Families May Be Dining Out More, But They're Ordering Less
April 13 2011 - 1:28PM
Dow Jones News
Cocktails might be trendy, but water is increasingly the
beverage of choice for consumers dining out.
A recent survey by restaurant research firm NPD group showed
that tap water was the fastest growing beverage at casual dining
chains in 2010," said Warren Solochek, analyst with NPD Group. "The
challenge is how do you get people to buy more than just an
entree."
The average check value was up 1.7% in the fourth quarter of
2010, but costs were up a lot more than that.
"Margins are going to be compressed because they don't have the
pricing elasticity to manage their checks in a way that would fully
offset the rising costs," Solochek said. "That will be the key
issue for 2011, particularly in light of the fact that [the price
of gasoline] is rising so much."
To help increase check values, casual dining restaurants are
taking advantage of happy hour, offering more late-night menu items
and marketing drinks specials, given that alcohol offers such a
high profit margin.
Late-night business was up 12% in the fourth quarter among
casual diners, compared to 2% to 3% for other day parts.
"Happy hour is a great way to get people in the door and keep
them there for dinner," Solochek said.
DineEquity Inc.'s (DIN) Applebee's Neighborhood Grill & Bar
and Brinker International Inc.'s (EAT) Chili's Grill & Bar
Restaurant are two of the less expensive casual dining chains that
are having some of the toughest times. Both are trying to ramp up
bar business.
Chili's blamed its traffic declines in the fourth quarter on its
less aggressive promotional strategy rather than a reflection of
the underlying strength of the brand. In the latest quarter, the
chain began marketing various promotions around sporting events.
It's expected to show improving trends when it reports earnings
later this month.
Applebee's said it expected its domestic same-store sales to
rise 1% to 3% in the first quarter; the results will be announced
next week. It has added more low-calorie meals and cocktails to its
menu this year, and also ramped up promotions.
"Other really good news for the industry is that parties with
kids are coming back," Solochek said.
Family business was up 4% in the fourth quarter while adult-only
business was flat. This makes it crucial to be kid-friendly,
because that could be a tie-breaker when families are deciding
where to eat.
But in addition to rising labor and commodity costs, which have
gone far from unnoticed by investors and analysts, the restaurant
operators are facing backlash from the intense discounting they did
during the recession.
"Consumers are more loyal to promotions and price and not
necessarily to chains or the products they have on their menus,"
Solochek said. Restaurant operators should focus more on their
menus to make them stand out from their close competition, which
would help them win business without discounting.
Some chains are afraid to stop the good deal, but NPD Group says
regular-priced visits are growing, "which shows restaurants didn't
need to continue to provide as many incentives in the fourth
quarter as in the past to get people to come in," Solochek said.
"And that is huge from a margin standpoint."
-By Annie Gasparro, Dow Jones Newswires; 212-416-2244;
annie.gasparro@dowjones.com