Fair-Share, Steal-Share and the Future of Casual-Themed Restaurants

While it seems like it’s always been a mature industry, the fact is that the chain restaurant business in the United States is still in a state of relative infancy. In my 35 year career that began in the dishroom, for example, I’ve actually worked for or met concept creators like Norman Brinker, Alan Stillman, Ray Kroc, Harlan Sanders, Dave Thomas, and scores of other leaders whose names are not as well known but whose contributions were just as paramount. If the US foodservice industry were a Bible, I sometimes feel like I’ve walked through the Old Testament. Armed with this longview, and while perched on the cliff of these heady economic times, I know that not all is now clear, but this much is self-evident: deep change is in the air.

Industry-wide re-engineering will occur characterized by innovation, failure, evolution, leadership, trial, error, segment shifting and possibly even a new status quo (in which there isn’t one). A very different industry likely awaits us all on the other side of this recession, especially for the casual-theme segment. And by the way, if you prefer “downturn cycle” instead of “recession” then what part of our short history is surely repeating itself? Maybe media holds a clue.

In case you haven’t noticed, sandwiched between the buzz-killing 6 o’clock news, escapist reality shows, and your favorite online news source we now see Applebee’s ads encouraging us to forgo fast food for their food at the same price. And casual theme segment pioneer TGI Friday’s now cajoles viewers to buy one entree, get one free. If you didn’t believe that competition was no longer linear by segment, do you doubt it now? The year-long consumer trend of forgoing casual theme restaurants (who are now suffering double-digit sales drops) for fast-casual and QSR segments (some of whom are seeing double-digit gains) has been dubbed “trading-down” by pundits and characterized as a recent phenomenon. But generating new sales by stealing share from the price point above is as old as markets themselves; that’s how new segments develop.

Businesses acquire new customers through either fair-share or steal-share. Customer “fair-share” is a passive process; when the economy is good and consumers dine out more often, all the boats rise. This explains why so many new concepts and franchises proliferated and grew in the last decade, in spite of weak systems, brands or leaders. Customer “steal-share” on the other hand, is pro-active and calculated. Competitive restaurateurs achieve steal-share by positioning themselves as a better choice either by price point, service, menu or marketing. Steal-share is both a vertical and lateral process; you aggressively take market share from the restaurants above, below, and beside you. This is why successful companies don’t “save” their way through a recession, they market their way through. Hence casual-theme’s current discounting and QSR’s ongoing couponing.

In the 1970s, casual-theme chain pioneers like Houlihan’s, Friday’s, and Steak & Ale (among many, many others) aimed at—and carved their market niche from—the fine dining category. White tablecloths suffered dramatic losses and closures as a result while their diners fled to the more appealing price, value, menu and atmosphere of the new casual-theme segment. Then as the economy improved, aspirational diners who previously frequented only QSR began to “trade-up” to casual theme restaurants too. And so “steal-share” buoyed by fair-share caused the segment to boom and soon a host of casual-themed tableside service restaurants proliferated in every market. Fast-forward to 2009. We’re now witnessing a similar steal-share consumer migration, this time away from a staid and tired casual–theme segment to a burgeoning and fresh fast-casual one. History repeating itself? Perhaps, but the challenge now for casual-theme players isn’t as simple as waiting for the economy to improve, and then watch the sales rebound. Just because the economy recovers doesn’t mean that consumer dining habits are going to stay the same.

In a recent research project for an industry beverage vendor, we tracked how 225 Big Ten university students use the foodservice industry off campus. We noted preference, frequency, patterns of movement, average spend, and the role marketing played in choosing where to go. This particular cadre of young diners preferred fast-casual to casual-theme restaurants by a 4-1 margin. They touted the appeal by citing the usual suspects like “fresh,” “bold flavors,” “variety,” and “value.” No surprises there. But what we hadn’t expected to hear was the consistent unsolicited perspective that casual-themed restaurants were less appealing not because of menu or price, but because of the time constraints they put on young diners. Under-24-year-olds routinely do not like to be “trapped” at a table or booth for an hour or more at the mercy of an ordering system and menu that serves a waiter’s timetable instead of the diner’s. Interesting.

Is this a significant harbinger of things to come? Maybe yes, maybe no, but it can’t be ignored. A company’s future plans should never be predicated solely on past patronage. The Baby Boom generation loves its casual-theme restaurants, for instance, but it should be noted that their parents adored cafeterias too. How is that segment faring today? While today’s economy and tomorrow’s diner do not necessarily portend certain death for the casual-theme segment, they do illuminate bigger issues that should be addressed beyond price, menu, décor and getting through a recession. And the first issue is leadership. Strong and insightful leaders, adept at managing and directing dynamic change in this segment, are needed now and needed fast. And the truth is that some current leaders simply won’t cut it in the New Order. It’s one thing to successfully steer the growth of a company in “fair-share” good times, but how many of the same leaders can aggressively grow and successfully transform their company through a more-challenging “steal-share” economy? We’ll have to watch together, and keep a keen eye out for which company’s leaders are playing to win, and which are playing not to lose.

To paraphrase Darwin, it’s not the smartest or the strongest of the species that survive, but the ones most adaptive to change.