A Stifel Nicolaus analyst recently said that the casual dining sector is still too overcrowded and estimated that as many as 12,000 locations may need to close for the supply of restaurants to match consumer demand.
"After years of too much growth in casual dining, compounded since 2006 due to a weak consumer, the supply and demand of units is extremely out of equilibrium, and will take years to correct," said analyst Steve West in a note to investors.
Early this decade, credit was easy to come by and many restaurant companies — particularly in the highly competitive bar-and-grill segment — took advantage of that by financing ambitious expansion programs. The growth of casual dining locations, West noted, has now outpaced that of the U.S. population.
And now that fewer consumers are eating out, there are fewer customers to go around.
West estimated that about 7,500 bar-and-grill locations will need to close. That's about four times the size of the total number of Applebee's restaurants, he noted.
The bar-and-grill segment — which includes Chili's and T.G.I. Friday's — has been reporting declining traffic for some time as menus became more similar and chains ramped up expansion efforts.
Recent visits to T.G.I.Fridays in Lone Tree Colorado lead me to think that they are on the right track. In 1965, T.G.I.Fridays, started as a singles' hunting ground, was a forerunner in the casual dining industry. Many of the early competitors are just memories. Once the casual dining category caught on, it grew exponentially until, as discussed in the above article, the industry is saturated and there will be bodies littering the streets as things settle out. I'm thinking T.G.I.Fridays may be one of the survivors. Yes, they were complacent and dropped behind the newcomers -- Applebees, Chili's and such in the late '90s, but by 2003, they were topping Nordstrom in customer satisfaction.
Our experience may be typical. We hadn't been to a Fridays in years, but in May, there was the $5 Fridays promos with a dozen or so entrees offered at $5 each. Our neighbors suggested we all meet up there for dinner one Friday. We were thrilled with the food and the selection at that price -- why buy a cheeseburger at Five Guys when you can get the burger with a salad or fries and sit in a relatively civilized atmosphere for the same price? The server really talked up the "Give Me More Stripes" club, so we signed on. Our next time at the restaurant, sadly we discovered the $5 menu was only for May, but we were impressed that the Kitchen Manager dropped by our table with homemade potato chips and dips and an invitation to the monthly "Stripes Club" party. Our reaction was that it had been a decade or so since we'd gotten such good service and special treatment in a restaurant not owned by a friend. Of course, because we thought we had been treated well and the food was reasonable in quality and price, we told friends. That kind of word of mouth is what every restaurant wants.
Tonight we went to the monthly "Stripes Club" party with reserved signs on the tables and a VIP sign on the streamers separating the party from the regular customers. How many of the customers watching us pig out on appetizers, chicken breast with choice of sauces, complimentary mojitos, margaritas and long island teas and obviously enjoying ourselves as we tossed darts for extra club points wanted to be on the other side of that curtain? We happened to sit with another couple about our age and we are making plans for a return trip to T.G.I.Fridays. And you are reading about this great deal on my blog right now.
So now we've got club members talking to their friends, customers finding out that getting the card means you get invited to special events, happy club members blogging. And the cost to the restaurant is surely less than a couple of snappy ads on TV. Granted, quite a few of us are baby boomers or slightly younger, but we are still the largest generation with the most expendable income, so don't discount us! There were younger folks there also and, as word gets around about the free food...
If the food were ho hum, the promo wouldn't work, but this restaurant is doing a good job staying on top of new restaurant ideas. They do, after all, offer the winners of the Ultimate Recipe Showdown on the Food Network a place on the menu. Some of those dishes are a bit too edgy to succeed, but they do suggest an edginess missing in the tired old nachos and spinach dip offerings at the competition. (Too be honest, the nachos and spinach dips are a bit tired at T.G.I.Fridays, too, but they have alternatives. And those blackberry mojitos are stellar!
Check it out and let me know if you agree.