Summary
What I predicted – in 07 The overall environment for the casual dining sector will become more and more hostile. What was reported on Dec 17 After discussing the much reported Applebees acquisition, the article said, “Other companies were trying to streamline amid the turmoil. Brinker International Inc. said in September it was shopping it’s Romano’s Macaroni Grill chain to potential buyers. Darden Restaurants reached an agreement to sell its Smokey Bones concept….” The article discussed nearly a dozen examples of this trend.
Analysis
What I predict will happen – In 08
There will be more consolidation and closing of unprofitable restaurants and certain segments will be battered even worse than others. Many buffet concepts will be in deep trouble. The trends toward more healthful eating coupled with the explosion of convenience and value in other sectors will really hurt buffets and further complicate the casual dining landscape. QSR will continue to push back on fast casual making only the strongest in this sector healthy. The hostility in the sector and the economy will make 08 difficult for even QSR. The big battle of 08 will be McDonald’s VS Starbucks on the beverage front. Both have a lot to gain or lose in this fight. However, both are risking their core equities. It will be interesting to see which management team navigates the turbulence better.
This type of battle will characterize the restaurant space in the near term. More and more Brands are looking into new products to solve the existing hostility in the marketplace. However, this type of approach comes with great risk for those who are not careful to safeguard their core equities. In many cases, the cure will be more painful than the original illness.
