-grill chain. Sure, fast-casual chains keep raising prices like they’re generating 10-percent traffic growth and could ultimately price themselves out of this advantage, but, for now, that 20-percent surcharge hurts traffic.

Perception

Many bar-and-grill chains have a quality perception problem. In our Consumer Picks survey last year, TGI Fridays ranked 29^th out of 40 casual-dining chains; Applebee’s ranked 31^st; Chili’s 35^th;and Ruby Tuesday 38^th. I take these surveys with a giant grain of salt — McDonald’s Corp., after all, finished 110^th out of 112 limited-service chains, yet is by far the biggest restaurant chain on the planet. Still, customer perception matters in the Yelp era.

Independents

Yelp scores and other social media sources give customers some faith that the local bar-and-grill concept serves good food. Consumers are limiting the dollars they spend on these occasions. That hurts bar-and-grill concepts as much as anybody else.

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]

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