Chain Reaction

 Increasingly, the shape of the restaurant industry has come to resemble a South American economy:Olive Garden There are a handful of spectacularly successful places at the top of the scale, and everyone else is struggling. If you’re in Manhattan and want to drop $1000 for dinner, you won’t be able to get into Per Se or Le Bernadin. On the other hand, thousands of eateries previously considered trendy are running coupon deals for 50% off on Groupon.

The ongoing economic crunch has forced many diners to downscale into the “fast casual” segment of the market. These are chains constructed along the lines of classic fast food joints, but with embellishments that make them appear to be restaurants. The fast casual category is the most popular niche in America, and many of them (Chipotle, Pei Wei, Five Guys, Jason’s Deli) are true success stories. Not surprisingly, the competition in this sector is ferocious, and it’s hard to stay at the top of the pile.

Take the case of Sizzler, once the king of the poor man’s steak houses. The chain has shriveled to 170 stores from a high of more than 600 in the 1980s, and is currently attempting a complete makeover. The comeback trail will be steep, though—Sizzler faces challenges from the low end (McDonald’s, etc.) and from more upscale steak houses that have lowered prices to keep and attract customers.

The situation at Olive Garden is even more dramatic. The 750-unit chain, owned by Darden Restaurants, has seen five consecutive quarters of declining sales figures. Forget that the fare at Olive Garden bears the same resemblance to Italian food as instant coffee does to espresso—there’s a solid core of Americans who seem to love the stuff, but they’re just not turning up as regularly as before. Olive Garden plans on remodeling its restaurants, revamping its menu and launching a new ad campaign.

The problem, of course, is that the field is simply too crowded. There’s nothing wrong with the product at Sizzler or Olive Garden (beyond the obvious)—customers have a dizzying degree of choice, not enough disposable income and a low level of loyalty. When your clientele chooses out of boredom rather than from a perception of quality, there’s no telling where they’ll end up.

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