Fast feeders bite into casual dining

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McDonald's is eating Applebee's lunch.

And it's not just the top fast-food chain that's biting back at sit-down restaurants. Buoyed by better-quality salads and sandwiches, upgraded interiors and heavy advertising, the fast-food industry is reversing the four-year streak of casual-dining chains handily outperforming quick-service. That's leading the likes of T.G.I. Friday's and Ruby Tuesday to fight back.

A weighted monthly same-store sales index by Piper Jaffray & Co. showed fast-feeders' same-store sales slid 4% in early 2003, then surged with a 7% gain a year later. At the end of the second quarter, mean same-store sales at fast-food chains (3.3%) bettered that of casual dining chains (2.7%) for the first time since the first quarter of 2002, according to Piper Jaffray.

And though comparable sales for the entire industry are slowing, quick-serve chains remain more positive than their sit-down brethren.

"Right now, [QSR same-store sales] are higher than casual dining," said Malcolm Knapp, president of his namesake consultancy that conducts the Knapp-Track casual dining report. Based on a number of factors, he speculated that fast food "is taking some business from casual dining restaurants, but mostly at lunch."

Several observers credit quality efforts by McDonald's, Yum Brands' Taco Bell, Sonic and Jack in the Box for quashing the feeding frenzy that sit-down chains enjoyed for much of the first three years of this decade.

"What we're seeing is the QSR industry making some pretty bold and large steps to improve and reposition their brands positively and we're not seeing same magnitude of evolutionary changes in casual dining," said Dennis Lombardi, exec VP at Technomic.

That has put casual dining chains on the defensive, pushing ambiance in advertising, adopting fast-food marketing tactics such as takeout service and ramping up limited time offers.

more competition

"When you have food parity, then the environment becomes more important," said Mr. Knapp, adding that because fast-feeders are now upgrading their interiors, it's understandable that casual dining chains would talk up their sit-down service. "Sometimes you have to remind people that they need a better experience."

Compounding the situation is more competition among casual dining chains. "I don't know if a customer perceives a whole lot of difference between the brands ... and they're fighting for the same meal occasions," Mr. Lombardi said. "They need to find a way to be more attractive than their competitors or find ways to have new meal occasions. That's why we're seeing strong interest lately in casual dining restaurants doing carryout."

To stand out, No. 7 Ruby Tuesday shifted its budget from largely couponing to launch its first national ad campaign. It dropped Publicis Groupe's Kaplan Thaler Group, New York, and hired Bernstein-Rein, Kansas City, Mo., which created a $20 million effort centered on a family's playful weekly dinner get-togethers at the chain.

hyping fun

Friday's, too, is hyping its fun atmosphere in ads. Carlson Restaurants Worldwide in September launched a branding effort via Interpublic Group of Cos.'s Deutsch, Los Angeles, with the tagline, "Everyone could use more Friday's."

In its Oct. 26 quarterly report, Chili's owner Brinker International admitted its performance wasn't up to par and promised a "steady stream" of new products, beginning in spring 2005, and national ads. Analysts blamed lack of differentiation for the third-ranked chain's performance.

After posting comparable sales in the mid- to high-single digits for the first half of 2004, casual dining segment leader Applebee's posted same-store sales below 2% in August through October, missing its target 3% to 4%. Applebee's national media budget will grow 34%, to $121 million, allowing it to have four separate messages on TV with six or seven campaigns, the company told analysts last month. It will talk about its "Carside to Go" business, Weight Watchers menu and heart-tugging neighborhood spots nationally.

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