In both cases, it's delusion. It's also a pretty nasty thing to snap out of once that pleasant fog clears and unsettling reality sets in.
Casual dining tried to conceal the damage wrought by the recession, but the cover was blown during the ensuing, incremental recovery. Restaurant group Darden Restaurants International (DRI), the parent company of Red Lobster, Olive Garden, Longhorn Steakhouse and other chains, gave the first indications that something was wrong late last year. Warnings about earnings gave way to disastrous reports as its restaurants' two-for-$25 meal deals fell short of the two-for-$20 deals offered by its competitors.
One of those adversaries, Chili's and Maggiano's Little Italy parent company Brinker International (EAT), reported this year that the end of those deals, coupled with the end of a Social Security tax cut, would force it to lower expectations for 2013. NPD Group wasn't surprised and noted that the number of restaurant visits driven by deals rose between 3% and 5% at the height of the recession in 2008 and 2009, but slumped 3% last year.
What casual dining establishments are learning quickly is that nobody's going to buy their reheated food or pre-fabricated atmosphere if they don't feel it's a value. The cost of dinners out rose 2.7% over the past year, according to the Consumer Price Index. That's more than the 2.2% overall rate of inflation and isn't helped when a $10 promotional meal jumps to $12 or $14, jacking up the price 20% to 40%.Casual dining's knee-jerk reaction has been to gut the works. Ruby Tuesday (RT) ripped out the Tiffany-style lamps, ferns and brass, de-emphasized the salad bar and bathed everything in black and red. The company's share price has dropped 18% in the past year, it unloaded three non-Ruby Tuesday chains and reported flat sales. Darden decided to change the menus at Red Lobster and Olive Garden, tear down Olive Garden's Tuscan decor and tear off its trademark white uniforms in favor of black and has even toyed with the idea of removing servers altogether and going with a pay-at-the-counter system. Sales and earnings still haven't recovered.
As Applebee's and IHOP owner DineEquity (DINE) and Outback Steakhouse and Carraba's Italian owner Bloomin' Brands (BLMN) face similar struggles, casual dining's problems run much deeper than the local high school lettermen jackets on the walls and the uniforms the staff is wearing. For one thing, Millennials don't see casual dining restaurants, or restaurants in general, as being nearly as important to their social experience as baby boomers did. According to NPD, Millennials cut back on restaurant visits since 2008 while boomers only increased their intake of Bloomin' Onions and unlimited breadsticks.
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