No Wonder This Is the Most Popular Steakhouse Restaurant

This steakhouse only serves up higher sales and profits, a rare treat in this economy. Well done!

Aug 31, 2014 at 9:39AM

There's nothing like a good steak dinner. Indeed, a steak and potatoes meal is the epitome of solid fare, and even with the price of beef hitting record highs, steakhouses remain a popular destination when going out to eat.

Steak

Mmmmm. Steak. Photo: Wikimedia Commons.

According to the market researchers at Technomic, the top 10 steakhouses in the U.S. generated over $8 billion in sales in 2013, up 7% on average, which helped fuel a 6% build out in their restaurant footprint. Where the top full-service chains posted just a 2.4% increase in U.S. sales last year, the steakhouse segment surged some 6.2%.

Of course, not everyone fared equally well, and some did much better than others. For example,  Darden Restaurants (NYSE:DRI) LongHorn Steakhouse enjoyed sales gains of nearly 13% last year followed by Texas Roadhouse (NASDAQ:TXRH) with 11%, but Morton's Steakhouse saw its sales fall 2.8%.

Going hungry
Restaurants, generally, still face a divided future as NPD Group found there was little growth in consumer visits to U.S. restaurants during the early part of the year and unit growth barely budged higher, but that mostly came from fast-food joints pushing their store counts higher. Full-service restaurant units dropped 1% year over year. Worse, traffic at casual dining and midscale restaurants, both of which are in the full service category, fell 3% and 4%, respectively.

Screen Shot

There's no traffic cop needed at most restaurants these days. Data: NPD Group.

So taking the performance of the steakhouses in perspective, it's easy to see that despite everything, they're still doing quite well for themselves.

That's why the folks at Market Force Information undertook to survey the opinions of 6,100 consumers in the U.S. and Canada on their favorite full-service steakhouse. They wanted to separate the best from the rest, weighting them on seven criteria: food quality, atmosphere, cleanliness, fast and friendly service, value, and kid-friendliness.

So which chain did consumers lasso as being the best?

A lot of red meat here
Not surprisingly, the top-ranking steakhouse chain scored well when it came to food quality, something you'd expect diners to think as most important when choosing a place to eat out. Yet it also did well in atmosphere  and cleanliness, not unimportant considerations by any stretch and enough of a difference to put it well beyond the reach of its rivals, even though some ranked higher when it came to service and accommodating kids.

Interestingly, the top steakhouse did poorly when it came to getting your money's worth from a meal, something you'd think would hold top mindshare in this challenging economy, but apparently the food is so good that it far outweighs the higher price you're paying.

So knowing those were the determining factors for which restaurants made the cut, what's your best guess for the top full-service steakhouse?

Throw some steaks on the barbie
If you're pick was Outback Steakhouse, don't feel bad. Ever since the first Australian-themed restaurant opened in the late 1980's when Crocodile Dundee was in the theaters and the Land Down Under was celebrating its bicentennial, it has proved to be a popular place to go. But the Bloomin' Brands (NASDAQ:BLMN) chain only scored in the middle of the pack overall, coming in fifth out of the seven chains rated, and wasn't a standout in any one particular category. That was the case also for Lone Star Steakhouse & Saloon, which came it at the bottom of the list, far and away the worst of the bunch, and Logan's Roadhouse, which fell in between the two, though it did place second for value.

The second, third, and fourth place finalists were Texas Roadhouse, The Keg, and LongHorn Steakhouse, respectively. It was Texas Roadhouse whose service was ranked tops and it was rated the best in value, while The Keg came in second only to the No. 1 chain in terms of food quality, ambience, and cleanliness.

So who is it?

Grade A beef
If you guessed The Capital Grille as the top full-service steakhouse restaurant, go ahead and toss your stetson up in the air.

Screen Shot

Data: Market Force Information.

The Darden Restaurants high-end chain is one of a group of small niche concepts the restaurant classifies as the future of its high-growth plans, one that includes Eddie V's, Seasons 52, Bahama Breeze, and Yard House.

It acquired The Capital Grille in 2007 from RARE Hospitality International, from which it also obtained LongHorn, and has nearly doubled the number of restaurants from 29 to 54 in that time period. 

Images

A high-end steakhouse is a capital idea when your customers are the affluent. 

As part of Darden's specialty restaurants, The Capital Grille has helped the group grow revenues to $342 million last quarter, up 15.9% from the year ago period, primarily as a result of higher same store sales, but also from new restaurant openings. The Capital Grille's comps were 3.4% higher for the fiscal year and were up 4% in Darden's fiscal fourth quarter, making it the 17th consecutive quarter of positive same restaurant sales.

Screen Shot

Steak lovers keep coming back for more at The Capital Grille steakhouse. Data: Darden Restaurants SEC filings.

The Capital Grille's average check per person was approximately $69 to $76, perhaps explaining why they weren't perceived as a particular value and ranking low on the Market Force Information survey in that category, particularly when Texas Roadhouse reported its average check was $15.80 per guest.

Money's no object
Obviously a few chains have been left off the list, such as Morton's and Ruth's Chris Steak House, which would have been interesting to see how they stacked up to The Capital Grille. The market analysts at Technomic believe high-end steakhouses have performed particularly well because they cater to an affluent clientele, who have done better in this economy even as those beneath them continue to suffer from a malaise.

Images

A little surf and turf can cure any market malaise. Photo: Ruth's Chris Steakhouse.

On a comparable sales basis at least, Ruth's Hospitality Group (NASDAQ:RUTH) reports its steakhouse is doing well with comps running 2.8% higher last quarter and coming in 5.3% higher in 2013. As its average check is $73 per person, Ruth's is comparably priced to The Capital Grille indicating well-to-do customers in any event are willing to pay up for the experience.

Fine dining restaurants, generally, have done well since the recession, and steakhouses, particularly these pricey ones, even more so. They just might be a segment of the restaurant industry investors should consider sinking their teeth into.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Texas Roadhouse. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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