Restaurant Sales are Improving, but it’s a Complicated Landscape

    Quick service continues to weather the storm better than most.

    Wendy's

    Brands with drive thrus have pushed sales up to as high as 90 percent through the channel in recent weeks. Wendy's and McDonald's among them.

    For the third consecutive week, restaurant chains witnessed year-over-year same-store sales improve versus the previous period, according to Black Box Intelligence.

    Comps for the week ending April 19 declined 47.6 percent—the best result since March 15 and an 11.3 percent percentage point improvement over the previous period.

    In the past two weeks, all segments progressed upward, the company said. Yet this current field isn’t the same as the one back in early March.

    While nobody knows for sure how many restaurants are closed—and what percentage of those are temporary or permanent—the National Restaurant Association’s latest survey data said roughly four in 10 venues are shuttered (in a survey of 6,500 operators), and the industry expects to lose $80 billion in sales by the end of April. The Independent Restaurant Coalition, along with the James Beard Foundation, found 80 percent of independents weren’t sure their restaurant would survive the crisis. The National Bureau of Economic Research noted restaurants have a 30 percent chance of staying open if the crisis lasts four months. About 40 percent of independent restaurants are closed and the other 60 percent are operating at what the Coalition described as “severely depressed revenue levels.”

    READ MORE: How stimulus checks gave restaurants a boost

    So this restaurant pool enjoying improved results in recent weeks, relatively speaking, is rather different than the one at the outset of COVID-19. It’s a more pivot-capable section, or simply one that choose that route, and have now capitalized on stimulus check-fueled spending and improved awareness to takeout, delivery, and curbside service. As well as a consumer who’s getting a bit tired of staying at home and making that final jar of peanut butter last.

    Black Box’s data showed quick service to be the top-performing segment in the period—continuing a COVID-19 trend that has sustained. The sector tracked at negative 4 percent for the week ending April 19, and is fast approaching flat year-over-year sales growth.

    Overall, this is great news for counter-service operators. The next step, though, will be a revenue conversation that stems from getting temporary store closures back into the system. And then addressing franchisee health for those organizations where it applies.

    Depending on government relief, as well as other factors, there are likely to be a lot of overleveraged operators when business gets back to normal. And how deferred payments are handled is another point. There could be a thinning of some underperforming stores for many restaurant chains, or franchisees selling locations to get out from bad debt expenses. This might mean more corporate restaurants in the future. It might just mean new franchisees, as Yum! Brands suggested could happen. It’s hard to say for certain right now, but it’s very likely significant shifts will unfold. There also could be a chance for growth in the mid-term as well-capitalized brands and franchisees take advantage of favorable rent rates, willing landlords, and, perhaps, vacated real estate opportunities. There’s a lot on the table post-COVID-19.

    Fine dining continues to face serious roadblocks. Black Box said it’s the only segment experiencing comp sales worse than negative 80 percent, and has seen very little improvement over the last five weeks. Restaurant dine-in reopening, even if under very limited capacity, might be the only thing that could start reducing the rate at which fine dining has been losing sales, Black Box said.

    But to a point made by New Orleans landmark Commander’s Palace recently, even going down 10 percent in monthly take would sink many high-end operations (running at 90 percent). The margins are just too tight and alcohol sales too vital to pay full staffs and cover stiff overhead. This makes the decision to brave the process a challenging one. It’s a variable situation by restaurant, of course. Yet you need to consider the gap between fine dining and quick service in this conversation and how that affects the near future.

    There’s a significant difference between evolving from carryout and delivery-only business to carryout and delivery-only business plus some dining room. It’s almost like the reverse pre-COVID-19 dynamic, where delivery was considered incremental gains. Now, dine-in takes that role.

    For a fine-dining concept going from zero to 10 percent seating, however, where there’s essentially no off-premises business, it becomes a question of whether doing so really counters the costs. Everything from utilities to paying employees to sourcing product. At 10 percent, it might just be more cost-effective to keep the doors closed, as many restaurant operators have elected to do.

    READ MORE: Reopening? Follow this step-by-step playbook

    It really depends on the size of the restaurant, the location, rent situation, and what’s going on with employees—whether or not the operator received a loan to fund some of these bills. If so and they need to hit the 75 percent payroll measure to get the loan forgiven, opening with restrictions might be more financially attractive.

    One thing that does seem bankable, though, as it pertains to fine dining, is something Commander’s Palace proprietor Ti Adelaide Martin noted. “There’s no way in the world we can’t make it more expensive,” she said, “just based on the fact you’re going to have less customers and less demand in the economy.”

    As would be expected, off-premises comp sales, year-over-year, are growing at a rapid pace during the pandemic. For quick-serves, off-premises (to-go, drive thru, delivery, and catering) leapt 20 percent in the week ending April 19. For full-service chains, the number popped 207 percent versus this time last year, as many operators are bouncing off the bottom of either having no programs or very limited ones. Whether they invested in the avenue or not pre-COVID-19, it was likely a very small slice of mix.

    Outback parent Bloomin’ Brands, for example, entered 2020 with 88 percent of its business coming within the four walls.

    Last week, mid-afternoon and dinner proved the best performing dayparts based on comp sales. Late night and lunch took the biggest hit, Black Box said.

    All 11 regions of the country improved their sales trends in comparison with the previous week.

    As has been the case for some time, the worst-performing regions continue to be the ones where the biggest outbreaks occurred. California, New England, the Western region, and New York-New Jersey all reported comp sales worse than negative 55 percent.

    Black Box shared some consumers trends as well.

    Wine and liquor stores have performed well throughout COVID-19 with positive year-over-year sales growth north of 25 percent for the last six consecutive weeks. The company credited this, at least partially, to customers’ motivation to replace alcoholic beverages previously consumed at restaurants.

    Alcoholic beverage sales growth in casual dining, upscale casual, and fine dining have averaged roughly 98 percent declines, year-over-year, over the last four weeks.

    C-store sales did not deteriorate as quickly as restaurants, Black Box added. But they have steadily fallen over the last four weeks and were down 36 percent, year-over-year, as of the week ending April 19.

    And while third-party delivery sales volume increased for all days of the week during the COVID-19 crisis, weekends remain the most popular time to order, with 37 percent of all sales in the last 30 days taking place on a Saturday or Sunday.