Can Family Dining Survive the Changing Times?

These classic brands are facing increased competition, and it's not just from other restaurants.

January 2019 Gary M. Stern

In a study of restaurant chains in 2018 by TDn2K, a Dallas-based research firm, nearly all facets of dining out, including fast casual and quick service, showed expanding revenue except for one segment: family dining. While the declining revenue of .03 percent was slight, it stood out as the glaring lackluster area during what’s been an industry-wide resurgence.

These family dining eateries were squeezed by a slew of competitors that siphoned off business, says Victor Fernandez, the VP of Insights & Knowledge, at TDn2K. Family dining leaders such as Denny’s and IHOP are facing “a market share battle. There’s not a lot of growth in restaurant locations. And we’re seeing an increase in off-premises consumption,” he says.

Many families are opting for prepared foods from supermarkets such as Kroger, Whole Food Market, Trader Joe’s, and a host of independents, served at a lower price than most family eateries can offer. Moreover, a string of food delivery services, including Grubhub, Seamless, and DoorDash deliver meals from an array of eateries, at nearly any price, to their door in 20 minutes or less.

Since so many consumers are staying home and ordering goods through Amazon and other online sites, the sentiment is, why not just dine at home or take out?

The family dining chains that are holding their own, despite intensified competition, are offering a reason to dine out—a compelling combination of down-home service, good value, and appealing menus.

Many consumers consider the major family dining chains as “same old, same old,” Fernandez says. “Consumers want something new and are always craving new options. And the advent of social media enables them to do that,” he adds.

Some regional family dining players, First Watch and Black Bear Diner, have been capitalizing on the increase in breakfast business and are showing revenue spikes.

Moreover, the average check for dining out at family eateries has stagnated and had the least increase of any segment in the restaurant industry. Because so many family restaurants are battling for market share, they’ve been reluctant to raise prices and antagonize any customers whom they’re encouraging to return. They fear that if they raise prices, they’ll lose traffic, Fernandez says.

“It’s family being together. There’s laughter and smiles, and you don’t get that in a take-out experience.”— Brad Haley, IHOP's chief marketing officer.

Based on social media feedback, one differentiator that can lure more customers is superior service. If chains can reward and retain managers and create a service culture, it helps retain customers and make dining out a special event that prepared meals can’t match.

Dine Brands, which consists of 3,700 IHOP and Applebee’s in 18 countries, saw its third quarter 2018 revenue rise to $194 million from $175 million a year ago under new CEO Steve Joyce, who took the helm in September 2017. One factor in its revenue rise was off-premises and delivery sales, which spiked 37 percent and now constitute 7 percent of sales. In July 2018 it signed a partnership deal with DoorDash.

IHOP has achieved three consecutive quarters in 2018 of rising comparable-store sales, says Brad Haley, its chief marketing officer, based in Glendale, California. Outpacing the new competitors and maintaining market share have taken a multi-faceted strategy to succeed, but highlighted is “elevating the brand’s relevance and its impact on culture, through a new advertising campaign,” Haley says. The company’s goals are getting IHOP “at the top of consumers’ minds and give them a reason to come back and love us more,” he says.

Introducing the latest style of pancakes or waffles as an ad campaign, which worked five years ago or so, won’t be sufficient any more, he says. For example, to promote its pumpkin pancakes, which it offers annually, IHOP introduced a Keegan Ale pumpkin beer to boost its awareness and jump-start sales.

IHOP

IHOP hit on some major marketing pushes in 2018. Can it do so again in 2019?

While many family dining chains have pulled the plug on opening new stores, its franchisees, which number 1,830 globally and 1,700 domestically, debuted 28 restaurants in the first nine months of 2018. IHOP intends to open about 75–85 new eateries in the U.S. and abroad in 2019.

Despite the fact that mall traffic is down and staying home and ordering online products are up, families dining out at an IHOP still consider it as a special experience, Haley says. “It’s family being together. There’s laughter and smiles, and you don’t get that in a take-out experience.”

And its clever IHOb, International House of Burgers campaign, spiked sales of the steakburgers initially by four times the normal number, which settled into twice as much.

Boosting prices is tricky when a chain is fighting for market share, yet Haley noted that IHOP franchisees set their own prices. Though food costs have stayed stagnant, rising labor costs, due to low unemployment and increasing minimum wage, have necessitated many franchisees to raise some prices to keep pace.

Despite IHOP’s effective job of increasing top-line sales, Haley knows it can’t rest on its laurels. “The good news is much of what we did in 2018 worked, but in share battle, we need to stay one step ahead of what the competition is doing,” he says. Hence in 2019, he says, IHOP needs to “surprise people in some ways and continue to keep IHOP at the top of their minds when they’re thinking of where to dine for breakfast or burgers.”

The geographic footprint of being located in small towns and rural areas has enabled Huddle House, which has 340 locations—of which 40 are company-owned—to withstand some of the competition from prepared supermarket meals, says Alison Delaney, its Atlanta-based chief marketing officer. “You won’t find Whole Foods Market or IHOPs in our markets, and our biggest competitor is McDonald’s,” she says.

Huddle House

Huddle House's growth strategy has made it a destination in the areas it serves.

In fact, thanks to these markets, Delaney describes Huddle House as a “destination restaurant” rather than the kind of spontaneous eating venue you’d see close to a mall.

Huddle House attracts customers by offering three “differentiators,” Delaney says:

Stuffed hashed browns, which customers order at breakfast and dinner.
Smothered biscuit platters, which include eggs, bacons, and sausage.
Sweet cakes, which are larger and fluffier than pancakes.

At most Huddle Houses, customers gravitate there for the “sit-down experience,” Delaney says. “Customers see people they know after church, or down the street, and they often know their servers,” she says.

Its loyalty program, which is easy to maneuver, also lures diners in. Customers who spend $100 get a free meal of up to $6.

Prices have been raised only moderately, Delaney says, in an effort to keep pace with inflation, but not more than that.

Delaney admits that family dining chains are in a constant fight for market share. To maintain its slice of business, Huddle House is focused on executing, Delaney says, and that entails “responding to customers’ need for convenience, making online ordering and delivery available and easy to use, offering good value, and delivering that sit-down customer experience.”

TDn2K’s Fernandez won’t predict whether most family dining chains can boost sales in 2019. But he says, “If these brands can adapt to changing consumer behavior and be good at off-premises dining and offer items that make sense for convenience and value and deliver on service to their core customers, they can sustain business and turn things around.”