Red Lobster May Be Cooked: ‘Casual Dining’ Restaurant Category Is Suffering

  • Share
  • Read Later
Victor J. Blue / Bloomberg / Getty Images

Pedestrians walk by a Red Lobster restaurant in Times Square in New York City on Sept. 19, 2012.

The ubiquitous sit-down restaurant chains that fill seemingly every strip mall and highway-side are in serious trouble.

This week, Ruby Tuesday announced it is closing 30 of its restaurants after recording yet another dismal quarter for sales. “Same-restaurant sales decreased 7.8% at Company-owned Ruby Tuesday restaurants and decreased 5.3% at domestic Ruby Tuesday franchise restaurants compared to the same quarter of the prior year,” a company press release stated, regarding the fiscal quarter ending on December 3, 2012. “Same-restaurant guest counts were down 6.3% for the quarter, but reflected an improvement over the first quarter decline of 10.8%.”

As a result, plans are in the works to close 30 Ruby Tuesday locations in the U.S. over the next six months, though the exact locations have not yet been determined. The Ruby Tuesday website states there are currently “775 locations and counting,” though based on the company’s announcements the math that will be applied going forward should be subtraction, not addition.

Ruby Tuesday’s struggles are not unique. Its competitors in the “casual dining” category—essentially, restaurants where you get waiter service, but don’t have to dress up—have also been facing tough times. For a long time, chains like Ruby Tuesday and Olive Garden were blaming the economy for continued underwhelming sales. Yet their decline rolled on even as the economy picked up. Last fall, Olive Garden and Red Lobster (both owned by Darden Restaurants) reported a sales falloff during the summer months, and executives forecast a decline in earnings for all of 2014.

(MORE: The Secret About (Not So) Secret Fast Food Restaurant Menus)

Last month, Darden announced its intentions to sell Red Lobster or spin it off into its own company. Darden also stated it wouldn’t open any new Olive Gardens or LongHorn Steakhouse locations for at least three years. [CORRECTION: Darden says that while it won’t add new Olive Garden locations, it is also shifting to “more limited new unit growth at LongHorn Steakhouse.”] The company—the Red Lobster brand especially—seemed to be in such dire straits that just after Christmas an unfounded (and as it turned out, untrue) rumor that Red Lobster was closing was gobbled up as truth by the masses as the story spread via the Web.

In November, the owner of TGI Fridays started exploring the possibility of selling the casual dining chain after years of trying to refresh the brand’s image. Meanwhile, Chili’s restaurants recently introduced delivery service nationwide to help boost sales.

In a story on Chili’s new delivery option—which requires a $125 minimum purchase and involves restaurant employees driving their own cars—the Dallas Morning News summed up what’s at the root of casual dining chains’ struggles:

At casual-dining chains across the country, executives have been working to stem consumer defections to “fast-casual” restaurants that can serve food faster and generally at a lower price.

Sure, years of stagnant wages and a lackluster economy have hurt the restaurant business, casual dining chains especially. More importantly, the post-recession era has been marked by the rapid growth of fast casual restaurant category, which includes Chipotle, Panera Bread, various “better burger” chains like Five Guys and Smashburger, and a smattering of quick, made-to-order pizza brands. The fast casual model, which generally features counter service and customizable orders, isn’t succeeding merely because it’s faster and cheaper (remember: no tipping since no waiter service) than its casual dining counterparts. Diners are also turning to fast casual because of the perception the food is often as good or better than anything on the menu at Applebee’s, Olive Garden, or wherever.

(MORE: Why Spicy Is the Most Profitable New Trend in Fast Food)

So, in light of fast casual emerging as a quicker, less expensive, high-quality alternative, it’s no wonder the casual dining segment is being disrupted in a major way. Business Insider recently posted a chart from a UBS research report clearly demonstrating the trend toward fast casual and away from casual dining: While year-over-year sales have been growing to the tune of around 10% in the fast casual category, casual dining sales have been flat and have even dipped into negative territory over the last few years.