Despite a short-lived upturn, the casual-dining segment has never quite returned to its heyday of the 1980s and ’90s. Now the economic effects of COVID-19 have reversed what little progress it had made. Restaurants across the board are feeling the strain, but it’s especially acute for full service, which has not invested into off-premises options as thoroughly as its quick-service and fast-casual counterparts.
Additionally, casual dining was already trailing before coronavirus walloped the industry. Per Black Box Intelligence, casual dining’s market share fell from 20.2 percent in 2018 to 19.8 percent in 2019, while quick service and fast casual grew by a combined 0.48 percent.
“Casual dining has been declining for years, and so has family dining for the most part, because the consumer is changing,” says Larry Reinstein, president of restaurant consulting firm LJR Hospitality Ventures. “Brands that have casual- or family-dining chains need to find a new avenue for growth.”
The solution? Create their own quick-service and fast-casual concepts in an attempt to cover every corner of the market and capitalize on consumers’ craving for convenience. And there’s no one way to do it. While some brands—Applebee’s, Buffalo Wild Wings, and P.F. Chang’s included—are opening up express versions, others are designing or acquiring completely new operations.
The carryout concept
Nestled in Mobile, Alabama—a market in which the brand hasn’t had a presence in several years—the first, and so far only, Applebee’s Express unit debuted last December. The franchised location, which is operated by Quality Restaurant Concepts, is half the size of a traditional Applebee’s, with only 72 seats and dedicated counter-service and to-go areas.
“The menu has been engineered to maximize our service times, with a focus on menu items that have shorter cook times along with some of legacy items,” says Scott Gladstone, Applebee’s vice president of strategy and development. These include Boneless Wings, the Quesadilla Burger, and Broccoli Chicken Alfredo Pasta.
In January, Asian bistro chain P.F. Chang’s closed the last of its Chicago locations. But within a month, it debuted its very first P.F. Chang’s To Go in the same market to capitalize on consumer demand for to-go and delivery offerings.
Chris Demry, senior vice president of off-premises dining at P.F. Chang’s, says away-from-restaurant sales make up 22 percent of its full-service business on average. The To Go concept—which offers takeaway, delivery, and catering options, with no seating inside—plans to expand this figure even further. “Customers love our food, but they don’t want to go wait 15 or 20 minutes to get seated on a Friday night,” he says. “They would prefer to just have it delivered to their house or order it online and pick it up.”
The 1,900-square-foot location is the first of many planned for the brand, with nearly two dozen units in the pipeline in other urban areas such as Manhattan, Dallas, and Washington, D.C. The menu includes many of the chain’s best-sellers—think Mongolian Beef, Sesame Chicken, and Lettuce Wraps—along with dim sum, sushi, and sides like fried rice and Kung Pao Brussels Sprouts. The concept will also offer exclusive lunch bento boxes, with the choice of an entrée, spring roll, and edamame, plus a soup or salad for an extra charge.
“We have the same food-quality standards, so all of our operational metrics and measures are the same, whether it’s line checks or recipes,” Demry says. “There’s the potential to dilute the brand if you’re not maintaining the quality of your food.”
What’s in a name
While Applebee’s and P.F. Chang’s are jumping onto the limited-service bandwagon with an express version of their existing concepts, other companies are rebranding slightly as they enter a new segment. After Hooters was acquired by Nord Bay Capital and TriArtisan Capital Advisors, the company debuted Hoots in 2017. Since then, the fast casual has expanded to four locations.
The growing chain features signature Hooters items, such as chicken wings, fried pickles, buffalo shrimp, and jumbo chicken tenders, plus a full-service bar offering beer, margaritas, and sangria. In a departure from its casual-dining chain, the operation employs both male and female team members, who are clad in more standard foodservice apparel (orange V-neck or polo and khaki pants).
Meanwhile, breakfast behemoth IHOP is developing its own offshoot brand. Dubbed Flip’d by IHOP, the three-daypart fast casual is designed to serve markets that can’t easily be reached with traditional IHOP units (hence why the brand is targeting Atlanta for the first location).
“If you look at our typical IHOP restaurant, we don’t have a lot of them in densely populated areas. It’s really expensive for real estate in those areas, and the cost of doing business is high. We’re a fully franchised system, so we need our franchisees to be profitable,” says IHOP president Jay Johns. “This is a way for us to do a smaller footprint and be more relevant for people in those areas who need things quicker, on the go, and with more catering.”
While the brand is in no rush to expand Flip’d just yet, future locations could pop up in markets like Denver, Boston, San Francisco, and New York City. “We’re trying to give more IHOP to more people all across the country,” Johns says. “There are cities where we’re not doing that today, and this gives us a big advantage in trying to do that.”
Johns says the fast-casual concept will compete with—even outperform—other breakfast brands in the biz, thanks to its convenience, technology, and food quality. Guests can order at kiosks in the unit or order ahead and pick up their items from to-go cubbies, and every item will be made fresh from scratch.
“A lot of places where you go get your coffee, they have things pre-manufactured, and they throw it in a warmer of some sort,” Johns says. “We’re cracking eggs and making pancakes fresh. It’s going to be a much higher-quality food experience than what you typically have in a fast casual, especially for breakfast.” Flip’d will also offer lunch and dinner items, like its signature steakburgers and crispy all-natural chicken, all served in a unit designed to hearken back to the casual-dining chain.
A whole new venture
But some full-service concepts are looking to make a complete departure from their pre-existing brands, as The Cheesecake Factory has done with its Social Monk Asian Kitchen creation. A fast-casual take on another one of its full-service concepts, RockSugar Southeast Asian Kitchen, the Westlake Village, California, location launched in February 2019, with seating for 44 inside its 2,800-square-foot space, plus 50 additional seats on the 1,400-square-foot patio.
With a menu designed by Singaporean chef Mohan Ismail, offerings include coconut chicken soup, green papaya salad, chicken satay, rice and noodle bowls, Thai green curry, ginger-fried rice, and Shaking Beef (tenderloin, green beans, onions, and garlic with rice).
As with RockSugar, The Cheesecake Factory hasn’t put its name on the fine-casual concept, with no mention of the full-service brand on Social Monk’s website or in its store design.
“You have to think what the pros and cons are of that,” says Juliana Pesavento, vice president of Simmer Group, a consulting agency for the hospitality industry. “If someone has a bad taste in their mouth from Cheesecake Factory, but now they’ve stumbled upon this new restaurant, is that an opportunity for it to stand alone and kind of reinvent itself? On the flip side, you could convert fans from an old concept to a new one.”
Reinstein, for one, approves of moves like The Cheesecake Factory’s, where the fast casual has no affiliation with the full-service business. “There are preconceived notions—both positive and negative—associated with a brand,” he says. “When you create a new brand, you’re starting from scratch and you can create it the way you want it to be.”
Better yet are brands that diversify their portfolio not by creating a new concept, but by acquiring an already-existing operation with a lot of growth potential. After a foray into fast casual with its Holler & Dash brand in 2016, Cracker Barrel purchased Maple Street Biscuit Company for $36 million in 2019 and converted all seven of its Holler & Dash units to the newly acquired concept.
Florida-based Maple Street Biscuit Company has more than 30 locations across seven states, with another seven set to open by the end of 2020 in new markets like Nashville, Tennessee, and Charlotte, North Carolina. The upscale breakfast and brunch menu features standouts like The Squawking Goat—made with a fried chicken breast, fried goat cheese, and house-made pepper jelly—and The Five, featuring fried chicken, pecanwood-smoked bacon, cheddar cheese, and sausage gravy or shiitake mushroom gravy. It also offers biscuits, waffles, and hearty bowls.
The dangling carrot
No matter how casual-dining chains choose to get into the limited-service game, the advantages of doing so are clear. Not only does a smaller footprint allow them to access more expensive markets, but it also makes the concept more appealing for both new and existing franchisees.
“We’re trying to get this in a price range that’s more like a typical fast casual,” Johns says of Flip’d. While the cost can depend on the city, the range is typically $600,000–$800,000, he adds. For context, many full-service chains are closer to $1 million and can even reach more than double that figure.
Quick serves can also save parent companies and their partners money on the labor front, thanks to fewer front-of-house employees. “For delivery and takeaway, consumers tip, and they pay part of our labor bill,” says P.F. Chang’s Demry. “In a larger restaurant where you have a lot of back-of-house staff, more dishwashing staff and runners, those people don’t typically get tipped.”
Not to mention, being in the limited-service space allows brands to be more agile, Pesavento says. “When you roll out a special, there’s less training required for staff, who are the ones having to touch every single table and explain what the special is in a full-service concept,” she adds. “When you have a limited front-of-house staff that has a POS system right in front of them when people are coming up to order, it creates a more nimble environment for both the consumer and the employee.”
A smaller menu is also easier to execute, lowers food costs, and helps operators service customers more quickly, while allowing brands to experiment with new menu items and systems that can be applied to their full-service concepts. “If we find some way that improves the speed of cooking our food and getting it out of the kitchen, why wouldn’t we share that with the mothership at IHOP?” Johns says.
Full of pitfalls
For every advantage that fast casual brings, there is an inherent challenge associated with diving into a new segment. The first are the upfront legwork and financial investment.
“Over the years and in support of this launch, we’ve done a lot of guest research to understand what their level of acceptance would be and what the level of demand looks like,” Applebee’s Gladstone says, adding that brands must also set guests’ expectations for what the new concept is or isn’t going to be. “When you have a concept that is very well-known and an experience that’s well-known, there’s a little bit of educating guests that’s needed,” he adds. These touchpoints range from how the concepts are different to how they’re the same to, ultimately, what is the new brand proposition.
Resisting the urge to expand too quickly is a hurdle chains face regularly, and it’s no different for their limited-service spin-offs.
“Every concept is different, and there are so many factors that contribute to success,” Pesavento says. “That could be where some of these concepts have missed the mark—when they think, ‘We’ve done this before with Brand A. When it comes to Brand B, let’s do the same thing and let’s do it fast.’”
Oftentimes, she adds, operators will encounter situations or challenges they hadn’t planned for in advance. Slow and steady growth allows time to course-correct, but aggressive expansion could lead to a swift demise for unproven concepts.
As for the future of casual dining, brands dipping their toes into the limited-service waters insist they’re doing it to complement—not replace—their full-service businesses. While all brands interviewed said they’ll continue expanding their existing casual-dining concepts, what they look like in the future might be a little different.
“It doesn’t make sense to build a 220-seat restaurant anymore because 30–40 percent of your customers are now having convenience at home,” Demry says. “But if you have good food, good quality, and you’re consistent, consumers will leverage both of your models.” ⎜