Casual dining is in some serious trouble.

Americans have been told for decades, in cheery voiceovers, that inexpensive sit-down meals at national chains meant “Eating good in the neighborhood,” where “It’s always Friday.” Every mall or major intersection was given a Chili’s, an Olive Garden or an Applebee’s – sometimes all three.

Yet the casual-dining industry has largely worn out its welcome. Customer traffic to these restaurants has declined in nine of the past 13 years, according to retail-research firm Black Box Intelligence. Even as the U.S. economy began healing and consumer spending recovered, beginning in 2010, same-store sales were stagnant, based on Black Box estimates.

In December, industry-wide sales at restaurants open at least a year slid by 2%, even as the unemployment rate hit a five-year low and the stock market hit all-time highs. For sure, harsh weather didn’t help, but that can’t account for tepid nationwide results.

As the chart below makes clear, even some of the biggest, most familiar chains have struggled for years to draw diners and spur consistent gains in sales. The chains have been caught in a self-perpetuating cycle of “value menu” discounting to draw consumers with plenty of cheap eating-out or food-delivery options.

While the companies all talk about trying to increase the “average ticket” size, overall price increases for Darden Restaurants Inc.’s (DRI) Olive Garden and Red Lobster, and Brinker International Inc.’s (EAT) Chili’s chains was just 1.4% in the year ended Nov. 30 – well below the 2.1% inflation rate for all restaurant meals.







A confluence of consumer trends is pressuring the casual-restaurant business. Most prominently, the ascendance of “fast casual” chains – notably Chipotle Mexican Grill Inc. (CMG) and Panera Bread Co. (PNRA) – has been embraced enthusiastically by consumers. Sitting between traditional fast-food chains and full-service casual venues, these outlets offer higher-quality, largely all-natural and often made-to-order meals in a relative hurry.









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Chipotle and Panera have seen sales grow by an average of 15% to 20% annually over the past five years, while the casual sit-down chains as a group have flat-lined. It has resulted in a rush of new competitors to claim the mantle of the “Chipotle of” – you name it, pizza, pasta, deli sandwiches and more. PotBelly Corp. (PBPB), a 36-year-old sandwich chain, became one of the hottest new stock offerings of 2013 in part by encouraging the idea that it would partake of the fast-casual craze.

The casual-dining chains are also suffering from the broader decline in retail foot traffic as online shopping has begun to bite into physical-store activity. The fewer trips to the mall, the fewer quick stops for dinner or lunch at the Cheesecake Factory Co. (CAKE). Even Starbucks Corp. (SBUX) this month cited waning retail traffic trends as a drag on its sales pace.

Quite simply, too, there are far too many casual-dining locations for everyone to thrive, and many established “concepts” are either tired, too similar to others or both.

Red Lobster is a somewhat faded brand reliant on heavy discounting. The “bar-and-grill” format has been done near to death, with Applebee’s looking like Chili’s, which might as well be a TGI Friday’s or Ruby Tuesday Inc. (RT).

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