Anxiety about the job market hasn’t been this heightened since the Great Recession of 2008-10. Seasonal hiring heading into the holiday season hasn’t been this muted since the Great Recession. Credit scores have fallen at their fastest pace since the Great Recession.
Are you sensing a theme yet?
Things seem pretty gloomy now, which is having a material impact on restaurant sales and traffic. Unlike the Great Recession, however, consumers aren’t spending their dine-out dollars on quick-service and pizza as much as they are full-service.
In fact, Gen Z consumers are increasing their visits to casual-dining chains such as Chili’s, Applebee’s, Olive Garden, and Texas Roadhouse. About 25% of Gen Z’s restaurant spending now goes toward casual dining, versus 23% last year, according to Technomic data.
“This is an indication that Gen Z is embracing casual dining, which is fabulous news for the industry overall,” Technomic director of consumer and industry insights Robert Byrne said recently. “It also points to a shift in what is going to appeal to Gen Z going forward.”
What appeals to Gen Z is a broader definition of “value” versus 15 or so years ago. No longer is value a limbo-stick-lowering race toward the cheapest price point, but rather a holistic experience that includes everything from price to convenience to accuracy to speed to atmosphere. The cylinders must be firing on all engines for consumers to place a dining-out occasion into their consideration set these days and full-service concepts are reaping the benefits.
It can be argued these full-service concepts are the reason value has been redefined in the first place. For expediency, let’s call it the Chili’s effect. The legacy casual-dining chain has been outperforming the entire industry — and by far — for the past two years in large part because of its investments in operational improvements, maintenance and repairs, staffing, menu innovation, and effective marketing focused on abundant offerings such as the Tripple Dipper and the $10.99 3 for Me combo deal (beverage, appetizer, and entrée).
During his company’s recent earnings call, chief executive officer Kevin Hochman said the casual-dining chain’s “Better than Fast Food” campaign, launched more than two years ago, continues to resonate with value-seeking consumers. Chili’s, for instance, is gaining market share among low-income consumers as others cede traffic among that group.
“We’ve been hammering the same message over and over and we’ve been able to deliver on that experience when people come in,” he said. “We are in a very good position in a tough environment to be the ones that can deliver a complete meal at a great value with (abundance and consistency). We’ve made the investments to make the experience better. So, I think we’re positioned really well in this environment.”
During its most recent quarter, Chili’s competitor Applebee’s generated positive sales and traffic from new menu innovation and targeted marketing campaigns.
“All of our guests are hyper-focused on value … That focus on value is what’s going to be on consumers’ minds throughout the rest of this year and into next,” CEO John Peyton said, adding that Applebee’s 2 for $25 value offering is driving traffic.
“It’s the match that consumers are looking for.”
It took some time to find that match. Last year, when consumers began noticeably cutting back, Applebee’s shifted its focus from promoting appetizer deals, such as 50-cent Boneless Wings, to its signature 2 for $25 menu.
“People wanted to know the full cost of their meal, but we knew we needed to keep it fresh to get that true value, so we’re introducing a new entrée onto that menu every quarter,” Peyton said during a recent interview. “We now have eight quarters of innovation mapped out, which also helps restaurant operations, and we believe it’s driving traffic.”
Other casual-dining chains have embraced abundant portions, which is where Texas Roadhouse hangs its hat, as most entrées include two sides and rolls. Some have also ramped up their innovation to include both new product news and more accessible entry points.
Outback Steakhouse same-store sales grew by 0.4% in the third quarter, for example, bolstered by the introduction of every value offerings such as the Aussie 3-Course (appetizer, entrée, dessert) for about $15. The chain is also investing in the quality and cuts of its steaks to “deliver a competitive and craveable lineup that delivers value,” CEO Michael Spanos said.
“The steak-centric focus will strengthen our value equation by offering menu variety and affordability across multiple price points, enhancing what guests get for what they pay for,” he said. “We’re meeting the consumer where they’re at. We’re creating the right variety of affordable entry price points (and) value.”
Speaking of entry price points, The Cheesecake Factory has found some momentum from its new “Bites” menu, featuring smaller, shareable dishes and appetizers priced under $10. Executives said the menu has contributed to attachment rates without impacting overall check size, adding that the chain’s constant menu innovation has also helped generate a stronger value proposition overall.
“Our new menu offerings are resonating well, reflecting the success of our culinary innovation. We will continue to lean into this core strength to keep our menu highly relevant while providing exceptional value without relying on discounting,” CEO David Overton said during the company’s recent earnings call.
A handful of full-service chains have ramped up their value propositions by investing in portion sizes and underpricing general inflationary levels, including First Watch, which experienced a 7.1% increase in same-store sales in the third quarter, and a 2.6% increase in traffic.
During his company’s earnings call, CEO Chris Tomasso said First Watch did not implement pricing actions to offset commodity cost increases in an effort to improve its value. The company has also invested in bigger portions.
“We think in turbulent times like this, those are the things consumers really value and turn to. They just don’t want to put their dollars at risk,” he said.
Brazilian steakhouse chain Fogo de Chão has “worked really hard on inputs to try not to take price,” CEO Barry McGowan said during a recent interview. For the past 10 years, Fogo’s average price increase on a compound annual growth rate has been about 2.5%.
“If we can give more value and not take price, we prefer to do that,” he said. “The consumer is being very choosy. Their spending is relatively the same, they’re just being more selective, so going out has to be worth it.
“Now, casual dining is coming back into vogue, which we’re really excited about. It shows you that to win on value, it can’t just be (lower) price.”
Contact Alicia Kelso at [email protected]
Follow her on TikTok: @aliciakelso
Dining and Cooking