The CEO says that the glass is half-full. The investment community says that it is half-empty. The CFO says that the glass is twice as big as it needs to be, and should be reduced in size. The construction department says that if the glass can have its sides straightened it can be built more cheaply. The purchasing department has inquiries out to various manufacturers to see if there is a cheaper material than glass. They are also exploring less costly, “almost equivalent” liquids to go in the glass. The marketing department wants to run a promotion that will let the customer keep the glass.  Human resources have proposed a development plan that will help the glass achieve its full potential. And operators put ice in the glass, filling it to the top, and all of the other viewpoints suddenly don’t seem very important.

The glass in question is the casual dining segment. It may not be half-full, but it is certainly less full than it needs to be. Lots of questions are being asked about the health and future of the segment, as is proper in any downturn. With any prolonged downturn you will find two extreme views. The views of casual dining range from “This is a normal economic cycle, and when the cycle ends the customers will return”, to “This is the end of casual dining as we know it”. I am in the “normal economic cycle” crowd, but there are some smart people writing some gut-wrenching things about the future of the segment

Let’s review the most recent reported quarter of comp sales for the various public companies in the industry. Looking only at U.S. sales of the dominant part of their business (corporate vs. franchise) we see marked performance differences within the industry:

·         Quick Service (+)

-Of 10 reporting concepts, only 3 are reporting negative comp sales for the quarter

-2 of the 10 (McDonald’s and Burger King) are up over 10% vs. the two-year ago quarter

·         Pizza (+)

-Of 4 concepts, only 1 is negative

·         Coffee and Snack (--)

-Of 4 concepts, all 4 are negative

-1 is down 10% vs. two years ago

·         Family (--)

-Of 7 concepts, 5 are negative

-1 is down 10% vs. two years ago

·         Fast Casual (+)

-Of 8 concepts, only 2 are negative

-Chipotle is up 19%, and 3 others are up 7-9%, vs. two years ago

·         Casual Dining and Beyond (--)

-Of 35 concepts, 29 are negative (ouch!). For you percentage fans, 83% of the concepts are reporting negative comps.

-2 concepts are up 8-10%, and 4 are down 7-14%, vs. two years ago

-These numbers do not reflect the OSI concepts of Outback, Carrabba’s, Bonefish, or Fleming’s. While no longer public, they disclosed numbers recently showing all 4 concepts being negative.

A quick summary of what we are seeing would indicate that QSR and Pizza are still affordable; and value menus, quality initiatives, and new products have kept customers engaged. Coffee and Snack would seem to be unaffordable luxuries for many customers. Family dining continues a long battle to remain relevant and a value. Fast casual would appear to be benefiting from trade down from casual dining, as well as trade up from QSR. Whatever the reason, the category is certainly on fire.

And that leaves us with casual dining, upscale casual dining, and way-upscale dining (primarily steak and seafood). These are a very diverse group of restaurants that range from BJ’s with a $12 average check, to the $60+ steakhouse players. Casual dining may have hit the bottom of the pool, but it shows no sign of returning to the surface to catch its breath.

Economic issues are certainly at the forefront of the problems. This is a segment tied closely to the disposable income gains and losses of its customers. But are there structural issues in the making? The next blog will give some speaking time to one of the more negative views of the segment from the analysts at Cleveland Research.