Casual-dining restaurants have a relaxed, 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 higher-priced than fast-food restaurants. Olive Garden, 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 a customer spends at these restaurants, which also adds to the price range.
Meals are prepared using better-quality ingredients compared to fast-food restaurants. The menus offer several options. For example, Olive Garden (DRI) serves soups, salads, appetizers, pasta, grilled meats, and desserts. The portion size is usually large. Unlike fast-food and fast-casual restaurants, casual-dining restaurants don’t use disposable cutlery.
The casual-dining restaurant format is declining due to changes in customer preferences and increasing competition from fast-casual formats such as Chipotle Mexican Grill (CMG).
Darden Restaurants (DRI), which operates Olive Garden and Red Lobster, had annual sales of $8.55 billion in fiscal year 2013. Brinker International (EAT), which operates Chili’s Grill & Bar and Maggiano’s, 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 over the same period..
The average earnings before interest, taxes, depreciation, and amortization (or EBITDA) margin of the above players in the chart was 12% in 2013, and the average net profit margin was 4.8%.
Other casual-dining restaurants include 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). Some of these restaurants are also included in the exchange-traded fund (or ETF) Consumer Discretionary Select Sector Standard and Poors depositary receipt (or SPDR) (XLY).
Next, we will discuss the fourth restaurant concept, family dining.