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Must-know: Why restaurants are so important to investors

Part 4
Must-know: Why restaurants are so important to investors (Part 4 of 11)

Key restaurant industry formats: The casual dining business

Casual dining restaurants

Contrary to fast food restaurants, casual dining restaurants have a relaxed and casual ambiance with a lot of seating. They offer full table service and may also have a wine menu or full bar service. The menu is moderately priced. Olive Garden, which is under the umbrella of Darden Restaurants (DRI), for example, has a price range of $10 to $20 for the dinner menu and $7 to $17 for the lunch menu. Because of full table service, tips also add to the total amount spent at these restaurant.

2014-07-07 Year Ended 2013 Sales ($ in Billion) Casual DiningEnlarge Graph

Casual dining offers better food quality. Meals are prepared using good-quality ingredients.

The menus offer several options. For example, Olive Garden (DRI) serves soups, salads, appetizers, pasta, grilled meat, and desserts. The portion size is usually large.

Unlike fast food and fast-casual, casual dining restaurants don’t use disposable cutlery.

The casual dining restaurant format is declining due to changes in customer preference and increasing competition from fast-casual formats like Chipotle Mexican Grill (CMG).

The players

Darden Restaurants (DRI), which operates Olive Garden and Red Lobster, had annual sales of $8.55 billion as of fiscal 2013. Brinker International (EAT), which operates Chili’s Grill & Bar and Little Italy, had annual sales of $2.84 billion over the same period. DinEquity Inc. (DIN), which operates Applebee’s and IHOP, had annual sales of $0.64 billion as of FYE 2013.

Other casual dining restaurants include names like Outback Steakhouse, T.G.I. Friday’s, The Cheesecake Factory (CAKE), Ruby Tuesday (RT), Texas Roadhouse (TXRH), and P.F. Chang’s China Bistro (PFCB). You can gain exposure to the restaurant industry through the exchange-traded funds PEJ and PBJ.

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