While it seems like it’s always been a mature industry, the chain restaurant business in the United States actually is still in a state of relative infancy.
During a 35-year career that began in the dish room, I’ve actually worked for or met such concept creators as Norman Brinker, Alan Stillman, Ray Kroc, Harland Sanders, Dave Thomas and scores of other leaders whose names are not as well-known but whose contributions were just as paramount.
If the U.S. foodservice industry were the Bible, I sometimes feel like I’ve walked through the Old Testament. Armed with this long view, and while perched on the cliff of these heady economic times, I know that not all is now clear, but this much is self-evident: Deep change is in the air.
Industrywide re-engineering will occur, characterized by innovation, failure, evolution, leadership, trial, error, segment shifting and possibly even a new status quo—in which there isn’t one. A very different industry likely awaits us all on the other side of this recession, especially for the casual-theme segment. By the way, if you prefer “downturn cycle” instead of “recession,” then what part of our short history is surely repeating itself? Maybe media holds a clue.
In case you haven’t noticed, sandwiched between the buzz-killing 6 o’clock news, escapist reality shows, and your favorite online news source, we now see Applebee’s ads encouraging us to forgo fast food for their food at the same price. Casual-dining pioneer T.G.I. Friday’s now cajoles viewers to buy one entrée, get one free.
If you didn’t believe that competition was no longer linear by segment, do you doubt it now? The yearlong consumer trend of forgoing casual-theme restaurants, which are now suffering double-digit sales drops, for fast-casual and QSR eateries, some of which are seeing double-digit gains, has been dubbed “trading down” by pundits and characterized as a recent phenomenon. But generating new sales by stealing share from the price point above is as old as markets themselves; that’s how new segments develop.
Businesses acquire new customers through either fair-share or steal-share. Customer “fair-share” is a passive process: When the economy is good and consumers dine out more often, all the boats rise. This explains why so many new concepts and franchises proliferated and grew in the past decade, in spite of weak systems, brands or leaders.
Customer “steal-share” on the other hand, is pro-active and calculated. Competitive restaurateurs achieve steal-share by positioning themselves as a better choice either by price point, service, menu or marketing. Steal-share is both a vertical and lateral process; you aggressively take market share from the restaurants above, below and beside you.
This is why successful companies don’t “save” their way through a recession, they market their way through. Hence casual dining’s current discounting and quick service’s ongoing couponing.
In the 1970s, casual-theme chain pioneers like Houlihan’s, Friday’s, and Steak and Ale, among many, many others, aimed at—and carved their market niche from—the fine-dining category. White tablecloths suffered dramatic losses and closures as a result, while their diners fled to the more appealing price, value, menu and atmosphere of the new casual-theme segment.
Then as the economy improved, aspiring diners who previously frequented only quick service began to “trade up” to casual-theme restaurants, too. So “steal-share” buoyed by fair-share caused the segment to boom, and soon a host of casual tableside-service restaurants proliferated in every market.
Fast forward to 2009. We’re now witnessing a similar steal-share consumer migration, this time away from a staid and tired casual-theme segment to a burgeoning and fresh fast-casual one. History repeating itself? Perhaps, but the challenge now for casual-theme players isn’t as simple as waiting for the economy to improve and then watching the sales rebound. Just because the economy recovers doesn’t mean that consumer-dining habits are going to stay the same.
In a recent research project for an industry beverage vendor, we tracked how 225 Big Ten university students use the foodservice industry off campus. We noted preference, frequency, patterns of movement, average spent and the role marketing played in choosing where to go. This particular cadre of young diners preferred fast-casual to casual-theme restaurants by a 4-to-1 margin. They touted the appeal by citing the usual suspects like “fresh,” “bold flavors,” “variety” and “value.” No surprises there.
What we hadn’t expected to hear was the consistent unsolicited perspective that casual-theme restaurants were less appealing not because of menu or price, but because of the time constraints they put on young diners. Those under 24 years old routinely do not like to be “trapped” at a table or booth for an hour or more at the mercy of an ordering system and menu that serves a waiter’s timetable instead of their own. Interesting.
Is this a significant harbinger of things to come? Maybe yes, maybe no, but it can’t be ignored. A company’s future plans should never be predicated solely on past patronage. Baby boomers love their casual-theme restaurants, for instance, but it should be noted that their parents adored cafeterias, too. How is that segment faring today? While today’s economy and tomorrow’s diner do not necessarily portend certain death for casual dining, they do illuminate bigger issues that should be addressed beyond price, menu, decor and getting through a recession.
The first issue is leadership. Strong and insightful leaders, adept at managing and directing dynamic change in this segment, are needed now and needed fast. The truth is that some current leaders simply won’t cut it in the new order. It’s one thing to successfully steer the growth of a company in “fair-share” good times, but how many of the same leaders can aggressively grow and successfully transform their company through a more challenging “steal-share” economy?
We’ll have to watch together and keep a keen eye out for which company’s leaders play to win and which play not to lose.
To paraphrase Darwin, it’s not the smartest or the strongest of the species that survive, but the ones most adaptive to change.
Jim Sullivan’s new DVD on multiunit leadership is now available along with his free monthly e-newsletter at
