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Hooters is set to shut down ‘underperforming’ restaurants amidst wider industry challenges

Several casual dining chains are experiencing challenges due to rising costs and decreasing customer traffic.

Hooters announced on Monday its decision to close “a select” number of underperforming restaurants, joining a growing list of casual dining chains grappling with industry-wide challenges.

The company cited “current market conditions” as the primary reason for the closures, while emphasizing ongoing expansion efforts both domestically and internationally. However, specifics regarding the number of affected locations were not disclosed.

In a statement, Hooters reaffirmed its resilience and relevance as a brand with 41 years of history, despite the closures. The news was initially reported by National Restaurant News, which highlighted that approximately one-third of major restaurant chains ended 2023 with fewer locations than they began the year with.

The landscape of dining out in the United States is increasingly complex. Rising costs have become a significant burden for fast-food giants like McDonald’s, whose shares have declined by 13% year-to-date, and Restaurant Brands International, parent company of Burger King and Popeye’s, down by 9%. These challenges have contributed to a shifting dynamic where some fast-food customers are reportedly migrating towards casual dining options, as noted by the CEO of Darden Restaurants, parent company of Olive Garden.

Despite this trend, casual dining stalwarts such as Applebee’s, Red Lobster (facing bankruptcy), Cracker Barrel (experiencing a 43% decline in stock value), and the Outback Steakhouse family (including Carrabba’s Italian Grill and Bonefish Grill) have collectively closed numerous locations in 2024.

Overall, restaurant spending has declined in four of the past six months, marking the first sustained downturn since the onset of the Covid-19 pandemic, according to Census retail sales data. This decline contrasts sharply with grocery sales, where price increases have been less pronounced.

The Bureau of Labor Statistics reports that the cost of dining out has surged more than 25% since the pandemic began, with an additional 4% increase in May alone, compared to just a 1% rise in grocery prices during the same period.

A survey conducted by KPMG highlighted consumer sentiment towards dining expenditures, revealing that 41% of respondents plan to reduce spending on restaurants this year, while only 21% anticipate spending more. On average, consumers indicated a planned reduction of 9% in monthly restaurant expenditures, the largest cutback across all spending categories surveyed.

Duleep Rodridgo, U.S. consumer and retail sector leader at KPMG, underscored the cautious consumer sentiment, noting a heightened focus on discounts and essential purchases amid tightening budgets.

In response to these challenges, some retailers have begun lowering prices in an effort to strike a balance between maintaining margins and stimulating demand, reflecting broader economic pressures impacting consumer behavior and industry dynamics.

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