Eating is a necessity that nearly everyone enjoys, and going out for a meal with family and friends tends to make the experience even more enjoyable. However, when the recession impacted the economy, restaurants took a hit as people scaled back on luxuries. Some segments saw more losses than others, as the wants of consumers changed with the times.

Casual and Family Dining on the Decline
Diners are as American as apple pie, yet their popularity is waning with today's consumers. Once beloved for their heaping servings of comfort food, casual and family dining establishments are seeing a decrease in revenue as they struggle to keep up with patrons' demands for healthy, fresh, made-from-scratch meals. Even fast food restaurants are healthifying themselves because of this trend. According to food industry research firm Technomic, diners saw sales dip 5 to 25% from 2007 to 2011, while other restaurant segments remained flat.

Big Boy, a diner chain known for its double-decker hamburgers, lost nearly $400 million in revenues in the span of 10 years. In 2011, there were 140 Big Boys in the United States, down from 405 in 2001. The Country Kitchen chain has shut down 79% of its locations and seen sales decline 82%. More than half of the Ponderosa and Bonanza steakhouses in the United States were closed by 2012. Established brands like Olive Garden, Red Lobster and Longhorn Steakhouse have seen negative growth since the fourth quarter of 2012. Irish-pub theme restaurant Bennigan's is one of the worst horror stories in this segment. It has seen sales decline 89%, and 247 locations have been shut down. As of the end of 2012, there are only 33 Bennigan's left in the country.

Buffets and Cafeterias Shutting Down
All-you-can eat is a great deal for the pocketbook, but it's not so great for the waistline. Buffets and cafeteria-style restaurants that pride themselves on variety and large portions are falling behind as consumers become more health conscious. These types of restaurants are popular with senior citizens who often have limited budgets. The Piccadilly cafeteria chain that specializes in Southern favorites like fried chicken, catfish, macaroni and cheese, and sweet potatoes, filed for bankruptcy in September 2012. Buffets, Inc., filed for Chapter 11 bankruptcy protection in January 2012. The company, which owns the Old Country Buffet, Ryan's, Home Town Buffet, Fire Mountain, Country Buffet and Granny's Buffet brands, shut down 16% of its restaurants. The corporation has since exited Chapter 11 and has hired a new chief executive, new chief marketing officer and new director of consumer insights in hopes of bringing its dying franchises back to life.

New Trends Emerging
Traditional casual and family restaurants are losing their customers to "fast casual" establishments, such as Panera Bread and Chipotle, and to specialty eateries that appeal to the millennial generation. The group, born between 1980 and 2000, eats out more than the rest of the population and will pay more to go to restaurants that offer gourmet-style food, high-quality beers and liquor, and that cater to socializing.
Darden Restaurants, which owns Olive Garden, Red Lobster and Longhorn Steakhouse, has responded to the trend with new restaurant franchises like Yard House, which prides itself on a large draft beer menu, American-fusion cuisine and a lively atmosphere punctuated with classic rock music and flat-screen TVs playing sporting events and news broadcasts. These updated chains have seen sales growth since the third quarter of 2012, while revenues at older Darden chains have been in the red.

Ground Round Grill & Bar, a casual dining chain founded in 1969, survived bankruptcy and revamped its image with a new interior and exterior design, and a sports lounge theme. The brand hopes to open 40 new locations by 2015, including onsite locations at places like airports. Restaurants like Red Robin, Pizza Inn, Shoney's and Sbarro are other chains that are rolling out new concepts to embrace the modern fast-casual market.

The Bottom Line
Consumers are pickier than ever with their dollars, and restaurants that want to survive need to pay attention to a new generation of customers who want a high-quality, contemporary and healthy dining experience at an affordable price.

Related Articles
  1. Economics

    Understanding Switching Costs

    Consumers incur switching costs when they receive a monetary or other type of penalty for changing a supplier, brand or product.
  2. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  3. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  4. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  5. Stock Analysis

    Is the Apple Watch a Real Threat to Fitbit?

    Examine the potential for marketplace competition between Fitbit and the Apple Watch in the rapidly growing consumer wearables industry.
  6. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
  7. Stock Analysis

    3 Stocks to Protect Your Portfolio from Inflation

    Discover three stocks to protect portfolios against inflation. The best companies to protect against inflation are those with pricing power.
  8. Stock Analysis

    What’s Uber Worth?

    Value projections for Uber have been all over the map, but the most important projection doesn't come in the form of numbers.
  9. Chart Advisor

    Invest In Consumer Staples With This ETF

    The consumer staples sector is showing signs of strength in a weak market. We'll take a look at a couple ways to make a trade.
  10. Stock Analysis

    J.C. Penney: Identity Crisis or Buy Opportunity?

    With so many recent leadership changes, J.C. Penney might be suffering from an identity crisis. Here's why and what you need to know.
RELATED TERMS
  1. Duty Free

    Goods that international travelers can purchase without paying ...
  2. In-App Purchasing

    The purchase of goods and services from an application on a mobile ...
  3. Fast-Moving Consumer Goods (FMCG)

    These are consumer goods products that sell quickly at relatively ...
  4. Social Sentiment Indicator

    A measurement based on aggregated social media data that helps ...
  5. Virtual Good

    A good or product traded in the non-physical realm, typically ...
  6. Buyer's Option

    In commercial contracts, an agreement between a vendor and a ...
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  3. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
  4. Is the retail sector also affected by seasonal factors?

    Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>
  5. What has the retail sector evolved to its current structure?

    Retail is the catch-all phrase for the sale of final goods to consumers; a retail transaction is considered an "end" and ... Read Full Answer >>
  6. Why is product differentiation important in today's financial climate?

    Product differentiation is essential in today's financial climate. It allows the seller to contrast its own product with ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!