Trading-down trepidations: the casual sector is borrowing from the QSR playbook, fielding combo meals in a drive to score against consumers’ economic defenses and block their down-market defections
Sarah E. Lockyer
A negative combination of economic factors calls for a positive combination of meal offerings, or so goes the logic in the casual-dining segment.
Chains in the dinnerhouse sector have flooded the market of late with three-course meal offerings or mix-and-match menus that scream value at a time of sky-high gas prices, weak consumer confidence, rising interest rates and government estimates that heating costs will jump by 30 percent to 48 percent this winter.
As foodservice securities analyst Steven T. Kron of New York-based Goldman Sachs says in a recent research report, “The typical U.S. restaurant consumer is either choosing not to eat out as often, trading down to lower-priced alternatives or simply ordering” less or lower-priced menu items.”
More important, perhaps, for the operators who watch those economic factors and their unfavorable effects on consumers’ dining-out habits, those trends are not expected to change anytime soon, Kron says.
Indeed, some economists are predicting a rough winter. The Labor Department reported this month that the Consumer Price Index, which has risen through much of the year, rose 1.2 percent last month, the fastest monthly increase since 1980. In addition, the index number of the University of Michigan survey of consumer confidence fell to 75.4 this month, its lowest reading in 15 years, down from 76.9 in September and 89.1 in August. The survey results show respondents’ pessimism about current and future economic conditions.
Yet operators in the casual-dining segment are not content to hunker down and wait for an economic turnaround. Many have tweaked menu offerings or introduced brand-new ones to focus on value–a good meal for a good price–to keep guest traffic in the coming months at least flat or, if possible, positive.
“We obviously know costs for consumers are on the rise,” says Erin Reckner, director of marketing at Max & Erma’s Restaurants Inc. “The whole idea [with the chain’s new combo option] … is for us to let our guests know that they can come to Max & Erma’s and get a really great deal.”
The company, based in Columbus, Ohio, is operator or franchisor of more than 100 restaurants, the bulk of which are located in the Midwest. On Oct. 17 Max & Erma’s introduced chainwide a $12.99 “Pick 3” three-course meal option, available through January. It is the first three-course meal plan the company has offered in its more than four decades in operation.
Reckner says finding a way to give guests “excellent value” at the restaurants was imperative, “especially with the Midwest economy really suffering and knowing what’s coming [in the winter] with gas prices.”
Customers can choose one each from groups of five appetizers, five entrees and five desserts, including what Reckner says are some of the chain’s most popular items, like tortilla soup, a 10-ounce burger and the all-you-can-eat sundae bar.
While the “Pick 3” menu option is priced above the chain’s typical average check of $10 to $11, it is the perceived value among consumers that Max & Erma’s is counting on, Reckner explains.
“Guests are getting more for the money,” she says. “There is no change in portion size, no change in the menu items. We just packaged them together. Some combos give our guests $8 off.”
While the three-course meal plan is new to Max & Erma’s, Bennigan’s Grill & Tavern currently is offering an expanded “Mix & Match” menu, which was introduced in April.
On Oct. 17 Bennigan’s added the option of picking multiple appetizers, entrees and desserts to construct combination plates for each course–two or three appetizers, two or three main courses, and two or three desserts. A six-item menu is $12.99; a nine-item meal is $15.99. Previously the “Mix & Match” menu allowed only a choice of one item for each course.
“The Mix & Match entree for $12.99 is selling better because of its perceived value,” says Clayton Dover, Bennigan’s vice president of marketing. “You get steak and shrimp or ribs and chicken, and people are taking home leftovers. There is a value perception in that. If you would spend $11.99 or $12.99 on a steak, and instead are going for the combo at the same price, you get almost two meals.”
The Bennigan’s brand is owned by Plano, Texas-based Metromedia Restaurant Group, which also is franchisor of the Steak and Ale, Ponderosa Steakhouse, Bonanza Steakhouse and The Plano Tavern chains. Metromedia’s system comprises more than 800 corporate and franchised restaurants.
Dover explains that Bennigan’s has not recorded a drop in guest traffic for September or October, but there is definitely a “change in dining patterns.”
“I think it’s ingrained that we still go out to eat,” he says, “but there’s a little voice saying you don’t need the wine, you don’t need the dessert.”
To combat that kind of hesitance, Bennigan’s is offering an a la carte “Mix & Match” dessert menu, from which guests can order two desserts for $6.99 or three for $9.99. As the average dessert price is $5, Bennigan’s doesn’t log a loss in check average, but guests perceive more value, Dover explains.
“Our check average is stronger than before, and guest satisfaction is higher,” he says. “The value perception is higher, sales are up and it is the guest that makes that decision.”
Indeed, concerns about “value perception” have driven a plethora of casual-dining chains to offer three-course meals. The 767-unit T.G.I. Friday’s chain just concluded its promotion of a “Wild & Mild Three Course Menu,” which promoted “variety and value” by allowing guests to choose between six appetizers, 12 entrees and two desserts to create a three-course meal for $12.99. T.G.I. Friday’s is operated and franchised by Minneapolis-based Carlson Restaurants Worldwide Inc.
Orlando, Fla.-based Darden Restaurants Inc.’s Olive Garden chain offered through Oct. 16 the “Never Ending Pasta Bowl” for $7.95 at its 563 units. It was the 11th such annual promotion of the item, which allows guests to pick from six different sauces and seven different pastas.
While value is the name of the game in keeping customers spending money in a restaurant, casual-dining operators must also concern themselves with a consumer’s ability to “trade down” to lower-priced restaurants or even lower-priced restaurant segments.
It is clear that consumers will first look to “less lavish ordering,” according to Dennis J. Lombardi, executive vice president of foodservice strategies at WD Partners Inc., a Columbus, Ohio-based design and development firm. But the emergence of value meals or combination meals in the casual sector is the answer to that “first notch of tightening the belt,” he explains.
Then, Lombardi continues, consumers will reduce frequency at their favorite restaurants as economic factors continue to battle their wallets–a behavior that, again, can be addressed with menu offerings that showcase value. “That is the second notch,” Lombardi says.
“The third notch is to stay in the same segment, but go to lower-priced options,” he says. “Rather than get that $20 steak, go to a $10 or $12 casual restaurant.”
Finally, he adds, consumers will trade down, from full service to limited service, for example.
Lombardi, who has been consulting and researching various aspects of consumer trends for more than 30 years, says, however, that the restaurant industry as a whole should be able to weather the economic storm through the end-of-year holiday season.
“Consumers will make trade-offs,” he explains. “First and foremost, though, we’ll see that in durable goods, not in food away from home. A restaurant meal still is a small expenditure compared to a refrigerator.”
He says restaurant traffic is “reasonably insulated.”
Still, some restaurant chains, like Sizzler, are counting on some consumers trading down from the casual-dining segment to budget-oriented grill-buffet concepts.
In its most recent promotion the 270-plus-unit limited-service Sizzler chain of grill-buffets is taking on the higher-priced, casual-dining market by highlighting new combination meals and the chain’s all-you-can-eat salad bar.
“We’ve gone head-to-head with our competition,” says Mike Branigan, vice president of marketing for Sizzler. “It’s a ‘dress-for-less’ comparison. Why pay $25 at this restaurant when you can get it at Sizzler for $14.99?”
The chain, which is based in Sherman Oaks, Calif., and run by Worldwide Restaurant Concepts Inc., currently is promoting a steak-lobster-shrimp combination meal that includes a half-pound of fire-grilled steak; skewered lobster served with real drawn butter for dipping; and jumbo shrimp skewered with fresh vegetables. Sales of the $14.99 meal have been “terrific,” Branigan says.
In addition to the chain’s limited-time offer, Sizzler’s menu includes six year-round combo meals that represent a “huge amount of product mix,” Branigan adds.
“Sizzler pretty much has pioneered combo meals,” Branigan says. “We’ve done it for 45 years. [Casual-dining chains] are just jumping on board. We’re in a good competitive place.”
Almost four years ago, Sizzler embarked on a total reworking of its menu and brand, hiring noted chef Dudley McMahon and retooling its well-known all-you-can-eat salad bar to add fresh fruit and vegetables and more seasonal items. There are only two menu items still served from the original Sizzler menu, McMahon says. In addition, Sizzler is about to initiate a “fresh fish” program that will allow guests to order fish, imported each day, for only $10.99, representing another offering that will compete directly with the casual-dining sector.
“In the economic environment we’re in today,” McMahon explains, “consumers are trading down from [casual-dining] and coming in to us and appreciating our quality and value.”
Even still, execution is key
Regardless of consumers’ actions, operators agree the best way to insulate a restaurant from outside forces is flawless execution within their four walls.
“With all the hysteria and drama going on in the economy, people ask us all the time, ‘What are you doing differently?'” said G.J. Hart, chief executive of Texas Roadhouse Inc., at an investment conference last month. “I will tell you, what we are doing differently is just executing better. We continue to stay focused on legendary food, legendary service … every single day.”
Texas Roadhouse, a 213-unit operator or franchisor based in Louisville, Ky., has reported increased same-store sales of almost 7 percent in each quarter since the company went public in October 2004. For the five weeks ended this Sept. 27, same-store sales rose 6 percent over the same period a year earlier.
While execution is key, Texas Roadhouse’s executives are not blind to the need to emphasize value in today’s environment. The chain’s menu highlights a “Country Dinner” section in which every meal is priced below $10.
“It is tremendous value,” Hart says. “You get a 6-ounce sirloin, two side items, all-you-can-eat bread and peanuts and a beer for just 10 bucks. It’s a good value and it is driving the guest counts we are seeing…. Guests are telling us those value price points are where they’re going.”
Hart also says he is very aware of the trade-down effect. The company conducted research to see where guests dine when not at Texas Roadhouse and found that consumers choose limited-service restaurants or upscale establishments in addition to similar casual dinnerhouses.
Twenty-five percent of Texas Roadhouse’s traffic would go to Ryan’s or Golden Corral grill-buffets when not drawn to a Texas Roadhouse, the company’s research indicates. Another 25 percent would go to Outback Steakhouse or LongHorn Steakhouse, both of which have a markedly upscale brand and higher average checks. The remaining 50 percent of the Texas Roadhouse customer base would dine at similar casual-dining chains, like Applebee’s, Chili’s T.G.I. Friday’s, the research shows.
The Claim Jumper chain, whose annual sales average per restaurant is considered second only to that of the Cheesecake Factory chain, is another brand focused more on its own performance than outside factors affecting consumer spending. The 35-unit Claim Jumper, based in Irvine, Calif., recently sold a majority ownership stake in the company to raise funding for a national expansion.
In mid-October, Leonard Green & Partners LP, a Los Angeles-based private equity firm, made the Claim Jumper acquisition for between $200 million and $250 million, according to chain officials. Claim Jumper’s management team will remain the same and Craig Nickoloff, the company’s founder and chief executive officer, retains an ownership share in the company.
Robert Ott, Claim Jumper’s president and chief operating officer, says the infusion of funding will help the chain with its imminent expansion into the Midwest and the opening of between five and seven units each year for the next five years.
In January the chain–known for expansive portions and menu variety–expects to open its first Midwestern restaurant, in Lombard, Ill. It also has signed two other leases in the Chicago area.
As to whether Claim Jumper is concerned about economic factors and effects on consumers, especially in its new expansion territory, Ott says the chain can only focus on what it does best–providing “great” value and service.
“We have the ability to offer lunch for $10 and under and steaks in the $20 to $25 range,” he explains. “There is a wide gamut that we appeal to. In past recessionlike times we’ve always weathered it very well with a focus on value and service.”
Even with an average check in the $14 to $16 range, Claim Jumper boasts some of the highest average-unit volumes in the casual-dining segment. Ott places average annual sales at nearly $8.1 million at the chain’s newest restaurants, much higher than typical casual-dining average-unit volumes of about $3 million to $4 million and close to The Cheesecake Factory’s per-restaurant average of about $11 million.
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