The next time you take your family out for ribs, Russ Klein would like you to consider an alternative dining destination: Burger King (BKC, news, msgs).
No longer just the home of the Whopper, the world's No. 2 restaurant chain is now rolling out items like ribs, grilled fish and thicker, steaklike burgers. The new menu items constitute a direct attack on the casual-dining restaurants one step up the food chain and an attempt to capture -- and keep -- even more recession-minded customers.
The food fight reflects a wider trend: Consumer behavior is shifting to an emphasis on the practical and penny-pinching, and companies are rethinking their basic business propositions -- what they make and how to sell it -- to meet downsized customer wallets. Just how much are people cutting back? Chili's, not heretofore known as a romantic destination, recorded its biggest sales day ever this past Valentine's Day. Lower-income groups are abandoning every dining possibility except fast food. 
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In response, restaurants are expanding menus to broaden appeal while maintaining a value price point -- a shift some eateries had dabbled with before the downturn.
"Consumers are trading down to value for money," says Klein, Burger King's chief marketing officer. The new frugality, he adds, is "an opportunity to expose diners to new products and to retain some portion of those people whatever the economic environment."
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At the lower end of the market, for instance, as Burger King beefs up its menu,Yum Brands' (YUM, news, msgs) Pizza Hut is trying to lure casual-dining fans with pasta, and McDonald's is serving up espresso. A few steps higher, Starbucks (SBUX, news, msgs) is stretching down-market with -- gulp -- instant coffee.
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"After seven years of an orgy of spending, we are focusing on consuming less and living within our means," explains Scott Galloway, a clinical associate professor of marketing at New York University's Stern School of Business. "People want to be perceived as being more responsible with money, even if they have a lot of it."
Overall, the food-service industry is likely to contract by 2.6% in 2009, according to Technomic, a food and restaurant industry consulting firm in Chicago.
More-expensive full-service restaurants are expected to see revenue drop 6% this year, while so-called limited-service restaurants -- the category that includes fast-food chains -- are likely to be flat for the year after 2% growth in 2008.
For the most part, people are heading to the grocery store to load up on frozen or prepared food, or getting sliced meats at the deli counter to eat at home. Lower-income groups are abandoning every dining possibility except fast food. As a result, restaurants are "testing new products and using aggressive promotions and advertising on the Web," says Ron Paul, the president of Technomic. "They are doing everything they can to get customers and fight for a share of the market."
Burger King reckons that its new, affordably priced menu items -- bone-in ribs, kebabs, grilled fish and the thicker Steakhouse XT burger -- will be just the ticket. Priced from $6 to $7, depending on size, a rib dinner at Burger King will come in at half the price of a similar plate at a rib place or casual-dining spot, the company says. The company is accelerating the installation of special "smart broilers" (rather than traditional conveyor belts) at its restaurants to cook these new items.
The question is whether diners accustomed to piled-high Whoppers will trade up to specialty meals like ribs when they swing by their neighborhood fast-food joint. "We are moving up, but we won't be serving filet mignon out of Burger King," Klein responds. Ribs are a natural evolution from burgers, he continues -- all part of an outdoor-barbecue-influenced menu.
In Burger King's sights are the struggling casual-dining chains, whose midrange status has made them particularly vulnerable to consumer budget cuts.
Chili's, owned by Brinker International (EAT, news, msgs), might have gotten a surge on Valentine's Day, but the restaurant's same-store sales are slumping overall, down 5.2% in its most recent fiscal quarter. Another casual-dining chain,
Cheesecake Factory (CAKE, news, msgs), reported a 7.1% drop in same-store sales and a 47% slump in profit, to $7.1 million, in the fourth quarter of 2008. (McDonald's, by comparison, reported a 6.2% rise in March U.S. sales; Burger King announced a 1.9% increase.)
Also at risk are Applebee's, owned by DineEquity (DIN, news, msgs), and the many outlets operated by Darden Restaurants (DRI, news, msgs), whose Olive Garden, Red Lobster and LongHorn Steakhouse restaurants showed a combined 3.2% decline in same-store sales in its most recent fiscal quarter.
The company that owns Bennigan's, an Irish-themed bar and grill, became the first victim of the casual-dining downturn last summer, when it filed for Chapter 7 bankruptcy protection. "The higher the check, the poorer the performance," says Technomic's Paul. Another casualty: ARG, which owned 69 Black Angus Steakhouse restaurants, filed for bankruptcy protection in January and has since sold off the eateries to a private-equity firm.
Chili's is counterattacking to win back diners, sprucing up its outlets and reintroducing the Bottomless Express Lunch, a $7 feast of all the soup and salad you can eat, according to Advertising Age -- apparently hoping to make up for lost dinner customers by reeling in those who want to lunch for less. The company did not respond to requests for comment.
The ruthless pursuit of value cuts both ways, however. As restaurants trim the fat to stabilize profit margins, some are drawing the ire of customers who are accustomed to overloaded plates and free sides. Posters on the personal and consumer-finance blog WalletPop, for example, have complained about shrinking portions and skimpier bread baskets, and about cups, rather than bowls, of soup. (What happened to that entire bottle of A.1. Steak Sauce, wondered one diner, who received about a tablespoon.)
Some McDonald's franchises, meanwhile, are enraging customers by attempting to charge for portions of ketchup "beyond the norm," a customer reported on the blog. That's not a corporate policy, says a McDonald's spokesman, but one that's decided restaurant by restaurant.
What eventually will persuade consumers to go back to restaurants? Paul, Technomic's president, believes that the time for a comeback is near, as people grow bored and depressed with staying home. In that state of mind, he notes, "It doesn't take a lot to say, 'Let's go out to eat.'"
Produced by Elizabeth Daza
Published April 23, 2009
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