Red Robin: Casual Dining Industry Analysis I.
The Industry, Industry, The Market and The Buyer Competition Analysis Total market share 37.41%
Top Competitors Casual dining restaurants represent 16.1% of the rest aurant industry’s market share (Refer to Chart #1). Based on total system wide sales, Applebee’s Neighborhood Grill & Bar (operated by Dine Equity Inc.) leads the segment ($4.5 billion in 2007), followed by Chili’s Grill & Bar
(operated by Brinker International; $3.9 billion in the fiscal ended June 2008) (Standard & Poor’s, 2009). According to Business Source Premier, the following companies are the top
competitors of Red Robin Gourmet Burgers Inc: Applebee’s International, Inc. with 14.69% of market share, The Cheesecake Factory Incorporated with 3.68% of market share, California Pizza Kitchen, Inc. with 1.74% of market share, and Ruby Tuesday, Inc with 5.84% of market share (May 2008). However, according to Hoovers Company Records, Red Robin’s top competitors are: Brinker International (Chili’s with 11.46% market share), California Pizza Kitchen Inc. (1.74%), and Ruby Tuesday (5.84%) (2008). Red Robin’s market share is given as 2.80% in Table Table Base (June 2006) (See Chart C hart #2). Brinker Brinker International is among the “best quality casual dining restaurants” in the world. Brinker has “founded its strategies on the strong position of its world-class brands in order to be able to increase the sales of its restaurants and diversify its operations into new markets. ” In addition, Brinker implements market strategies in which they offer great value products in order to lure customers to their restaurants. Brinker also uses a number of strategies to continue its steady growth such as franchising, joint venture, and company-owned development
Red Robin: Casual Dining Industry Analysis (Datamonitor, 2008). In developing franchise agreements, Brinker International has been able to emerge into new markets and expand in existing ones. California Pizza Kitchen California Pizza Kitchen has a broad product portfolio providing customers with a wide range of good quality choices. The menu offers different kinds of pizza and salads for different tastes. California Pizza Kitchen holds a “strong top line growth driven by domestic and international franchise agreements” (Datamonitor, 2008). Ruby Tuesday Ruby Tuesday tries to appeal to consumers with a “broad selection of menu items and midrange prices. Ruby Tuesday relies heavily on television and print advertising to promote its brand and distinguish itself from other chains such as Applebee's.” The company “continues to add premium items to its menu as part of on-going effort to update the Ruby Tuesday brand ” (Hoovers, 2008). Applebee’s Applebee’s has been undergoing a “radical change in their business model under the
ownership of DineEquity.” The chain has also been “increasing its marketing and menu development efforts to attract the attention of the dining public” (Hoovers, 2008). “Applebee’s strategy is to create a brand image that positions the restaurant chain as a place p lace for family, family, friends and coworkers to reconnect and to differentiate the chain from the myriad of other casual dining chains available to consumers” (Gunelius, 2007).
The Cheesecake Factory The Cheesecake Factory is one of the “largest growing menu categories in the US restaurant industry.” They open restaurants in attractive locations, populated areas and above-
Red Robin: Casual Dining Industry Analysis average income households, for example shopping malls (Datamonitor, 2008). The Cheesecake Factory doesn’t advertise in the traditional sense, they rely heavily on marketing and public relations efforts. “We create experience, word-of-mouth, and a great location with easy access.” president of Business Development and Marketing stands firm, “If Howard Gordon, Senior Vice- president there’s not good service, they don’t come back. I do not care how many ads you run” (Price,
2004). Driving Forces
Technology Technology is the newest and most important driving force in the family/casual dining industry as “more and more operators move to online ordering and email and text tex t based marketing” (Slawsky, (Slawsky, 2009). As of late, many man y casual dining operators have implemented
programs allowing users to place an order online for pick up or delivery, including taking online payments. Some of these programs even provide incentive to placing an order online. By merging towards email and text based marketing, operators ope rators are getting their customers involved through online savings coupons, e-clubs, and loyalty rewards programs. One major implication of the use of technology in the casual/ family dining industry is that companies can b etter track the usage and preferences of their customers, providing invaluable data that will further bolster the marketing and distribution efforts of these companies. Convenience Convenience in the casual dining d ining industry is imperative to the success of the industry as a whole. Without the given convenience in the act of o f dining at a casual dining restaurant, there would be no point in eating out at a casual dining restaurant at all. In order to provide some semblance of how important convenience is to the consumer, many restaurants have been
Red Robin: Casual Dining Industry Analysis “forced to implement curbside programs just to survive”, according to QSR Magazine.com
(2007), the leader in quick-service and fast-casual news. Curbside provides an added benefit to casual diners, given that one can simply call in or get online to place p lace an order, which they may pick up curbside in a matter mat ter of minutes. According to the NRA (National (National Restaurant Association), “more than 20% of adults indicated the order more takeout from table-service restaurants than they did two years ago” (Minnick, 2007). Convenience as a driving force
certainly acts as a buffer for the casual dining indu stry by ensuring the continued success and longevity of the industry as a whole. The Economy The most obvious driving force of the casual c asual dining industry is America's current current economic situation. Economy and Politics Examiner Ex aminer Sahit Muja (2009) discusses the implications of the U.S. Economic crisis on the restaurant industry, attributing rising gas and food prices, increased competition and ill-timed expansion ex pansion as a hindrance to profits. Decreased consumer spending and elevated food costs are also factors affecting the casual dining industry's success in today's U.S. Economy. Efforts such as the aforementioned curbside service provided by many casual dining restaurants and restaurant loyalty lo yalty programs have attempted to level out PPA PPA (per person average), sales, and profit goals for some companies. co mpanies. Unfortunately, a waiting game is ensued in the turning around a round of the U.S.' economic econo mic situation. Until then, perhaps of all segments of the restaurant industry, industry, the “casual dining industry will be the hardest hit ” according to global rating agency Fitch Ratings, projecting a third year of negative samesame - store sales (Hartford, 2008). Key Success Factors
“Key Success Factors are those functions, activities or business practices, defined by the
Red Robin: Casual Dining Industry Analysis market and as viewed b by y the customers, which are critical to the vendor/customer relationship. compan y.” (Dix Key Success Factors are defined by the market and by the customer, not by the company
& Mathews, 2002) In order for a factor to be successful it must produce significant customer customer value and market differentiating differentiating value. When choosing their strategies, strategies, a company needs to know what drives the market and what the customers need and want. Product Design Product design alongside high product quality is a development designed to optimize the value and appearance of the food that is offered at casual dining restaurants (Lloyd, 2009). Companies start with the idea that the product is a bundle of benefits to a particular pa rticular target market. They then do a detailed detailed study to identify the specific specific benefits the group is seeking seeking and develop an offer that combines these benefits. The detail that is given to to each meal order guarantees the staff and the customer mutual benefit and builds a sustainable relationship between the two. Team Another key success factor is assembling a team that is motivated to personally sell the product at hand. Restaurant’s employees need to be knowledgeable about the brand and product offering in order to properly inform each and every ev ery customer that arrives for a casual dining experience. “A positive attitude and professional behavior with regard to performance should be emphasized.” (Lloyd, 2009)
Mascot Mascots create an identity for companies as a whole, therefore making them a key success factor. “Customers see the mascot in advertisements and link it to the product and
Red Robin: Casual Dining Industry Analysis restaurant itself, ultimately creating brand awareness” (Nutt 2009). In retail, mascots are a positive influence on sales because they create media exposure and excitement which generally leads to sales. Mascots generate interest and emotional response in children, thus making parents more apt to choose one restaurant over another. In order for casual dining restaurants to continually perform well and achie ve their mission and objectives, they need to to constantly exert their success factors. These factors are absolutely critical to the success of any compan y. “By identifying and communicating key success factors throughout the company, it helps ensure that everyone is well-focused while also avoiding wasteful efforts” (Hambrick, 1989). As key success factors are related to the industry
as a whole, in order for a company to surpass their competition they need to build on the strengths of their restaurant through the use of these factors. Industry Attractiveness
Michael Porter’s Five Forces Model consists of the sub-segments supplier power, buyer’ buyer ’s
power, competitive rivalry rivalry,, threat of substitutes, and threat of new entrants. Beyond an in-depth discussion of the preceding subjects, a weight and ranking are also assigned to each to signify their importance to the overall industry attractiveness. The ranking will be within the the range 0-1, with 0 having no influence and therefore very attractive and 1 having complete control and therefore very unattractive. Supplier Power Overall supplier power is the weakest of all in the Five Forces Model because there are many suppliers of various commodities necessary to the casual dining indus try, try, none of which is unique in nature. Of course, supplier power is somewhat relative depending on the geographic geographic location of the restaurant and its proximity to a supplier, inevitably effecting effecting cost. Industry
Red Robin: Casual Dining Industry Analysis dependent agricultural products and their suppliers are ve ry common with their prices staying relatively stable from year to year. year. Hedge contracts guaranteeing a restaurant’s business for usually one year provides a small amount of power not common in agricultural a gricultural suppliers, although somewhat increasing switching costs. The forces of labor supply a re also quite weak given the current state of the economy econ omy,, but this force will probably gain some strength as the unemployment rate declines. Overall, this force does not play much of a role role in regards to supplier’s power.
The real estate supplying forces that most in the industry are dependent upon upo n for expansion are more complicated than the others and therefore hold more power. Most chain restaurants prefer to build their own facilities so that they conform to design and concept, although the land it’s built on can be either leased or b ought. Purchasing the property is a greater
upfront cost, but eliminates a leasee from holding p ower by charging and/or raising a monthly rent. The size of the corporation within the industry indu stry is also of consideration because economies of scale can be established and an d larger firms could potentially turn the tables and dictate terms to suppliers. Taking all of these major supplying forces into consideration, consideration, overall supplier’s power
will be ranked as .10 out of o f 1 (S&P, (S&P, 2008). Buyer Power Buyer power is stronger than supplier power, but for the most part bu yers do not poses enough collective power to have much impact on driving driving prices down. In the casual dining industry buyers are ordinary citizens, so no one buyer or group of buyers purchase a significant amount of the industries products, and therefore cannot dictate price or terms. On the other hand; buyers possess more power than suppliers because fixed costs in the industry are so high and in significant numbers buyers can affect sales and profitability. profitability. The U.S. has seen a steady growth
Red Robin: Casual Dining Industry Analysis in home meal replacement (HMR) for quite a while whi le due to growth in disposable income, declining free time, and possibly cultural factors. This growth has come to to a head as consumers have less disposable income in a contracting economy with rising unemployment rates. The industry’s industry’s dependence on these the se macroeconomic factors inevitably puts some power into the
hands of their buyers, giving them a rating of o f .13 out of 1 (S&P, (S&P, 2008). Competitive Rivalry This force is rated relatively high and the second highest overall because the casual dining industry is highly competitive. Restaurant chains are no longer just in urban and metropolitan areas; they need a substantial flow of customers, but those numbers can be found in even less populated areas today. Not only is the density of restaurants high, the products and services offered are also similar and under constant scrutiny of consumers, leading them to seek out and frequent those that offer the best value. Larger restaurants possess a slight advantage over others in that they have economies of scale which allow them to advertise more frequently, frequently, develop new and unique products, and gain access to competitive competitive technology. technology. Overall, this force is rated .25 out of 1 (S&P, 2008). Threat of Substitutes This force is the highest of the five five because of the frequency of substitutes. substitutes. Furthermore, substitutes for casual dining are not inclusive to this industry alone, but c an be any form of HMR, as well as meals prepared at home. Often restaurants have to use a differentiation d ifferentiation strategy and/or rely on atmosphere in order order to provide a product that is is not quite as duplicable. This force receives .30 out of 1 (S&P, 2008). Threat of New Entry The entry barriers to this industry are pretty low with 91% of all restaurants being run by
Red Robin: Casual Dining Industry Analysis small operators according to the National Restaurant Association (S&P, (S&P, 2008). Intense competition and high fixed costs are deterrents, but b ut many entrepreneurs enter because a high hi gh percentage of incremental sales past the breakeven point can become profit. The restaurant industry is also one of the most franchised industries, so new entrants are common phenomena. On the other hand, larger chain restaurants enjoy enjo y economies of scale, advertising, better technology, and more know how in real estate purchasing, but given that this analysis is a compilation of the industry as a whole, threat th reat of new entry is rated as .22 out o ut of 1 (S&P, (S&P, 2008). Market Segmentation Analysis for Red Robin Gourmet Burgers
Education According to Mediamark Reporter there are approximately 58,543,000 college graduates in the 48 contiguous United States, making them a substantial market worthy of consideration. Mediamark reports that customers of the casual dining industry are 12% more likely to have graduated college than the the general population. 80.9% and 75.6% were respectively in the college graduates plus and attended college classifications. classifications. As the level of education increases, increases, so too does the percentage of customers to the casual dining industry; industr y; therefore, indicating a positive relationship (See Chart #3). Adult Age According to Mediamark the index of likely customers regardless of age seems to be relatively stable across all age classifications. The casual dining industry has age demographics 25 to 34 and 35 to 44 as the most likely of customers, with both tied at only 2% being more Mediamark’s data indicates that age does not play a major likely than the general population. Mediamark’s
role in the visiting patterns of their customers; however, those that would be considered middle aged (classifications 25-34, 35-44, and 45-54) do maintain slightly higher percentages than those
Red Robin: Casual Dining Industry Analysis younger or older (See Chart #4). Gender Mediamark reports that women are at least 4% more likely customers of the casual dining industry and one category, women between ages 18-34 are as much as 5% more likely of customers than the general population. Despite these figures, figures, the makeup of women as a whole of customers to the industry is only slightly slightly higher than that of males. Women 18 to 49 lead the pack at 31.4% of total customers c ustomers while men in the same age category cate gory are slightly less at 29.4% of total customers (See Table #1). Income The casual dining industry seems to draw the majority ma jority of its customers from higher income brackets. Mediamark has those who make over $150,000 and those who make between $75,000 and $149,000 tied at 14% more likely of customers than the general population. The category of those making between $75,000 and $149,999 have a significant lead over all other household income (HHI) brackets, making up 30.6% of total customers. customers. The next closest category is those who have HHI between $60,000 and $74,999 and make up a mere 11.8% (See Chart #5). Marital Status Being married seems to be the most important demographic factor influencing customers of the casual dining industry. industry. Those who are married are 5% more likely to be customers than the general population and make up 59% of customers. customers. The next closest marital status status classification is never married, coming in at 23.9% of total customers. No other marital status status classification even comes close to the 59% of those customers who are married (See Chart Cha rt #6). Age of Child
Red Robin: Casual Dining Industry Analysis Mediamark does not collect information on the family size or the number of children in the household, but does collect the likelihood and percentages of casual dining restaurants having children as customers between particular ages. Younger children who are six years or more and under the age of 18 are the most most common customers in the child age category. category. The 12 to 17 category leads with 20% of all children customers, b ut all categories are relatively even until the child is younger than two years when the total percentages drop off significantly (See Table Table #2). Race As would be expected, Caucasian (white) is the most likely race of customers to frequent the entire casual dining industry industry,, being 3% more likely than the the general population. The white demographic makes up 78.5% of all races who are customers, while the black demographic makes up the next highest at 10.4% (See Chart #7). Many restaurants are trying to diversify their menus to satisfy new emerging markets. For example, the Hispanic market has become important to the restaurant industry and this segment is expected to rise to 25% of the population by 2050 (S&P, 2009). Buyer Description
According to a 2007 study conducted by Barrington, Ill.-based Sandelman & Associates and published by Chicago-based Technomic Inc., “males between 45 and 64 are the heavy users of casual dining restaurants with a household income of $75,000 or higher. (See Charts #8 & ”
#9) Although these consumers continued to visit chains and independents, all other income “
groups cut back during the quarter ended February 2007.” The NPD Group attributes the cutback on visits to casual Dinnerhouses “primarily to economic factors, including rising gas prices and the increasing number of low to mid-income households defaulting on sub-prime mortgage” (Lebhar-Friedman, 2007). New American Diner Study data also confirm that 22.5% of high-
Red Robin: Casual Dining Industry Analysis income consumers use casual-dining restaurants once a week or more (Hume, 2007). Consumers expect freshness, acceptable temperature of food, and value for the money; all critical factors at casual dining restaurants (Business Wire, 2007). Quantification Statistics
Chart #1
Restaurant Market Shares – 2007 (S&P, 2009)
16.00%
Chart #2 14.69%
14.00% 11.46%
12.00% 10.00%
Dec-05 8.00%
Jun-06 5.84%
6.00% 3.68%
4.00%
2.80% 1.74%
2.00% 0.00% Applebee's
Chili's
Cheesecake Factory
Red Red Robi Robin n
Cali Califo forn rnia ia Pizza Kitchen
Ruby Tuesdays
Casual Dining Market Share Competitors based on Annual Sales- 2006 Lebhar-Friedman Inc.
May-06
Red Robin: Casual Dining Industry Analysis
Chart #3
Education
Age of Adults
graduated college plus 19%
65+ 15%
no college 28%
did not graduate HS 8%
18-24 13% 25-34 18%
55-64 15%
attended college 19%
post graduate 6%
45-54 20%
graduated high school 20%
Chart #4
35-44 19%
Table 1: Gender * Stub
Total '000
Proj '000
Pct Across
Pct Down
Index
Men 18-34
34,507
24,152
70.0
14.9
97
Men 18-49
66,845
47,495
71.1
29.4
98
Men 25-54
62,602
44,460
71.0
27.5
98
Women 18-34
34,053
25,890
76.0
16.0
105
Women 18-49
67,388
50,778
75.4
31.4
104
Women 25-54
63,999
48,214
75.3
29.8
104
*See attachment for table reading instructions $20,000$29,999 9%
Household Income
$30,000$39,999 9%
Marital Status
Chart #5 < $ $20,000 150,000+ 10% 11%
Chart #6
Engaged 4%
Widowed /Divorced 16%
$75,000$149,999 31% $40,000$49,999 $50,0009% $59,999 9%
$60,000$74,999 12%
Now Married 57%
Never Married 23%
Red Robin: Casual Dining Industry Analysis
Age of Children: Table #2* Stub
Total '000
Proj '000
Pct Across
Pct Down
Index
10,440
6,748
64.6
4.2
89
8,780
6,558
74.7
4.1
103
Child age: <2 years
18,764
12,935
68.9
8.0
95
Child age: <6 years
44,047
31,458
71.4
19.5
99
Child age: 2-5 years
33,622
24,238
72.1
15.0
100
Child age: 6-11 years
41,841
29,939
71.6
18.5
99
Child age: 12-17 years
44,714
32,269
72.2
20.0
100
Child age: <12 months Child age: 12-23 months
*See attachment for table reading instructions
Race
Other America Asian 8% n Indian 3% 1% Black 10%
White 78%
Chart #7
Chart #8
Chart #9
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Red Robin: Casual Dining Industry Analysis from http://www.thezonemagazine.com/ArticlesandFeaturesCheesecakeFactory http://www.thezonemagazine.com/ArticlesandFeaturesCheesecakeFactory.htm .htm Red Robin Gourmet Burgers, Inc. (1 October). Hoover's Company Records, 105456. Retrieved October 5, 2009, from Hoover's Company Records. (Document ID: 283548091). Ruby Tuesday, Inc. (1 October). Hoover's Company Records, 14165. Retrieved October 5, 2009, from Hoover's Company Records. (Document ID: 168179331). Slawsky, Slawsky, Richard. (2009). Pizza Marketplace Releases Industry Study. Retrieved Sept. 23, 2009, from http://www.pizzamarketplace.com/article.php?id=14925&prc=136&page=117
