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Discounts Have Restaurants Eating Own Lunch

From the NEW YORK TIMES By WILLIAM NEUMAN: Consumers brave enough to pull out their wallets in this economy have grown accustomed to fire sales on every kind of merchandise, from fancy dresses to gas-guzzling cars. Now, add another item to the list: the casual restaurant meal.
 
Ads, from top, feature discounts offered by Uno Chicago Grill, Applebee’s and T.G.I. Friday’s in what has become a price war. The $5 sandwich and salad promotion at Friday’s led to a revolt by some franchisees, who said they could not afford to feed the diners it attracted.

The informal, sit-down restaurant chains that blanket the nation are fighting their most intense price war in years. Applebee’s is offering dinner for two for $20. Ruby Tuesday is handing out coupons for two entrees for the price of one. Chili’s, not to be outdone, is promoting some entrees for $7 or less.

“It’s a tit-for-tat pricing war right now,” said Steve West, an analyst with Stifel Nicolaus, a brokerage firm in St. Louis. “Each one’s trying to outdo the other in a battle for consumers.”

The sit-down casual segment of the restaurant industry has traditionally competed more on advertising and location than price, but these days, the chains appear to have little choice. Consumers hurt by the recession are eating out less. So the restaurants are fighting one another for that shrinking pool of diners, using deep discounts, heavily advertised on television, to attract them.

The customers who do venture forth are delighted. “This is really an incentive for us to go out,” said Norma Rosado Blake, 38, an archivist, as she stood outside a T.G.I. Friday’s restaurant in Clifton, N.J., with her husband the other night, for an offer entitling her to $8 off.

But even as the chains compete to come up with the best deal, some of the analysts who follow them are worried. They fear that, as was the case with merchandise retailers that sold luxury goods for 80 percent off, the restaurants are hurting their long-term prospects by training customers to eat out only when they are offered a bargain.

“The problem with that is once you start dealing, you’ve got to deal forever,” said Harry Balzer, the chief food industry analyst for the NPD Group, a consumer marketing research company.

The heavy discounting is leading to tensions between the people who, as independent franchisees, operate many of the restaurants, and the corporate officers who control the brands, menus, advertising and strategy. The franchisees agree that discounts can get customers in the door, but wince at what they can do to profit margins. NEW YORK TIMES FULL STORY

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