Thursday, March 26, 2009

Discretionary Spending dip Hitting Casual Dining Sector

Source Article: Hard Times Are on the Menu at Restaurants | www.usatoday.com (article)

Implications:
1) Discretionary Income is Being Spent more Conservatively
2) Adjusting Menus to "Fair Value" propositions key to traffic
3) Keep Signature Items as alternative to "promotional" menu to keep ticket prices fairly normal

Analysis:
Casual Dining is under attack as consumers adjust their spending habits. The dip in consumer confidence was certain to be followed by a dip in discretionary expenditures of all kinds.

Casual Dining, to most people, is one of the most discretionary of spending categories. The fact dinner has seen the biggest drop-off shows it's the family market making the biggest adjustments.

A Menu adjustment to feature "Value" items promotionally is the best way to drive traffic into the casual dining houses again. Whether you can "upsell" your seated customers back onto regular menu items will be the key to how successful the promotions are.

Cutting price across the board on the standard menu, or running "2 for 1" specials would be a more expensive, and more damaging to a quick bounce back when the economy turns. TGI Fridays is taking that approach. Once customers get used to your standard menu at half or reduced price, it's tough to drive them back to paying full markup again.

A chain with an extensive menu, like Cheesecake Factory(NAS:CAKE), really has to feature promotional specials to prevent a costly menu rebuild after the business comes back. Applebee's idea to bring out a new menu is a good alternative strategy.

As fast as the decline in same store sales occurred, a quarter or two of solid consumer sentiment will bring the sector back again. It's how the slump gets handled strategically now that will portend how fast each of the players recovers.

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