July 1 (Bloomberg) -- As twenty-somethings flock to Five Guys Burgers and Fries, eateries such as Applebee’s, Ruby Tuesday Inc. and Chili’s are trying to win them back with “Girls’ Night Out” parties, new menus and rehabbed stores.
Already struggling to revive sales in the wake of the recession, Brinker International Inc.’s Chili’s and DineEquity Inc.’s Applebee’s risk losing young professionals unless they remake themselves, said Brad Swanson, who runs the restaurant group at KeyBanc Capital Markets Inc., an investment banking and equity research firm.
“If you have a little bit of money and you’re educated, you want a boutique feel, less chain,” said Swanson, who is based in Atlanta.
Sales at full-service restaurants -- which include casual-dining chains such as Chili’s and Applebee’s -- fell 1.3 percent to $166 billion last year, compared with a 6 percent rise for fast-casual chains such as Five Guys, Chipotle Mexican Grill Inc. and Panera Bread Co., says researcher Technomic Inc.
The fast-casual chains -- which feature counter service and limited seating -- are squeezing profit and sales at Chili’s and Applebee’s, exacerbating a decline that began with the recession, which started in late 2007 and lasted two years.
Sales at Dallas-based Brinker have declined for three years. Revenue may slump 3.6 percent to $2.75 billion this year, according to analysts’ estimates compiled by Bloomberg. Revenue at DineEquity, based in Glendale, California, has slid in eight of the last nine quarters. Analysts forecast a 21 percent drop in sales to $1.05 billion in 2011.
Ruby Tuesday shares have slumped about 17 percent this year. DineEquity shares have risen 5.9 percent and Brinker has advanced 17 percent, compared with a 45 percent gain for Chipotle and 24 percent rise for Panera.
Stacey Sullivan, a spokeswoman for Chili’s, and Lucy Neugart, a spokeswoman for Applebee’s, declined to comment for this story. Greg Ashley, the vice president of finance for Ruby Tuesday, also declined to comment.
The casual-dining chains, known for cheap eats and big portions, may be victims of their own success. Sales at Brinker and Applebee’s almost doubled from 2000 to 2006 and rose 64 percent at Ruby Tuesday, as they ramped up store openings.
When consumers began eating out less, casual dining became “plagued with oversaturation,” said Darren Tristano, an executive vice president with Chicago-based Technomic.
The timing couldn’t have been better for burger joints such as Five Guys, which were attracting new, younger customers, and looking to expand.
“We’re getting a lot of people from casual-dining chains,” said David Prokupek, chief executive officer of the Smashburger chain. Sales at so-called better-burger eateries surged 16 percent last year, according to Technomic.
Millennials -- consumers in their 20s and 30s -- are saying “been there, done that, and I want something new,” said Dennis Lombardi, executive vice president at restaurant consultant WD Partners in Dublin, Ohio.
Sarah Perry, a 27-year-old arborist at the Morton Arboretum in the Chicago suburb of Lisle, Illinois, would rather dash into a Five Guys for a cheeseburger and fries than sit down at a casual-dining restaurant.
“Chili’s and Applebee’s have such a negative connotation with just being cheap food,” said Perry. Five Guys “burgers are really fresh -- you don’t get that stale, come-from-the-box sort of taste.”
The casual-dining chains also face increasing competition from Chipotle and Panera. Colorado-based Chipotle has generated double-digit sales growth since McDonald’s Corp. spun it off in 2006. Revenue at Panera, which operates more than 1,400 bakery-cafes across the U.S., rose 14 percent last year.
Chili’s is trying to lure customers with its Big Mouth Burgers and $20 dinner-for-two specials. It’s touting lunch combos priced from $6 to $8 that Chili’s President Wyman Roberts said “positions us better against fast casual.”
“Lunch had been particularly impacted over the years, with the growth of fast casual and a more value-conscious consumer,” Roberts said on a conference call in April.
Applebee’s is opening fewer restaurants to focus on remodeling existing ones at about $200,000 a pop. The company plans to have almost a third of its 1,862 U.S. locations refurbished by the end of the year, Chief Executive Officer Julia Stewart said during a conference call in May.
To appeal to twenty-somethings, the chain is touting ‘Girls’ Night Out’’ parties on Facebook.
Maryville, Tennessee-based Ruby Tuesday spent $9 million on new marketing in the past year and is giving customers free fresh baked garlic biscuits with meals, Chief Executive Officer Sandy Beall said in April.
The burger chains aren’t standing still. Five Guys Chief Executive Officer Jerry Murrell plans to add 600 new locations in the next two years, for a total of about 1,400. Smashburger, which has 100 stores, is targeting Miami and Los Angeles for new locations, CEO Prokupek said in an interview this month.
Still, ubiquity may bite them, said Todd Hooper, a San Francisco-based restaurant strategist at Kurt Salmon.
“There are too many of these better burgers popping up,” he said. “Hamburgers are one of the top favorite foods in this country, but I think it’s going to limit the growth of these concepts because there are too many of them.”
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