Chili’s Grill & Bar, admitted that they are passing through a rough road in sales. Thus, this September, the global casual dining restaurant decided to chop off 40% of their menu to reverse a slowdown in growth.
From 125, Chili’s food choices went down to 75. The company’s move is to allow them to focus on their core offerings such as fajitas, burgers and baby back ribs. Chili is trying a leaner menu to counterbalance the company’s drop in sales.
“We had to take control of what we could control,” Chili’s President Kelli Valade said. “We had potentially lost our way.”
It’s not only Chili’s who’s struggling with sales. Many other mid-priced U.S. casual dining restaurant chains seem to be battling an upward hill to sales growth. The brands said that they are either facing static sales, or their consumers are having a shift in dining habits.
Included in the said list of casual dining restaurants are DineEquity Inc., which owns Applebee’s and IHOP, BJ’s Restaurants Inc., Ruby Tuesday Inc., and Cheesecake Factory Inc., which is experiencing a stall in sales growth for the first time in eight years.
What Happened in the Last Year in the Casual Dining Sector?
“The past 24 months have been extraordinarily difficult,” Applebee’s President John Cywinski told Wall Street.
The apparent change in sales of these brands doesn’t mean Americans stopped eating out. In fact, they still do. American consumers are actually spending billions in restaurants, and food vendors like beverage sales. According to the U.S. Commerce Department’s Bureau of Economic Analysis, in the second quarter, there had been a $605 billion annual rate inflation, which was 4% higher two years ago, which was $584 billion.
However, a great portion of these food sales went to cheaper fast-food chains, “fast casual” outlets such as Chipotle Mexican Grill Inc. and Panera Bread Co., takeout and delivery services, and some independent restaurants.
“We’ve seen a lot of growth in the fast-casual segment,” said Victor Fernandez, executive director of insights and knowledge at TDn2K, a firm that monitors the restaurant industry. “It’s in the middle, the casual-dining area, where that market share is coming from.”
Recent Consumer habits
The changes in the consumers’ habits caused problems to casual-dining chains, such as:
- This year, Brinker’s stock has gone down to 33%, while Standard & Poor’s 500 index increased by 11.6%. DineEquity’s stock decreased by 47%, as well as BJ’s Restaurants plunged 25% and Ruby Tuesday had a 31 % drop.
- Applebee’s same-store sales dropped 7%, and IHOP’s was 2.1% down. In just California there are about 120 Applebee’s locations and 230 IHOP restaurants.
- DineEquity had a shift in its command chain. Stephen Joyce, former chief executive of Choice Hotels International Inc., replaced Julia Stewart, the previous CEO of DineEquity, who resigned March 1 this year.
- Huntington Beach based BJ’s Restaurant, which have 194 chains, fell 1.4% in the first half of 2017.
- Ruby Tuesday, a known Tennessee firm, had decreased same-store sales by 3.1% in its fiscal year that ended June 6. Reports say that the firm are closing restaurants, and was reviewing its “strategic alternatives” that included a possible sale of the company.
- San Diego-based parent of the Souplantation and Sweet Tomatoes chains, Garden Fresh Restaurant Corp., filed for bankruptcy last year, and sold its assets to an investment firm.
- Cheesecake Factory, based in Calabasas Hills, had plunging same store sales by 0.5% in the second quarter compared with a year earlier. It was the first quarterly decline of the company since 2009. This year, Cheesecake Factory’s stock declined to 32%.
Trimming the Fat?
Chili’s move to reduce its menu was their attempt to narrow down their bloated list, which caused them to have a “fuzzy food reputation.” The casual dining chain has 114 restaurants in California, which admitted the problem in their menu, saying it was a result of “chased consumer trends, expanded the menu and tried to be all things to all guests.”
The bad reputation of Chili’s had an impact in their same-store sales, which fell 2.0% in its fiscal year ended June 28. During the prior year, the chain already had a 2.2 % decline.
Valade said that by reducing the menu, “we’re going back to what we are known for.” He added, “it means hotter, faster, better-quality food.”
Chili’s also plans to invest millions in improving the quality of their remaining food choices.
“We weren’t getting the traffic we needed, and we have to get significantly more aggressive to turn Chili’s around in this environment,” Brinker Chief Executive Wyman Roberts said.
“We have to make the food better, and we have to deliver it faster.”
“Bottom line, we’ve taken our eye off the ball here, and we have work to do,” Applebee’s
Cywinski said, admitting they misjudged the market.
Their mistake in the recent years was their “set to reposition or reinvent Applebee’s as a modern bar-and-grill in overt pursuit of a more youthful and affluent demographic… A clear pendulum swing toward the Millennials,” Cywinski said.
However, the change caused confusion for their regular casual dining customers. Applebee’s “drifted from what I’ll call its middle-America roots,” he said.
