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September 2006 |
Volume 7, Issue 9, Part 1 |
Casual dining has been the darling of the franchised food service industry for decades. But the slowdown in same store sales in recent months raises some interesting questions. Does the price of gas really affect the dining habits of consumers? Does it matter if mortgage rates go up? Or are consumers getting bored with the same old fare? In this issue we talk to Ron Paul of Technomic, Inc. and Ron Parikh of Genghis Grill to get their thoughts on why some casual restaurants are hot while others are not.
Technomic, Inc. is a Chicago-based research and consulting firm that has tracked the foodservice industry for over 35 years. Ron Paul, President & CEO, says, "The number one trend today is that casual dining operators are facing sagging sales." Indeed, looking at the firm's statistical reports a year ago, the category was going nowhere but up. But today the picture is not as rosy. Ad Age reported last month that restaurant sales are facing the worst slump in 15 years - since the 1991 recession to be exact.
Numerous industry analysts have scrambled to figure out what's going on. Most have cited high fuel costs as the culprit. Others point to rising interest rates squeezing middle class budgets. Paul asserts that the downward trend is the result of a combination of factors. There is a financial squeeze caused by the price of fuel (which Paul points out is no higher now than it was a year ago), higher minimum credit card payments, and rising adjustable rate mortgages. But Paul sees another issue. "Frankly over time, we think there has been a little bit of a 'wear-out' where the newness and fun-ness of the experience is lessening. The category in some sense is suffering from what we'll call the 'sea of sameness.' How different is the menu at one versus the other, particularly when you're in the bar and grill category?"
Paul says that restaurants at the higher price points are doing okay because their customers are not as impacted by the economic conditions. "Capital Grill, for example, and those that have the $30-per-check and up average have not been hurt as badly as Applebee's and others like that," says Paul. "Applebee's has said that they've lost something like 5-10% of their customers. Those customers have just basically stopped going there. They are lower income and they are either going to either quick casual or they're going to the grocery store. We don't know exactly where they're going but we know they're not coming to Applebee's. We think some of them have traded down to fast food or quick casual, that it's financially driven."
Eight of the top 10 fastest growing full service restaurants are franchise operations. The two exceptions are Olive Garden and Red Lobster. Paul says, "What we can generally say - and there will always be exceptions - is that franchise operators perform better than company operations. Part of that that relates to the fact that you have more offsite management and people who've really invested in that store. And that's just an opportunistic profit sharing kind of thing if you're a manager in a chain. I mean if they've invested in a franchise and times get tough, they probably come into the store a little more often and stay a little longer, work a little bit harder, and worry a little bit more."
The advantage in being different
Olive Garden and Red Lobster, according to Paul, have continued to perform well because they are differentiated and therefore not as prone to the "wear-out" factor. "Olive Garden has one of the best performances over the last several years in terms of same store sales. I would suggest that's probably due to the fact that they are different," says Paul. "They've got their bread sticks and their soup program and although they're in a popular category, there really isn't a lot of direct chain competition to them. So I think again, being differentiated is what's most helpful to them."
Paul points to other differentiated concepts that are growing faster. "PF Chang, for example, is an Asian concept that is growing quite rapidly." One exception to this notion is Cheesecake Factory, which has seen its same store sales decline for the last two quarters even though they are one of the most differentiated concepts. Nonetheless, a number of casual chains are addressing the issue of consumer wear-out. Applebee's is giving its menu offerings a boost with the addition of new items from New York and Food Network celebrity chef Tyler Florence. The launch of the new items, slated to start this week, will be supported by a national multi-media advertising campaign featuring Florence. TGI Friday's is taking a different approach. "Friday's is putting a lot of money into remodels to try and give themselves a fresh look rather than continue to rely on what they were doing 5 or 10 years ago," says Paul.
Future of the industry and the category
 Although sales are definitely down from 2005, Technomic data shows continued growth in both limited and full service categories. “Some of the glamour is off of the traditional players including some of those that have been the absolutely best performers,” says Paul. “We think that the casual dining category is going to be under pressure certainly for the balance of this year. There is a real concern that the economy is softening. If this (trend) were to continue it would be a signal because food service tends to soften before a recession begins as consumers tune down their spending. We’re watching the forecast for 2007 and while most economists tend to be optimistic, we take the wait and see attitude.”
Contact Information: Technomic, Inc., Ron Paul, President and CEO, http://www.technomic.com, (312)876-0004.
Genghis Khan has inspired a fast casual restaurant concept that 21st century consumers are eating up. Back in the 12th century when Khan and his army of Mongol warriors set out to conquer the world, they fed themselves by hunting and grilling the fresh meat on their shields over open fires in the fields of battle. At Dallas-based Genghis Grill, Mongolian stir-fry is cooked on 7' circular grills instead of shields and grill masters use long wooden sticks instead of swords to toss the ingredients while they cook. It's a colorful and lively Asian stir-fry concept that's healthy, fun, and inexpensive.
Ron Parikh, Chief Marketing Officer, says, "the concept is definitely unique. As a guest at Genghis Grill, you build your own bowl by choosing your own meats (or other proteins), vegetables, spices, and sauces from the food bar we call Kahn's Kitchen. You then take your bowl of raw ingredients to the massive hot grill and watch as the grill master cooks it up - which only takes about 90 seconds. This exhibition style is intended to be very interactive and fun for customers. It's a great place to take a first date."
 Have it your way
In addition to being novel, Parikh says it's a healthy cuisine that encourages customers to be adventurous. "You have the option to create what you want to eat and not have to conform to something that's traditional and repetitive. Those new to the concept can follow one of our 12 signature recipes that serve as a guideline. But there are countless possible combinations." The food bar offers all kinds of protein - chicken, turkey, beef, pork, lamb, fish, calamari, shrimp, and tofu - shaved paper-thin for quick cooking. The array of bite-size vegetables is impressive with everything from broccoli florets to water chestnuts. In addition to choice of spices, there are also numerous sauces. - salty, sweet, hot, sweet & sour - you name it, proclaims Parikh.
"You can only have the same thing so many times before your mind and body finally says, 'I want to feel special. I want to have something different today from what I had yesterday.' That is what is lacking in this industry - something different," says Parikh. Here at Genghis Grill, every time you walk in the door you can get something completely different. Today you might want chicken with pea pods and peanut sauce; tomorrow you might want cod and garden veggies with honey apricot sauce. Whatever your diet is, you can get it. You might be vegetarian or maybe you're restricting your sugar intake or you don't want any starches. Whatever your diet is, you can make a meal that's comfortable for you." The prices are very competitive, too. "We have an average ticket of $10 for lunch and $14 for dinner. We appeal to a wide market, from kids to seniors."
Beating the slump with something different
Inexpensive dining, fun atmosphere, and endless choices appear to be a winning combination. While most casual restaurants are experiencing sagging sales, sales at Genghis Grill have gone up. "To be honest," says Parikh, "we are ahead of the crowd. Particularly here in the DWF market, both our corporate stores and our franchisees have seen sales gains consistent with what they've seen in the past. In the summer months when the gas prices went up, it pushed down the fast casual sector. But our sales have actually gone up about 2.5-3% since the beginning of the year compared to last year."
Mongolian stir-fry (sometimes called Mongolian barbecue) is a small segment in the fast casual industry. There are a handful of small chains, but Parikh says no one has emerged as the segment leader yet. "We feel like the first to get 50 stores is going to take over that segment. We plan to have close to 20 stores by the end of this year and we're looking to expand so that we're in 40 stores in the next 24 months, both corporate and franchised," asserts Parikh.
The Chalak Group of Companies, Ron Parikh, Chief Marketing Officer, http://www.genghisgrill.com, (214)74-4240.
  
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