Is Casual Dining a Thing of the Past?

Earlier this week, the iconic, classic diner and dessert staple, Friendly’s, announced a new prototype based on a fast casual service model. The brand isn’t alone. Multiple casual ful-service dining brands have rapidly explored and launched fast-casual format counterparts—including Flip'd (IHOP), Hoots Wings (Hooters), Buffalo Wild Wings Go, P.F. Chang's To Go, Fridays on the Fly (TGI Fridays), and bushi by JINYA (JINYA Ramen Bar). And while this may seem like a blip of a trend due to the behavioral shifts caused by the pandemic, it’s not. It’s a movement away from casual dining as we knew it.

Casual dining has struggled for years leading up to the devastating influences of the COVID-19 pandemic. While the category saw some traction in the suburbs and rural areas, traction in urban and surrounding areas was sliding year-over-year. Big name brands like Applebee’s and Fridays have been on roller-coaster rides trying to identify the right approach to increasing traffic and same-store sales. Of course, they’ve had ups, but they’ve also had downs and, in general, casual dining as a category wasn’t an easy one to operate.

The pandemic only exacerbated many of the root causes of casual dining’s challenges: cost of labor, cost of goods, and consumer-need states. That same catastrophe also forced the hands of industry leaders to let go of sacred cows and rethink brand success with those three challenges as key factors. Add in the fact that many of these casual-dining players are seeing upward of 30 percent of sales from off-premises revenue streams, and the solution seems pretty obvious.

A shift in service model provides multiple positive effects that result in stronger business models. Costs associated with labor, goods and lease all change arguably for the better when a brand goes from full service to limited. The magic is found in the reduction of superfluous aspects of the business, and maximizing new opportunities.

Reduction in Labor. Unless you’re living on another planet, you’ve heard of “The Great Resignation.” Restaurants are feeling its negative effects far more than any other industry. And while the reasons behind this phenomenon are hotly debated, the facts are clear: Restaurants can’t find premium talent, and most talent feels undercompensated for their work.

The limited-service model eliminates the notoriously low hourly wages traditionally found in full-service formats. It gets replaced by an hourly wage, which is offset by a need for fewer employees to service the location’s patrons. Employees are paid more, and customers are serviced in-line with expectations. And this positive move forward is bolstered even further by technology innovation.

Every restaurant leader with even a modicum of pragmatism saw the need for technological innovation during the pandemic. A by-product of a best-in-class technology suite is the reduction of excess labor needs, furthering the reduction in that P&L line item. But before my working-class activist friends get up in arms, let me stress that this doesn’t kill the need for labor. Technological integration opens the door for more skilled labor that commands higher wages in the form of tech-savvy geeks. After all, someone needs to service, upgrade, and keep on top of the tech.

For patrons, they’ll experience higher quality service, fast experiences, and a higher rate of accuracy as the power goes from the hands of a middleman to their own. With upselling and suggestive selling technologies growing on online ordering platforms, restaurants can see higher check averages for their investment.

Finally, tech integration further reduces the square footage necessities that have plagued many casual-dining restaurants.

Reduction in Square Footage. While the pandemic hit everyone’s pocketbook—and some real estate managers were sensitive to the plight of their tenants—the cost of commercial real estate barely budged, and neither did the taxes that go along with it. Limited service models require less of a footprint because less time is spent dining in. That’s compounded by the high rate of off-premise sales. Less square footage means not only a reduction in lease fees, it also means consideration for other forms of acquisition: namely, drive-through service.

While drive-thru isn’t ideal for every concept, there are those who are finding a way to make it work. Historically drive-thrus were seen as a hallmark of fast food, a dirty word to those who adopted a dedication to elevated experiences. However, with brands like Shake Shack embracing the opportunity, and numbers from the pandemic showing sales upticks in drive-thru concepts, the beloved speedy window has come back into fashion. With it comes opportunities for increases in sales and traffic, and increases in operational challenges. Good thing the path was paved long ago, so best practices are easy to find and implement. And that’s not the only opportunity this format offers.

Virtual brands are a new way to maximize revenue. With a high-functioning kitchen, restaurant brands can offset the costs associated with operations by adding a symbiotic brand or brands in the digital space. With technology effectively integrated, and kitchen and operations streamlined, brands can serve entire menus without having to put a sign on the front door or offer a point of sale outside of a third-party delivery partner’s website.

And while a relatively new concept, many large brands have already created their own virtual brand counterparts. Brands like Smokey Bones and Chuck E. Cheese were quite quick to create, spin up, and launch virtual concepts primed to thrive on operational optimization, the power of online ordering, and third-party delivery. What makes them even more palatable is being able to cross-pollinate ingredients across different menus. This leads to optimizing the product mix and cost of goods.

Reduction in Goods. Casual-dining concepts have had a challenge in controlling the size of their menu offering. Cheesecake Factory going so far as to become legendary for its menu’s Bible-like size. Once again, the pandemic caused a reapproach to the menu and product offering that saw brands reclaim the basics. Menu sizes decreased for a number of reasons.

For starters, it’s easier, faster and cheaper to train new talent on smaller menus with less diversity in products. That’s paramount for an industry getting socked by The Great Resignation, as mentioned earlier. Secondly, the smaller the size of the menu, the fewer ingredients needed, less prep time required, and the higher the chances of order accuracy. In addition, the smaller menus keep patrons focused, resulting in quicker decision-making at the time of order, which also increases speed of service.

Messaging about the brand becomes more direct and ultimately more effective. No longer does a brand have to decide what item or items to focus on. Instead, deeper stories can be unraveled and told across channels, which increases belief in the brand’s claims. The more belief in a brand, the higher the affinity for it, and with affinity comes loyalty. And with brand loyalty in decline, this is an asset akin to gold.

Shifting to a limited service model isn’t as easy as a flip of a switch, but it may be necessary to prevent brands from failing outright. The key is to make a commitment and take the plunge instead of dipping toes. The longer it takes to shift the system to the new model, the more confusion takes hold, operational complexes stack up, and failure becomes imminent. Easier said than done … but with the talent in this industry, it can be done. Those who see it through will remain relevant and see the tides turn in their favor.