Food & Beverage
What’s Causing the Decline of Iconic Restaurant Chains?
- Major restaurant chains like Red Lobster, TGI Fridays, and Denny’s are closing locations due to post-pandemic economic challenges and changes in consumer behaviour, especially among low- and middle-income households.
- Fast-food franchises, pop-ups, and drive-thru restaurants are thriving, with brands like Chipotle and Chick-fil-A rapidly expanding to meet demand for convenience and lower operating costs.
- The restaurant industry is being reshaped by trends like fast-casual dining, ghost kitchens, global flavours, and advancements in online ordering and customer data analysis.
The restaurant industry is experiencing a major shift, and some iconic chains are facing the impact. Well-known names like Red Lobster, TGI Fridays, and Denny’s—once staples in casual dining—are scaling back significantly, with many locations shutting down. These closures highlight the struggles traditional restaurants encounter today and mirror wider changes in consumer preferences, economic pressures, and evolving industry innovations.
Post-Pandemic Challenges: A Tough Road for Family Dining
The COVID-19 pandemic took a heavy toll on the restaurant industry, leading to sharp declines in foot traffic and revenue. As restaurants adapted to strict safety protocols and relied more on takeout and delivery, many faced the threat of permanent closure. Now, even as life returns to normal, some sit-down dining establishments face an uphill battle.
Kelli Valade, CEO of Denny’s, highlighted on an October earnings call that family dining has borne the brunt of post-pandemic losses. Once the mainstay of casual dining, low- and middle-income households are now cutting back on dining out due to rising inflation and tighter budgets. Consequently, Denny’s has closed 150 locations and reduced hours at others.
Meanwhile, Red Lobster and TGI Fridays—both of which declared bankruptcy earlier this year—have collectively shuttered nearly 175 locations. These brands were struggling even before the pandemic, with mismanagement and changing consumer tastes hastening their decline. Family dining continues to see a dip in customer traffic, with full-service restaurants like Denny’s experiencing a 0.5% drop in 2024, while fast-casual and fast-food chains have flourished, showing a 3.2% rise in customer visits, according to Placer.AI data.
The Rise of Fast-Food, Fast-Casual, and Drive-Thru Concepts
As traditional family dining faces challenges, a new wave of dining options is taking centre stage. Fast-food franchises and fast-casual restaurants are gaining traction by offering quicker service, lower prices, and the convenience of drive-thru lanes. These benefits not only cater to consumers seeking fast, affordable options but also to restaurant owners aiming to reduce overhead costs in staffing and maintenance.
Leading this shift are brands like Chipotle and Chick-fil-A. Chipotle plans to open 4,000 new locations, most featuring drive-thru lanes, to meet the growing demand for quick-service dining. Chick-fil-A, already renowned for its efficient service, is expanding with multi-lane drive-thru outlets to enhance customer convenience.
Fast-casual brands are now moving into spaces previously occupied by casual dining chains. Restaurants such as In-N-Out, Whataburger, and Raising Cane’s are acquiring former TGI Fridays and Red Lobster locations. These fast-casual concepts are appealing to landlords, generating higher revenue per square foot while requiring fewer employees to operate efficiently.
Pop-Up Restaurants: Real-Time Testing for New Concepts
Pop-up restaurants are an increasingly popular trend, allowing restaurateurs to experiment with new ideas on a smaller scale before committing to a permanent location. According to Yelp data, pop-up openings surged by 155% from May 2023 to April 2024, underscoring the appeal of these flexible, cost-effective dining options. Often embracing features like iPad checkouts, counter service, and self-service models; pop-ups are particularly attractive to millennial and Gen Z consumers looking for innovative dining experiences.
The Shift Toward Global Flavours
As the United States becomes more cosmopolitan and globally connected, there is a growing appetite for international cuisine. Travel trends show that Americans are increasingly exploring global flavours, with trips to Asia, Oceania, and Central America on the rise between 2023 and 2024. This shift is reflected in the restaurant industry, where concepts like Brazilian steakhouses and Asian-inspired eateries are rapidly expanding.
Fogo de Chão, a Brazilian steakhouse chain, has capitalised on this trend, while cities like Pittsburgh, PA, are embracing innovative dining experiences, such as the Novo Food Hall, which features seven distinct Asian cuisines under one roof. With a growing interest in international flavours, American tastes are evolving, offering numerous opportunities for restaurants to diversify their menus and appeal to a more adventurous, global-minded audience.
Ghost Kitchens and Technology: Shaping the Future of Dining
Technology is revolutionising the restaurant industry, particularly through the rise of ghost kitchens and other innovative dining solutions. Ghost kitchens—delivery-only establishments that operate out of existing kitchens—are becoming increasingly popular due to their low-cost model, allowing restaurants to reach new customers without the overhead of traditional dining spaces. This trend enables businesses to expand their presence while minimising the risks tied to opening physical locations.
In addition, advancements in mobile payments, online ordering, and delivery platforms are streamlining customer interactions with their favourite restaurants. Artificial intelligence (AI) is also playing a key role in analysing consumer data, helping restaurants optimise their menus and marketing strategies to better meet customer demand.
A New Era in Restaurant Real Estate
The decline of traditional family dining establishments has led to a surge in vacant real estate, creating prime opportunities for a new wave of dining concepts. Former locations of brands like Denny’s, TGI Fridays, and Red Lobster are being repurposed by fast-food giants such as Chick-fil-A and Chipotle, as well as emerging fast-casual and breakfast concepts. With the U.S. retail vacancy rate at a record low of 4.1%, real estate analysts view this as an ideal moment for innovative brands to establish themselves in sought-after spaces once dominated by traditional restaurants.
As landlords seek high-paying tenants, fast-food franchises with drive-thru lanes are filling these vacancies more rapidly than sit-down restaurants. This shift is set to transform the restaurant real estate sector, with new dining concepts taking over spaces once occupied by family dining chains.
What’s Next in the Restaurant Industry?
The future of the restaurant industry is uncertain, but one thing is clear: it will continue to evolve. The key to success will be adaptation. Restaurants that embrace technology, diversify their offerings, and respond to shifting consumer preferences are more likely to thrive. While fast-casual dining, exotic cuisines, and delivery-focused models rise in popularity, traditional family dining faces significant challenges.
To succeed in this rapidly changing market, restaurants will need to:
- Leverage Technology: Adopt online ordering, delivery systems, and artificial intelligence to streamline operations and enhance customer engagement.
- Diversify Offerings: Respond to the demand for diverse flavours and healthier, sustainable menu options.
- Adapt to Consumer Preferences: Embrace the post-pandemic preference for convenience, speed, and value.
- Emphasise Brand Identity: Build a strong, recognisable brand that resonates with today’s consumers, emphasising sustainability, social responsibility, and unique dining experiences.
The Future of Dining: Adapting to a New Era
The restaurant industry is at a crossroads, with traditional family dining concepts facing significant challenges and newer, more agile models rising to meet the needs of today’s consumers. As fast-casual, delivery-based, and technology-driven dining options continue to grow, brands must be willing to adapt to changing preferences. Those who embrace innovation, diversify their offerings, and prioritise convenience and global flavours will not just endure but flourish in this rapidly evolving environment. The future of dining lies in flexibility and responsiveness, where the ability to meet consumer demand quickly and effectively will be the key to success.