With diners looking to spend their money on more unique experiences, restaurant chains like Chili's are finding it hard to compete.
These days customers are looking for quick and customizable food that doesn't cost too much and can be delivered to their door step. This has driven them away from sit-down staples like Applebee's and Outback Steakhouse and towards less traditional chains like Shake Shake and Blaze Pizza.
And it's put pressure on some of the most stalwart casual dining chains in the U.S., leading one analyst to claim that there is more risk than reward when it comes to owning these stocks.
In a damning report on the sector published Thursday, J.P. Morgan analyst John Ivankoe downgraded Chili's owner Brinker International to neutral from overweight, calling the stock a "value trap." Now, the analyst no longer has any casual dining stocks rated as overweight.
Ivankoe used the company as evidence of a laundry list of challenges that casual dining restaurants are facing including losing foot traffic to fast casual chains, inflating menu prices too high and being unable to adapt fast enough to in-demand food trends.
He said that Chili's, in particular, needs to focus on its core products, like its baby back ribs and fajitas, to have a chance at boosting customer satisfaction and, in turn, sales. The restaurant would also benefit from cutting its menu prices or driving value with better food quality.
Because of these headwinds, Ivankoe lowered his target price for the stock to $44 from $48. Shares of the Brinker fell more than 9.4 percent on Thursday, last changing hands at $37.08.
However, the Chili's owner wasn't the only chain that Ivankoe condemned. He said investors are overpaying for stakes in Darden, Texas Roadhouse and Bloomin' Brands. Shares of those brands also slipped on Thursday, down between 1 percent and 2 percent each.
And he didn't stop there.
Ivankoe pointed to the recent decline in Cheesecake Factory shares as further evidence of the risk of owning an expensive casual dining "safety stock." Shares of Cheesecake Factory plummeted 10 percent on Tuesday after the company said that its same-store sales in the second quarter would be down about 1 percent.
Same-store sales in the sector have been down for more than a decade, Ivankoe said.
"2017-to-date has not proved any different and we have no reason to believe 2018 or later will be either," he said.