It's a forgone conclusion that casual dining will bounce back as the economy continues to improve.
Between improving unemployment trends and the tax-padded paychecks that began going out this month, the restaurant chains that missed out on your regular visits during the recession are waiting for you with open menus.
What if it's not as easy as that?
Brinker International (NYSE: EAT) reports earnings tomorrow morning. Analysts are upbeat on the company behind Chili's and its tasty chicken crispers. After posting year-over-year profit declines in three of its five previous quarters, Brinker bounced back in October with a 36% spurt in net income.
Wall Street is banking on a more modest 10% bottom-line uptick tomorrow, but at least the chain is moving in the right direction.
I don't think Brinker should have any problem nailing Wall Street's targets, even if it has come up short in two of the past three quarters. I'm more concerned with what the company's guidance will be. See, I'm concerned with two booming trends that threaten casual dining. Gourmet food trucks and Groupon vouchers are taking over the country, and more time at roadside merchants of haute cuisine and half-priced gift certificates at business-hungry upstarts will inevitably nickel-and-dime the leading casual dining chains.
Oh, you don't see it now. I have yet to hear a single casual dining chain mention the Groupon Effect or even acknowledge the growing popularity of restaurants on wheels. However, what do you think happens when a promising foodie haunt offers up $50 vouchers for $20 through Groupon? Don't you think the hundreds -- if not thousands -- who buy in that day will ultimately replace a meal at Chili's or Ruby Tuesday (NYSE: RT) with an indie experience? If friends decide to meet up at that night's parking spot for a dozen trucks specializing in fish tacos, orange-glazed short ribs, and triple-grind burgers -- instead of heading out to Darden's (NYSE: DRI) Olive Garden or Red Lobster -- don't you think the industry will eventually feel the pinch?
I'm less concerned about the upscale chains. Fans of Morton's (NYSE: MRT) and Ruth's Chris (Nasdaq: RUTH) chophouses aren't going to trade down for the chase of a Groupon voucher or food truck outing. This is also why I'm not worried at all about OpenTable (Nasdaq: OPEN). It deals primarily with high-end restaurants that require reservations. OpenTable also became a Groupon play when it rolled out marked-down vouchers this past summer through its Spotlight initiative.
The real squeeze here will be in the middle. Ruby Tuesday, Brinker, Darden, and Applebee's parent DineEquity (NYSE: DIN) are the ones in the crosshairs of these two dining trends.
In an ideal world, there's enough business to go around. The Groupon discounters and gourmet food trucks will only eat away at casual dining's fringes. I'm not so sure two hungry players sucking out casual diners from the equation can be ignored, though. If you're investing in any casual dining chain, begin looking for deterioration at any rival.
Casual dining is being disrupted, and you don't want to be the last one to notice.
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