9990 Linn Station Road in Louisville, Kentucky, seemed like an ideal location for a T.G.I. Friday’s restaurant, and for some 30 years, it was.
Linn Station Road boasts proximity to Hurstbourne Parkway, a 50,000-car-per-day road dissecting one of Louisville’s most affluent suburbs and home to a thriving retail corridor populated with a Wal-Mart, large auto dealership, Staples, Office Depot, and other retail regulars.
All of these traffic generators lay within a five-mile radius of two of the state’s largest shopping malls, themselves thriving within a mile or so of each other. There was growing competition, but the market seemed able to support it.
But the economic decline that began in 2008, plus the advent of more restaurants in the area, made the once desirable location increasingly less profitable. On March 1, the T.G.I. Friday’s operator, The Bistro Group, the nation’s third-largest T.G.I. Friday’s franchisee, closed the store, which was the chain’s oldest continually operating location in the U.S.
A Complex Dynamic
It would be easy to blame the store’s failure on the sagging economy and leave it at that, but analysts say the closure is the symptom of a complex dynamic affecting chains across the country.
Jason Baker, co-founder and principal broker for Baker Katz, a commercial real estate firm based in Houston, Texas, explains that consumer behavior patterns, market forces and increased competition are all to blame for the demise of this store, as well as some stores operated by other casual chains. Baker Katz’s restaurant clients have included Outback Steakhouse, Carrabba’s, and Domino’s Pizza.
“During a recession, you have two types of restaurant customers,” Baker says. “Those who are going to eat out often no matter what the economy does, and those who will eat out less often. Frequent diners are more likely to chose something more upscale, like a Carrabba’s, while occasional diners have traded down [in price], more towards a Jason’s Deli.”
University of Louisville marketing professor Wayne Jones says this theory about consumer behavior, which he calls “traditional wisdom” in the restaurant industry, still seems to be the case today. Jones’ restaurant experience began in 1969 with KFC Corp. and includes stints in senior management with Arby’s, Chi-Chi’s, Tumbleweed, the International Pizza Hut Franchise Holders Association, Heinz, and General Mills.
“There’s a group with a lot of discretionary income that will eat out no matter what happens [to the economy],” Jones says. “There’s a bigger group that still wants to go out but has traded down some. That dynamic is still very much in play.”
Brand Positioning Brings Challenges
For T.G.I. Friday’s and other casual dining chains, competing for evaporating customers during a recession becomes even more challenging when you factor in brand positioning and customer expectations.
Over the past decade, Friday’s, Applebee’s, and other casual chains have distanced themselves from the happy-hour atmosphere that emphasized margaritas and other alcoholic beverages, an image they had cultivated in their early days, Baker says. They’re now sending a more family-oriented message.
Shifting attitudes toward alcohol consumption, partly a result of lawsuits filed against restaurants for allegedly serving alcohol that may have caused traffic fatalities, may have led to the change in branding among casual chains.
“At one point, 30 percent of our corporate volume came from the sale of margaritas,” Jones says, offering a statistic from his days in senior management for Chi-Chi’s. “Today [at many chains], it’s closer to 10 percent total volume from alcohol.”