Economic woes have hurt families, particularly those with household incomes of $60,000 or less -- the group that used to go to Applebee's, Ruby Tuesdays, TGI Friday's or the Cheesecake Factory for a treat. Now they're more likely to hit McDonald's, Burger King or Taco Bell.
And that's causing the $70 billion casual-dining segment to rethink its position in the industry.
According to Technomic, same-store sales at casual-dining restaurants in the second quarter were flat or slightly negative, while fast feeders were generally positive in the same period. That's not too surprising: Whenever gas prices have gone up, casual-dining sales have dropped, said Jonathan Anastas, executive managing director at Kovel Fuller, Culver City, Calif. But what's different this time around is "the triple whammy of gas prices, housing-market collapse and the credit crunch -- it's the perfect storm," he said.
Mr. Anastas' agency represents Sizzler until the end of the month, when the business will have shifted to Ground Zero, Los Angeles. It's not the only casual concept looking for a change. Applebee's recently moved its business from DraftFCB Chicago to sibling McCann Erickson, New York. IHOP also is shopping for a new agency.
Larry Miller, an analyst with RBC Capital Markets, said that while the casual-dining industry has been ripe for a fall due to rapid expansion and lack of differentiation, the economy has made it worse. In responding to the industry downturn, casual-dining chains have gotten into price-competitive initiatives that don't foster loyalty and aren't sustainable.
For instance: TGI Friday's has tried a three-course combo for $12.99 to $16.99 and entrees sized 30% smaller for one-third of the price. Sizzler is experimenting with some new sauces on its steaks, with a baked potato and Caesar salad for $8.99.
Applebee's, by far the largest-casual chain in the U.S., posted negative second-quarter same-store sales, yet Mr. Miller said it's on the right path. The company, which has agreed to be purchased by IHOP, recently introduced a bruschetta burger, the invention of Food Network personality Tyler Florence, and selected a consumer-designed burger to be added to the menu early next year -- the "grilled apple-bacon-white-cheddar melt."
Applebee's is finalizing its first campaign from McCann. While it won't discuss specifics, Applebee's website offers a quirky clue. There, actual apples "audition" for a slot in the Applebee's ads via voice-overs with different personality types (flirty lady, cockney Brit, absent-minded professor). "We're not just launching an advertising campaign; we're catapulting one lucky piece of fruit to stardom," according to the site, which notes a "winner" will be chosen for "spokesapple" by the end of this month.
But while casuals are taking steps, fast feeders are soaring. McDonald's, Burger King and Yum Brands are all trading at or near 52-week highs.
And while McDonald's and Yum Brands are global companies with high-growth businesses in Asia, it's clear that fast food is capturing share from the casual-dining chains.