Bloomin’ Brands Finds Opportunity in Casual Dining’s New Normal
Just a couple of years ago this statement would have been laughed off the debate floor. A consumer shift from four-wall to at-home dining provides an opportunity for one of the largest casual-dining companies in the world to grow sales and incremental revenue.
Bloomin’ Brands, the operator behind Outback, Carrabba’s, Bonefish, and Fleming’s, said just that Monday during its annual investor day in New York City. Before exploring why the company believes there’s ample runway in the changing reality, it makes you wonder: is this shift the new normal for restaurant chains? At the very least, it illustrates an inflection point for how casual brands need to chase occasions in today’s industry. When millennials matured and began to show an affinity for convenience unrivaled by any generation we’ve seen, casual brands started to suffer through one of the worst spurts in the segment’s history. Headlines like, “Are We Witnessing the Death of Casual Dining,” were commonplace. They weren’t wrong, either.
According to industry tracker TDn2K, only 34 percent of casual brands achieved positive comparable restaurant sales in the third quarter of 2016. That’s a remarkable stat. Three out of every four sit-down down chains tracked by the widely cited Black Box platform saw negative results compared to the prior year. To that point, casual dining was looking at eight consecutive months of declining sales and year-to-date traffic declines of 3 percent versus a 0.8 percent fall in all of 2015. Put simply, casual dining was losing the market-share battle to convenience, and losing badly. Fast casual grew, restaurant count wise, by about 8 percent in 2016, according to industry consultant Pentallect Inc. For five straight years, the up-and-coming segment boomed 10–11 percent (it has since slowed considerably, to around 6–7 percent, if not a touch lower).
But that movement didn’t unfold by happenstance. Younger consumers wanted faster food and fast casual was also “better food.” This forced quick-service chains, like McDonald’s (fresh beef Quarter Pounders, for example) to turn a quality corner and actually start paying attention to what they stand for. And to learn to market those traits to a generation that’s second favorite website button, after menu, is the “about us” section.
Casual dining, meanwhile, was slower to adapt. When you toss in the time it takes to eat, and the added cost of tips, full-service brands had a far more complex task on their hands. Competing with value, on the bottom rung, presents more leeway. Customers are likely to forgive poor service and longer waits if they’re paying $1. But drop in average checks about one-and-half times that of counter-service competitors (if not much more), and the wiggle room disappears. It’s why execution, throughput, menu engineering, everyday value, and consistent service with fully staffed units, as well as identifying the right customer and real estate, is so critical to dine-in traffic.
This past year, though, was one of mostly positive news for casual brands. Along with fast casual (which has battled an overly saturated market in recent periods), casual dining turned in the best same-store sales growth in 2018 of any segment, according to TDn2K. Both were the worst performers in 2017, lending to robust year-over-year growth against weak comps. Still, the fact casual dining rebounded instead of bottoming out was a case worth holding on to. It came into the end of the year riding five straight months of positive growth. “Much discussion has centered around the viability of casual dining in this changing consumer landscape. However, the data shows some brands in the second largest segment within the industry have been able to turn the segment around this year,” TDn2K said.
There are a lot of factors separating the winners. Perhaps the biggest, though, is the aforementioned shifting consumer landscape, and whether or not a restaurant chain has the tools to satisfy off-premises demand without hurting core, four-wall promises.
What we’ve seen, basically across the entire restaurant lexicon, is an increase in prices and a decrease in traffic. That decline in guest counts remains a sobering counterargument for recent results. Even with an increase in sales, the chain sector has never faced a more competitive set. Outside pressure from independents, grocers, C-stores, and other to-go outlets continue to spread customer frequency.
But, again, is this just the new normal? Less traffic driving sales. More revenue from additional outlets, like delivery and take-out, and higher tickets from those who do dine-in? TDn2K’s data showed that in 2018, year-to-date as of December, to-go sales were approaching 9 percent, year-over-year. For some comparison, to-go sales in comparable stores lifted less than 4 percent in each of the past two years. It’s hard to understate how significant the change is. Just look at the holiday rush for instance, which gives a glimpse into what kind of opportunity awaits: Same-store sales growth for to-go, catering, and banquets all posted double-digit growth during the week of Thanksgiving compared to the same holiday period a year ago.
TDn2K’s data also noted strong same-store sales from a top-line perspective last year, but a shift in consumer behavior when it came to where meals were being consumed. Dine-in comps reported negative in recent months. To-go and off-premises growth is where the positive lift generated from.
As the industry moves into this brave, new world, separating the leading brands from the trailers is going to boil down to a few things. Some chains will struggle to balance off-premises and dine-in without hurting one or the other. Others will fall far enough behind to end up in chapter 11. It’s one of the reasons you’ve seen certain restaurants thrive this past year, while, at the same time, there’s been a rash of bankruptcies. Evolution is no longer a means of innovation anymore. It’s the key to survival.
An example that tells the tale
Bloomin’ spoke at length Monday about eating at home, and how this new paradigm is creating an opportunity for the company. Here’s why that notion isn’t crazy.
- According to industry data, 28 percent of consumers stay at home more versus two years ago
- Among 18–34 year-old guests, 30 percent are replacing carryout with delivery
- In 2018, there were 2 billion-plus digital restaurant orders taken
- Customers absorb 11 hours of screen time per day
- The average user spends a total of 34 days per year on social media (this is relatively scary)
- We all receive an average of 121 emails per day
- There were 300 million food-related Instagram posts in 2018
Take a look at this slide below. The consumer journey doesn’t look anything like it used to.
At-home dining is growing because it’s changing and becoming more accessible to the everyday guest. Not to mention it’s a heck of lot more convenient.
The ultimate promise of convenience is still delivery. According to The NPD Group, 46 percent of Baby Boomers order less than one meal per month via delivery. For millennials, though, it’s 29 percent who order one or more meals per WEEK via delivery.
Dining out of home represents an $870 billion slice of the restaurant industry. Casual-dining amounts to roughly $86 billion of that competitive set, according to NPD. As Bloomin’ explains, it must win that core—the dine-in guest—but it must also extend beyond traditional reach into the at-home segment, which makes up about $750 billion.
In sum, off-premises represents a significant and incremental sales opportunity for anybody willing to reach out and grab it.
Eighty-eight percent of Bloomin’s current business comes inside the restaurant. Average ticket for dine-in is $54. For off-premises, average ticket is $27 for to-go and $42 for delivery. Why the gap? As many restaurants have discovered, guests tend to order more, and for more people, when they have to cover the delivery fee. And orders are often even higher when they can be taken digitally and there isn’t a human judgment element. And they’re not being rushed off the phone by an (understandably) busy employee. That’s something many quick-service brands, especially pizza chains, have benefitted from in recent years.
Bloomin’ said, with an omni-channel approach, it can turn that 12 percent off-premises mix of sales into 25 percent. It can leverage higher AUVs as Outback and Carrabba’s trend toward 80 percent delivery potential. At Carrabba’s in particular, there’s whitespace in family bundles and catering.
This past quarter—Q4 of fiscal 2018—Bloomin’ added delivery at 200 additional locations across the two chains, reaching more than 450 total. The company expects to complete the rollout by the end of 2019. “Given this potential, we have built the infrastructure, technology, and capabilities to support these elevated sales volumes,” Liz Smith, CEO and soon-to-be chairman of the board, said in a conference call.
The company grew off-premises about 18 percent in Q4 and doesn’t see a slowdown coming. “All the investments we’ve made to build our database infrastructure and shift from what I call mass marketing, which is less efficient, to more mass personalization is really driving high return on investments on our advertising and we’ve built a pretty formidable database and infrastructure now to be able to monetize and speak directly and continue to raise that ROI,” Smith added.
Bloomin’ has tried some off-premises-only locations in the past year or so, too. Some are working quite well, future-CEO Dave Deno said in the call. Some are lagging expectations. It’s still being tested. “But it is an opportunity especially as the industry moves forward and we’re looking to refine that with further menu reductions and also some more systems work,” he said.
Perhaps a more important note is that Bloomin’ plans 300 remodels in the next three years built to support off-premises. Outback also sees opportunity to add 50 new U.S. locations. Those will be equipped to meet the demand as well.
Bloomin’ has a relocations strategy that has moved 50 Outbacks since 2012 (14 last year). Those units are witnessing a 30 percent sales lift, the company said. Before relocation, they averaged $2.9 million AUVs. After: $4.1 million. Bloomin’ said there’s potential for at least 50 more relocations (11 in 2019).
Outback is currently testing multiple design prototypes that modernize the brand and expand the off-premises room to handle higher order volumes, it said.
It’s also worth factoring in Bloomin’s Dine Rewards program, which now has 8 million members. It’s driving strong engagement cross the portfolio, Smith said. And it’s also helping Bloomin’ cut back marketing spend—an issue in recent years. In fact, the company reduced its advertising spend by $25 million over the past two years.
“We will evolve the program to further leverage the customer segmentation opportunities provided by the rich data we have collected over the years,” she said. The data personalization lets Bloomin’ engage more efficiently and effectively with consumers across each sales layer. It’s given the company a chance to introduce loyal customers to other brands.
“We now have 21 million customer profiles and we know what they like, when they like, and how they like it,” Smith said. “That gives us the ability now to market directly to them one-on-one in a personalized manner, and we’ll start doing that this year and that we’ll be able to drive enhancements to the loyalty program which make it continue to keep building.”
Bloomin’ spent the last two-plus years removing discounting as it focuses on incremental sales layers, like off-premises, and the customer experience. The company spent some $50 million, and will fork up more, to improve operations and drive healthier traffic, Smith said. While the off-premises channel booms, in other terms, Bloomin’ wants to ensure its dine-in experience is well guarded.
Recent results reflect that. All four chains finished fiscal 2018 with positive same-store sales, giving Bloomin’ a blended lift of 2.5 percent in the U.S. It opened 30 new restaurants, including 24 in international markets. Outback dominated the headlines with a 4 percent run that represented the best annual comp sales result in six years.
Outback’s same-store sales gained 2.9 percent in Q4 on top of an already impressive 4.7 percent boost in the prior-year period, marking eight consecutive quarters of positive comp sales.
Last quarter, Bonefish took a 10 percent reduction in discounting and finished with comp sales down 1.1 percent. Carrabba’s comps rose 80 basis points to positive 0.8 percent, and Fleming’s took a 0.4 percent drop, driven by a planned 20 percent reduction in discounting.