It sure looks like the coronavirus shutdown is going to compress several years’ worth of casual-dining unit closures into a few months.
Numerous restaurant chains have already demonstrated problems—some surprising, others not so much. And while federal assistance and a focus on takeout will certainly help some companies, such as Brinker International, Olive Garden and The Cheesecake Factory, it’s a certainty that the sector is facing a shakeup of epic proportions.
As it is, the most serious responses to the shutdown have been borne by casual-dining operating companies.
Consider: Tilman Fertitta is willing to pay 15% interest on a loan to rescue his company, Landry’s, according to Bloomberg. That’s a shockingly high interest rate and is indicative of the lengths to which companies might need to go to keep afloat.
CraftWorks, the bankrupt parent of Logan’s Roadhouse and Old Chicago, fired most of its workers and closed its restaurants. It’s possible the company could restart down the line. It’s also possible that it doesn’t.
TGI Fridays, the bar and grill chain that was already struggling to begin with, is now not going public after a blank check company opted to dissolve and back out of its planned merger.
Dave & Buster’s, the food and games chain, is looking for an investor to help it survive the shutdown.
Punch Bowl Social, the high-growth eatertainment chain, is now apparently looking for new funding after Cracker Barrel opted not to keep the company from facing a foreclosure.
To be sure, all of these companies could well find investors or funding and make their way through the shutdown. And the shorter the time frame of dine-in restrictions, the more likely full-service chains emerge intact.
Yet few people throughout the business that we’ve spoken with, including financiers, operators and executives, expect the industry to look the same once the shutdown ends and restaurants have returned to normal service. And much of the problem, though certainly not all, will be in casual dining.
Full-service restaurants were already having problems. Consumers have been shifting more of their dining to takeout and delivery services, which has favored fast-food companies and fast-casual chains. Or they’d been spending at independent restaurants, many of which compete very directly with the casual-dining sector.
The number of full-service chain restaurant locations on Technomic’s Top 500, for instance, has fallen each of the past three years, declining 1.3% overall during that time. That erased years of full-service supply growth even though same-store sales didn’t quite justify new locations.
Many chains remained in weak condition entering the coronavirus shutdown.
That shutdown has not been friendly to dine-in service. As my colleague Peter Romeo reported, Darden Restaurants’ sales fell off a cliff last month. The full-service concept operator generated less than 30% of its usual sales in the past three weeks, though Olive Garden’s takeout business has helped it recover some of that loss.
For comparison’s sake, fast-food chains with drive-thrus have lost about 35% of their sales. Still terrible.
Even the best performing full-service restaurants are getting a third of their original sales, at best.
Now imagine that throughout the full-service sector and apply it to chains that had been struggling to generate any attention or do much to lure the customer who wants takeout.
Many of these companies don’t have the cash to weather a storm like this. Some companies’ best hope may well be that lenders or landlords simply don’t want the hassle of forcing too many restaurants into bankruptcy.
There may not be a lot of buyers in the market, however, and certainly not in the full-service market, which could leave some of these companies without a rescue package to help them reemerge.
The good news is that the chains that survive the shutdown, and whatever recession that follows, will be in far better position than they were before the virus hit. The key is making it there.
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