Financing

Casual dining completed its comeback. Now what?

The segment is generating sales like it’s 2019 again, but it hasn’t shaken pre-pandemic traffic problems. That will make future growth hard to come by.
A focus on food and experiences has led to fast growth for Texas Roadhouse. / Photo courtesy of Texas Roadhouse

Casual dining is back. Sort of.

Casual chains on Technomic’s Top 500 ranking last year surpassed 2019 sales for the first time since the pandemic began, generating $63.6 billion.

That was 9.5% more than 2021 and about 6% more than 2019.

But the growth came largely from higher prices. Menu price inflation at full-service chains was about 8% last year. 

“You’re seeing a lot of artificial inflation of that sales volume,” said Kevin Schimpf, director of industry research and insights for Technomic, a sister company of Restaurant Business.

And if you zoom out further, the growth looks even less impressive. Over the past five years, casual-dining sales have increased just 2% a year on average. 

“On a five-year basis, 2% is not much,” Schimpf said. When considering inflation over that time, it’s negative. 

Part of the issue is that there are simply fewer casual-dining restaurants than there were five years ago. The segment lost nearly 800 locations during the pandemic, and though unit count has recovered slightly since then, there are still about 4% fewer casual-dining locations than there were in 2018.

Before the pandemic, many believed the segment was overcrowded and due for a pruning. The result, they thought, would be better traffic and profits at the restaurants that were left.  

And yet traffic remains a problem for the segment. As consumers continue to seek either convenience or an experience in their dining occasions, many casual-dining chains are finding themselves stuck somewhere in the middle. 

During the pandemic, casual dining embraced convenience out of necessity. More chains began offering delivery, takeout and curbside pickup. And much of that business has stuck around. But it may not be the source of incremental growth it once seemed.

“Probably a lot of these guys are going to meet a threshold as to how much of their business they can really account for off-premise,” Schimpf said.

Casual chains can only offer so much convenience to compete with limited service for customers. On the other hand, they have the advantages of better food quality, service and atmosphere. 

“A lot of it does come down to, if a consumer is willing to spend a little bit more money and a little bit more of their time to go to a casual-dining restaurant, you have to either win them with food quality … or give them some type of experience,” Schimpf said. 

Indeed, some of the fastest-growing casual-dining chains last year lean heavily into creating a unique experience. At 40-unit Kura Sushi, where customers pick their sushi from a conveyor belt, sales rose a whopping 117% in 2022. 

“It’s very unlike any other concept in the top 500,” Schimpf said. “Sometimes novelty wins.”

Eatertainment chains like Main Event and Dave & Buster’s also saw big sales leaps. So did concepts with an emphasis on high-quality food and craft drinks, like Tupelo Honey and North Italia.

Another big winner: Small, regional favorites such as the 20-unit Florida chain Ford’s Garage and Hawkers Asian Street Food, which has 13 locations in the Southeast.

Part of the appeal of these chains, Schimpf said, is that they don’t feel like chains at all.

“Unless you’re Olive Garden or Texas Roadhouse or even someone like BJ’s, it’s hard to win when you’re a big national casual-dining player, because for a lot of consumers these concepts maybe just feel a little dated, a little stale,” he said. “And where you’re really gonna see growth in the future is with regional chains that don’t have so much density.” 

That said, casual dining--like the rest of the Top 500--continues to be dominated by the biggest of the big chains. In 2022, the top 10 casual brands made up 51% of total sales in the segment. 

And while the overall segment is challenged, there is still growth to be had even for the largest players. Sales at casual-dining leader Olive Garden rose more than 12% in 2022, while Texas Roadhouse continues to climb. It leapt over Buffalo Wild Wings to become the third-largest casual chain in the U.S., thanks to sales growth of 13%.

No. 7 LongHorn Steakhouse (15.3% sales growth) and No. 8 The Cheesecake Factory (10.2%) also stood out.

“They have some experience going on. The food quality is better,” Schimpf said of these brands. “You have to really set yourself apart from limited service in a very meaningful way.”

That is likely helping these chains win customers from other casual-dining brands. Applebee’s, Outback Steakhouse and Chili’s all generated overall sales growth of less than 5% last year, and their unit counts shrunk. 

That suggests the overall segment may very well have hit its ceiling in terms of annual organic growth, Schimpf said. 

“Yes, traffic growth is possible for particular operators,” he said. “But if we’re talking about the whole of the Top 500 and the casual-dining chains that are within it, no.”

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