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Long Runway For Growth Ahead for Premium Casual Dining Chains

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Hidden within the slower-moving casual dining category, premium casual dining has emerged as a fast-growing subset that has high potential for international growth. Chains like The Cheesecake Factory and Outback Steakhouse have been consistently expanding domestically, while taking steps toward more aggressive international expansion.

This momentum in premium casual may seem oddly timed, especially as consumers in many key growth markets are showing their price-sensitivity. The casual dining category as a whole has faced many challenges in recent years, at once suffering from a perception of being too expensive for consumers who may not regularly partake in chained foodservice, and yet offering too little value compared to the many other options available to those who do. And yet, premium casual dining chains have managed to consistently outperform the larger casual dining category, and even full-service as a whole. These chains manage to appeal to consumers who are somewhat value conscious, even at more premium positioning, by offering an exciting and distinctive dining experience at lower cost than fine dining. They appeal to consumers who want to avoid making truly extravagant restaurant choices, while still indulging in a unique, social dining experience that feels worthy of the cost.

Part of a larger trend

The Cheesecake Factory exemplifies this strategy, offering distinctive décor, an emphasis on preparing food fresh in-house, and a large, highly indulgent dessert menu. Consumers have responded very positively to the combination, helping drive 6% annual value growth in 2013 as casual dining grew at half that rate as a category. At a reported average check per diner of nearly US$20, the chain has a knack for encouraging consumers to splurge, a suggestion which is reinforced carefully with every aspect of its branding.

The Cheesecake Factory also benefits from high traffic at each of its locations, which typically have large footprints (ranging from 7,000 to 17,000 square feet). In comparison, traditional casual dining chain Applebee’s' outlets range from 4,000-6,000 square feet. In addition, The Cheesecake Factory's extensive menu helps it compete for a larger range of dining occasions than standard casual dining concepts, including mid-afternoon and late evening drink and dessert dayparts. In 2013, 15% of The Cheesecake Factory sales came from the dessert menu, with an additional 13% coming from the bar. As a result of all of these factors, the chain's outlets also enjoy incredibly high sales per outlet figures, at around US$10 million in 2013. To offer Applebee's again as a comparison, the lower-priced chain recorded just US$2.3 million in average sales per outlet in 2013.

Of course, some of this can also be attributed to the fact that Cheesecake Factory’s outlet density is still very low, even in its domestic US market. There are just 169 outlets worldwide, all of which are located in high-income urban locations which can draw customers from a large surrounding area.  While this could suggest that The Cheesecake Factory’s growth has been the result of its early stage of development, The Cheesecake Factory has enjoyed positive comps in the US every year since 2010, a feat many leading chains have failed to achieve. The company has also only just begun to expand internationally, and it is now poised for more aggressive expansion into key international markets that could open up a very large, and very lucrative new proving ground for the chain.

As of year-end 2013, Cheesecake Factory is present in four international markets, but this number is set to grow very quickly over the short-term. In recent years the company has signed regional outlet development deals with some of the most experience and most influential master franchise operators in the word, including Latin America’s Alsea, the Middle East and Africa’s MH Alshaya, and Asia Pacific’s Maxim’s Caterers. In these capable hands, Cheesecake Factory could become a global presence in just a few short years, with outlets in prime locations in some of the world’s most important long-term growth markets.

Key takeaways in premium casual

The Cheesecake Factory is certainly a key concept to watch, but the success in premium casual dining is a much larger story than any single restaurant chain. Just as The Cheesecake Factory has experienced domestic growth during very difficult years for foodservice, other premium positioned casual dining chains have also consistently outperformed the category as a whole. Outback Steakhouse, Longhorn Steakhouse and Texas Roadhouse all saw value growth rates among the highest in the global casual dining category, and many are pursuing the same kind of aggressive international expansion into key growth markets.

This trend may speak partially to economic recovery in large markets, as consumers begin to consider higher priced restaurant choices; however, it also speaks to the universal appeal of exciting, innovative branded dining experiences, even in categories beyond fast food. The success of premium casual dining shows that the appeal of chained foodservice isn't necessarily tied to format, and the same benefits that have driven chained fast food growth in emerging markets for years are now bolstering growth in the full-service category—albeit only through the most well-positioned concepts. High-income consumers in the largest markets in Latin America, the Middle East, and Asia Pacific are all eager for exciting dining experiences, and premium casual dining offers just that in a slower, more luxurious and more socially-oriented package.

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