How brands can succeed in the struggling casual dining sector

The causal dining sector has been littered with casualties this year, but a number of brands are bucking the trend, so what does it take to thrive in a declining market?

Skip back a few years and the casual dining market was booming, with new restaurants popping up seemingly every week. But the bubble has well and truly burst. 2018 has been a brutal year for the sector, with numerous headlines highlighting brands’ struggles and restaurant closures.

In January, burger chain Byron confirmed it would be closing a third of its outlets. A month later Jamie’s Italian closed 12 restaurants after entering into a company voluntary agreement (CVA). But that was just the beginning. Since then high street favourites Carluccio’s, Prezzo, Chimichanga, Strada and Gaucho’s Cau spin-off have all been forced to close restaurants as consumers’ desire for this type of dining experience waning.

But there are brands bucking the trend. Wagamama reported 7.7% like-for-like sales growth in Q4 and the Azzurri Group, which owns Italian brands Zizzi, Ask Italian and Coco di Mama, saw a 9.4% rise in pre-tax profit. So what can brands learn from those that are thriving in what is clearly a challenging market?

A major factor is simply that the cost of running restaurants has increased. Higher rents, rising food prices and wages have all led to many restaurant chains’ troubles. However, those which are succeeding have committed to knowing their brand and consumer religiously.

Michael Kalli, commercial director of Dining Club Group, which owns Tastecard, Gourmet Society and Hi-Life, says the key to standing out in an over-saturated market is to deliver a clear message.

He explains: “There is so much choice on the high street so consumers are looking for more from their restaurants in terms of food and experience. Every time they come into a restaurant they should understand what it is about.”

He believes Tex-Mex fast food chain Chimichanga, for example, suffered as a result of not clearly defining its proposition and what it stands for. “I think it would be the first to admit that consumers didn’t really know [what it stood for].”

This is something Steve Flanagan, CMO of TGI Fridays UK, echoes: “In a tough market we are conscious of where we are spending our pounds and this is in the brand. We are always talking about Friday’s people serving Friday’s food in Friday’s restaurants and to cement it as an occasion in people’s minds.”

Both Kalli and Flanagan’s point is that you can’t compete with every restaurant but you need to make sure that consumer’s know exactly what to expect from your restaurant and in doing so make it a dining destination.

To survive, restaurants must focus on the quality of the experience for customers, something which some chains have lost sight of.

Kalli explains: “The last 10 years has been about changing tables over quickly but [restaurants] need to understand that having people on their tables for longer will drive more money and mean that person might visit again in a week or a month. It’s about the quality of the experience as well as the food itself and what else you can offer as customer.”

Customer experience is something TGI Fridays has been giving a lot of attention to – both offline and online – which has helped the brand continue to grow, albeit at a slower rate, in a crumbling market. Underlying sales growth was 5.2% in 2017, down from 7.7% the previous year.

“The casual dining market is very competitive and we tend not to play in the deep discounting space. We want to encourage our guests to visit more often,” he says.

This led TGI Fridays to launch its new loyalty programme on 4 July. It has moved away from a scratch card-style offer to a sleeker, mobile-based scheme, which rewards frequent visitors, and is helping to increase sales while also providing the brand with valuable data on consumers.

Flanagan explains: “We did it because we were lagging behind a little. Our digital guest journey was disjointed from our restaurant experience and we wanted to sort this. It was a really critical step forward for us and laid the foundation for where we are going to go.”

In the first four weeks of launching, TGI Fridays, which worked with marketing automation platform Punchh to develop the offer, has seen a 66% rise in loyalty revenue.

The value of customer data

Understanding customer needs is crucial if brands are to keep up with changing demand, so Kalli says data will play a key role going forward.

Dining Club Group has worked with Compare the Market on its ‘Meerkat Meals’ offer, which allows consumers who buy through the site to get two-for-one restaurant meals for a year.

READ MORE: Compare the Market looks to drive longer-term loyalty with Meerkat Meals launch

“The future is about data and brands need to understand their audiences a lot more than they do right now. For example, so many still send out blanket emails when they need to be more consumer-centric,” he says.

“If you have a lunchtime crowd and a corporate crowd [treat them both] differently. One size no longer fits all; you have to change your size for different segments.”

However, Marcel Khan, former brand director at burger chain Five Guys and ex-Nando’s regional managing director disagrees: “At Five Guys we say what happens between four walls is our marketing engine. I would often say our servers are our marketers and your budget is burgers and fries. Great properties, great products, great people – that’s what makes it. We do use digital channels but ultimately it is about word of mouth.”

He believes brands spend too much time “thinking about being clever”. “Be yourself rather than being different things for different people as I don’t think that works in the restaurant game,” he argues. “Too many brands see differentiation and innovation as an end as opposed to a means. If you’re making a burger, people want to know what’s different about your burger but ultimately you have to ask is it better?“

However, innovation will be key to stay at the forefront of people’s minds. The rise of the internet and social media means food trends are now more changeable than ever before – from flavours, to diets, to ingredients, restaurants have to ensure that they are on top of what consumers’ wants.

Kalli says Zizzi’s early introduction of a vegan menu has been key contributor to its success, and the fact Nando’s has expanded its vegetarian options despite being known as a chicken restaurant has also helped.

However, the key is to cater to trends while remaining true to your brand. Khan warns about jumping on the bandwagon: “Be yourself rather than being different things for different people as I don’t think that works in the restaurant game.”

Location, location, location

The headline-grabbing closures of hundreds of restaurant branches has highlighted the dramatic shift in the casual dining sector with many citing ambitious expansions as the reason for restaurants failing.

Brands were scaling up too quickly rather than focusing on their core brand. In the midst of such success restaurants opened outlet after outlet to keep up with demand but now with so much competition this strategy is no longer working. Kalli warns: “I think that a lot of brands have been scaling up too quickly and getting a bit excited.”

However, expansion is still part of the business plan for some brands. The Azzuri Group said it was looking for new locations on its latest financial call and Flanagan says TGI Fridays will also be opening more restaurants — it’s just about doing in a strategic manner.

He explains: “We will continue to open restaurants but will do it in the right locations that we are confident TGI’s will be a success in. We spend a lot of time looking at that locations and where we should expand or not.”

Ultimately, despite the difficult landscape Flanagan is optimistic: “It’s a tough environment right now and you have to fight very hard but it is still very attractive to lots of people. “

Kalli agrees: “It’s not all bad about there. More people are eating out than ever before. We should be proud of the standard of restaurants on our high street.”

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Comments
  • James Graemer 30 Aug 2018 at 8:16 am

    Problems in the casual dining sector are wide ranging and difficult to address in the short term. The high capital expenditure needed to open sites prevents operators from adapting to changes in diner behaviour as quickly as they need to. Issues like location, food proposition and sourcing take time to reshape for obvious reasons.

    However one issue which can and must be addressed more nimbly is the blanket discounting seen across many operators. This not only reduces margin to unsustainable levels amidst rising costs but irreversibly damages brands that have taken years to build. The supermarkets have slowly weaned themselves off of the discounting drug and restaurant groups need to do the same. Only then will a clear food hook and distinctive experience lead to a sustainable commercial operation.

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