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Category: Industry News, Net Lease Retail Tags: casual dining, Millennial, net lease retail, restaurantt, trends
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In recent years, there has been a lot of speculation regarding the casual dining industry and what its future looks like. Casual dining brands used to be the “go to investment” in the restaurant retail sector but have recently been falling in terms of year over year growth and store revenue. The casual dining industry is no longer as popular as it used to be which prompts the question: will the industry turn around in the upcoming years or will it continue to struggle through this retail cycle? In this article, we will dive into reasons behind why brands such as Chili’s, Applebee’s, IHOP, Denny’s, Buffalo Wild Wings and others have slowly been losing business to new fast casual concepts and quick service restaurants.
There is a scary phenomenon happening in the sit-down diner concept. It is no secret that minimum wage is increasing and cutting into an operator’s bottom line, which is affecting how the industry operates. Furthermore, a rise in labor costs coupled with a decrease in overall profits creates a detrimental formula not sustainable for the near future. With such uncertainty within the industry, we can already see the beginning of this decline.
Why are people not eating at these restaurants as they used to and what can be done?
To start off, there is a very straightforward explanation as to why store sales have been declining: people are simply not eating at these restaurants. A direct result of a shift in demographics. The millennial generation has surpassed baby boomers and has become the largest generation in American history. Goldman Sachs concludes that millennials “will change the ways we buy and sell, forcing companies to examine how they do business for decades to come.” In the past, families would go out together and purchase a stack of pancakes or a large meal and spend an hour or two catching up on what was going on in their lives. Today, the younger millennial generation is no longer going out and spending time at the traditional family sit down diner that was once very popular. Millennials are reshaping the economy by staying at home with friends, ordering dinner and watching Netflix. In a survey conducted by the Wall Street Journal, North American home deliveries have increased nearly $7 billion over the past six years. Given the ease and convenience of apps like Doordash, GrubHub, UberEats and more, Millennials have grown accustomed to ordering the food they want, when they want, without having to leave their bed.
Where do these millennials go out to eat when they are sick of being at home?
The new generation is looking for food that is fast and healthy. They want their cake and the ability to eat it too if the cake is organic and mostly kale. Millennials dining habits are different than their parents, resulting in the rise of chains such as Chipotle, Tender Greens, Hoke Poke and many more modern restaurants alike. These restaurants all share three main ideas: the ability to customize your meal, visibility of an open kitchen layout, and pride in supporting locally sourced produce. Millennials are starting to associate what they eat with their personalities, much like the clothes they wear. In an interview with Forbes Wanda Pogue, chief strategy officer at Saatchi & Saatchi New York, stated that “food has become just another platform for self-expression.” Millennials are taking advantage of getting the local eating experience by visiting restaurant brands that use local produce. For example, Millennials enjoy promoting the mom & pop shops in their local shopping centers by posting on Instagram, Twitter, Facebook, Snapchat and any other new social media platform that pops up today.
By looking at the overall view of casual dining and the restaurant sector, the industry seems bleak. However, sit down diners are taking steps to overcome this hurdle and once again become a reliable investment. For instance, The Atlantic stated that Chili’s has completed “the largest rollout of tabletop tablets in the U.S. which includes the installation of more than 45,000 tablets across 823 Chili’s restaurants.” This improvement has led to a 20-percent increase in dessert sales, demonstrating that casual dining brands are starting to recognize that there is a need for change. With the ease and convenience of tablet ordering, customers can customize what they want and pay whenever they are ready. Thus, creating no rushed feeling when the meal has ended. This new restaurant experience is the perfect example of an old style sit down diner adopting new technology to keep up with changing consumer demographics. Additionally, Chili’s isn’t the only brand that is coming up with innovate ways to attract customers. Denny’s Corp. has named restaurant IT veteran, Michael Furlow as their new chief information officer, who believes technology is key in improving customer service.
Due to the change in majority demographics, it is clear that brands within the casual dining sector need to adjust their tactics. The restaurant sector has seen profound profits, as well as diminishing sales over the years, and tenants must adapt. There are several ways a landlord can protect themselves to preserve their wealth including the following: checking in with the franchisee to make sure they are up-to-date on technology and adapting to consumer needs; keeping the site renovated as an attempt to draw in more foot traffic; recognizing neighboring corporation’s and franchise’s innovation strategies. It is important to take note of these circumstances and be cautious when investing in properties that do not adapt to consumer needs and whose buildings are not up to the usual level of quality. Given the momentum of change, it is imperative that your broker is aware and well-informed on what is happening in the casual dining space.

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