Since the start of the Great Recession, limited-service restaurants have sought to entice casual-dining customers to trade down to their quick-service and fast-casual offerings, and a new report from YouGov BrandIndex has found that several limited-service brands are positioning themselves to successfully lure those guests away.
Based on thousands of consumer interviews, New York-based BrandIndex identified brands such as Subway, Wendy’s and Chipotle Mexican Grill as ideally positioned to attract casual-dining customers. Those chains scored the highest among limited-service brands in terms of BrandIndex’s proprietary quality score and value score. The consumer research firm’s senior vice president, Ted Marzilli, also noted that Taco Bell, Domino’s Pizza and Long John Silver’s were among the brands that improved both metrics in the past 180 days.
Consumers in all segments, not just restaurants, remain willing to try brands from lower tiers if they are convinced that those brands offer a comparable product or service at a value, Marzilli said.
“We’ve noticed less brand loyalty and more people trading down to store brands in other retail segments,” he said. “In restaurants, some of those folks who have traded down from casual dining and are eating at QSRs more frequently — these are not mutually exclusive segments anymore. There’s probably a lot of crossover, and that’s an opportunity for those QSR chains.”
Not limited by service style
By plotting chains based on their latest value and quality scores, BrandIndex found Subway, Wendy’s and Chipotle as the limited-service trio likely to appeal to casual-dining customers.
BrandIndex calculated the scores by interviewing 5,000 consumers per weekday, asking for each brand two questions: “Does this brand give you good value for what you pay?” and “Is this brand high-quality or low-quality?”
Negative responses are subtracted from positive ones, and a moving average is tabulated on a scale from negative 100 to positive 100, with a zero value denoting a completely neutral perception for a brand’s quality or value. The researchers then limited the data to responses only from survey respondents who had visited a casual-dining restaurant in the past month.
A second trio of Papa John’s Pizza, Pizza Hut and Arby’s was clustered behind the three top performers when accounting for combined value and quality scores.
Domino’s Pizza, which has made improving its food quality a major focus of its brand proposition over the past three years, lagged its two major competitors on both metrics. However, a separate chart from BrandIndex showed that Domino’s, Taco Bell and Long John Silver’s have made of the best improvements related to consumer perception in the past 180 days.
During that time, Domino’s introduced a new pan pizza and has begun advertising the product through differentiating it on quality — mainly the fact that its dough is never frozen. Taco Bell’s new products this year have done much to improve its quality scores, as BrandIndex noted in an earlier study, though it likely would benefit from share gains from Chipotle and not as much from casual-dining players. And a new ad campaign for Long John Silver’s, called “That’s What I Like,” debuted last week.
Even more important than the 2-percent improvement over the past 180 days for Domino’s has been its steady climb up the scale for quality scores since the beginning of 2009, Marzilli said. “The good news there is that Domino’s has moved up quite a bit, but the bad news is that they still trail their main competitors,” he said. “But it gives you a sense that Domino’s has come a long way over the last few years.”
Though Chipotle had the biggest decline in value scores, it did increase its quality score more than any brand in the past 180 days among casual-dining consumers. Taco Bell improved on both metrics in the past 180 days, most significantly on value, even as its two major product introductions of 2012, the Doritos Locos Tacos and the Cantina Bell menu, trade at higher price points than their core menu items. As a result, BrandIndex’s chart shows Taco Bell nearly reaching parity with Chipotle on value score while trailing significantly on quality.
Marzilli speculated that the collective actions among the quick-service brands — from remodeled stores and premium limited-time offers at McDonald’s to new ads for Wendy’s or Arby’s — to improve perceptions of their quality and value could start to foster a more positive view of the segment in general among casual-dining customers.
“It’s built up of all those individual brands, and some of the changes happening are very much larger in scale,” he said. “A lot of people in the space are trying to provide healthier [menu items], appeal more to parents or offer items that you wouldn’t have expected even three years ago from a QSR.”
Serious solutions for casual chains
So how do casual-dining brands compete against limited-service chains cutting into their market share in this manner?
“They need to be asking, ‘Is there enough difference in our casual-dining quality, versus what guests can expect to find in some of these QSRs?’” Marzilli said. “You have to always differentiate. It’s been a strategy for QSRs to move up the quality food chain while still advertising value as well.”
He noted that price-point-focused initiatives like Red Lobster’s $15 “Maine Stays” campaign or Olive Garden’s $12.95 “Dinner Today & Tomorrow” promotion would be one way for casual-dining chains to fight back on the value metric. But likely the best way to stay ahead of quick-service and casual-dining competitors would be to “re-differentiate on quality,” he said.
Such a strategy is worth considering given that the post-recession economy has been sluggish for several years and that slow growth is expected over the near term, Marzilli said.
“We ask our value question by asking consumers what they think they get in exchange for what they pay,” he explained. “As you improve the quality of your food and perhaps keep prices steady — or don’t increase the price as much as people think you’ve improved the quality — people begin to think they’re getting more, and the brand has probably improved both the value and quality positioning.”
The other thing casual-dining brands could do is focus on the service aspects that set them apart from limited-service brands. “There’s something to being in a nicer environment and being waited on for these customers,” Marzilli said. “Casual-dining brands can sell a whole different experience.”