Family restaurant chains close locations as diners opt to stay home

This weekend’s bankruptcy filing by TGI Fridays reflects a difficult year not just for one dining chain, but an entire category of restaurants.

Restaurants that cater to lower- and middle-income families have been struggling against a steep decline in foot traffic in recent years as many of their core customers forgo sit-down dining in favor of eating at home, according to restaurant executives and industry analysts. Dining chains have responded by revamping their menus, closing unprofitable locations and, in some cases, seeking bankruptcy protection.

“The tide has gone out in this industry,” said Andrew Wolf, a senior analyst covering the restaurant sector for the New York-based investment bank C.L. King & Associates.

TGI Fridays, which officially filed for Chapter 11 bankruptcy on Saturday, has already shed more than 100 U.S. locations over the past year, according to data from the restaurant market research firm Technomic. The bankruptcy filing comes less than two months after a proposed acquisition of the company fell through.

Other chains have announced cost-cutting measures. Last month, Denny’s announced plans to close an estimated 150 restaurants – a tenth of its national footprint – as its executives point to lower sales at family restaurants as a whole. Earlier this year, Red Lobster filed for bankruptcy.

The stock price of Denny’s, as well as the parent companies of restaurants such as Cracker Barrel, Applebee’s and IHOP, has fallen more than 35% this year. And there are signs that family-oriented sit-down restaurants are suffering more than other types of dining.

Overall U.S. consumer spending has been strong this year, and restaurants as a whole also have seen rising revenue. Restaurant spending in the United States is expected to grow by 4.9% in 2024 to hit $1.22 trillion, according to GlobalData analyst Neil Saunders. But that probably reflects a hike in prices to cover restaurants’ increased costs, rather than greater demand, Saunders said.

The restaurant data firm Black Box Intelligence has logged a 5.3% decline in foot traffic and a 1.1% decline in sales in 2024 for the “family dining” category that includes restaurants such as Denny’s and IHOP. The restaurant sector on the whole registered a smaller decline.

Since 2019, the category of “mid-scale” restaurants that includes family dining has seen its foot traffic fall 26 percent, according to the consumer data company Circana. That’s a much larger decline than the 10% drop for the restaurant industry as a whole.

“I think the family segment is more pressured as families have been hit hard by inflation and so are dining out less or are trimming spend when they do eat out,” Saunders said.

To some extent, the closures reflect a reshuffling away from older and unprofitable locations, and toward new ones that could fare better, experts said.

Other chains have resorted to bankruptcy this year amid a combination of rising costs and falling sales, some of them iconic brands that flourished for decades, such as Red Lobster, as well as other well-known restaurants such as Buca di Beppo.Some industry observers see a generational change, as diner-style restaurants have become less central to American culture and on-the-go options increasingly take precedence. But lower foot traffic also reflects the fact that sit-down dining is a discretionary experience that families can easily cut when money is tight, analysts said.

Many meals at traditional family dining and casual dining restaurants can be easily replicated, said Eric Gonzalez, an analyst covering the restaurant sector at KeyBanc Capital Markets.

“I can make pancakes and waffles at home, and they’re very cheap to get at the grocery store. … It’s a low-value food, and the customer knows this,” he said.