By Heather Haddon

CHICAGO -- Sit-down restaurants are fighting to get more Americans into their booths after one of the toughest periods for the sector in years.

Brands such as Cracker Barrel Old Country Store and Red Lobster are spending millions of dollars to update their menus and dining rooms to recruit more customers. In the process, they are grappling with how to attract new, younger customers without alienating their most loyal diners.

Cracker Barrel, for example, is adding more lighting in restaurants, removing some decor and better organizing its trademark ephemera that covers the walls. In some cases, it is having to explain its decisions to steadfast fans.

"We're here to take them through it because we want them to love the brand," Julie Felss Masino, chief executive of the Lebanon, Tenn.-based family-dining chain, said Tuesday at The Wall Street Journal Global Food Forum.

U.S. restaurant bankruptcies last year hit the highest level in decades excluding 2020, when the Covid-19 pandemic upended the industry. TGI Fridays, Rubio's Coastal Grill and Red Lobster were among chains that filed for Chapter 11, closing hundreds of restaurants.

The pace of bankruptcies has slowed this year, with 10 restaurant chains or large operators pursuing Chapter 11 filings through May, according to BankruptcyData.com records.

Still, the shakeout in casual dining continues as brands such as Denny's, Applebee's and Hooters close locations in efforts to improve profitability. Restaurant locations run by the largest casual-dining chains dropped 1.2% last year, the first unit decline since 2020, according to market-research firm Technomic.

Red Lobster emerged from bankruptcy last September with new leadership and a fresh influx of cash from private-equity firm Fortress Capital.

Chief Executive Damola Adamolekun last fall pledged to fix neglected equipment, redesign restaurants, freshen up the menu and move away from a loss-making unlimited shrimp deal. Nine months later, he said Red Lobster's comeback remained a work in progress. It has around 520 U.S. locations, down 20% from 2023.

"It's hard work. I can't pretend it's easy," said Adamolekun, who at 36 years old is one of the youngest CEOs of a major restaurant chain.

Adamolekun said Red Lobster has recovered much of the traffic lost last year when many customers thought the seafood chain had closed for good. Customer sentiment is improving, and the brand is advertising the return of fan favorites such as hush puppies and meals priced at $20 or less.

But the chain's recovery isn't linear, and Adamolekun said his strategy has evolved. Some entrees, such as flounder, haven't been top sellers but older customers liked them, so he opted to keep them on the menu.

While Adamolekun struck sports partnerships to amp up Red Lobster's cultural relevance, he also has emerged as a pitch man for the brand. His appearance in the chain's new ads drew a bigger response than he expected.

"Haven't been to Red Lobster in years but I think I am going to make a trip real soon!" one Instagram commenter said about the ad last month. "Let's go new CEO!"

Cracker Barrel, which has struggled with traffic declines, last year slashed its dividend to plow millions of dollars into initiatives to update the brand. Since joining the chain from Taco Bell in 2023, Felss Masino has pruned the number of retail goods sold, added restaurant booths and rolled out beer and wine offerings.

Some customers have pushed back, particularly at the curtailed restaurant decor. At the Food Forum on Tuesday, Felss Masino said one Tennessee customer initially recoiled at the remodeling, but later came around.

And though customers can now get a cold beer or mimosa with their meals, she said Cracker Barrel wasn't becoming a bar: "No one is getting drunk at Cracker Barrel."

Two of casual-dining's top performers -- Chili's and Texas Roadhouse -- are managing to draw new customers. Both brands have focused on offering high-service levels in a fun atmosphere, with good prices.

Gen Z's interest in traditional sit-down restaurants hasn't fallen off, and some younger customers enjoy the nostalgia of dining at chains they grew up with, Technomic said. For vintage brands to win, operators need to place priority on good service over gimmicks, said Robert Byrne, Technomic senior director for consumer research.

"Keep your menu price increases to a minimum," Byrne said.

Malcolm Lenson, 75, of Vacaville, Calif., said the service was good when he and his wife recently visited a local Red Lobster, but he wasn't as impressed by the value.

"I have no problem paying a premium for sit-down dining, but we expect a decent, not a meh menu, which most chains have," Lenson said.

Adamolekun says Red Lobster's food hasn't been the problem in bringing back traffic; it has been issues such as service levels and interiors. Still, he said he hadn't ruled out bringing back unlimited shrimp to Red Lobster in some form.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

June 20, 2025 05:30 ET (09:30 GMT)

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