Is the eatertainment bubble bursting? There have been a few signs of that lately.
The most recent came out of Chicago, where the company Chicago Whirly declared bankruptcy late last week. The five-unit brand sought court protection after one of its locations struggled to pay the lease on one of its suburban Chicago locations.
But that wasn’t the first such sign of problems. Topgolf, which helped drive much of the current eatertainment trend, reported a 7% decline in same-store sales. The company blamed that on poor weather in January along with the timing of Easter and Spring Break.
Executives said that the results were “in line” with expectations. “Outside of those periods of volatility, the trends have been pretty good, really,” Oliver Brewer, CEO of Topgolf Callaway Brands, told investors in May, according to a transcript on the financial services site AlphaSense.
Yet at the same time, Dave & Buster’s reported a 5.6% decline in same-store sales in the quarter ended May 5. And the company couldn’t blame easy comparisons, as its same-store sales declined a year ago, too.
“It’s a complex macro environment, and it’s been challenging,” CEO Chris Morris told investors, according to AlphaSense.
Meanwhile, a franchisee of the restaurant and movie theater chain Alamo Drafthouse Cinemas filed for Chapter 7 bankruptcy earlier this month, and then the company itself was sold to Sony Pictures Entertainment.
Eatertainment chains have been all the rage in recent years, as companies—backed by investment cash—banked on a consumer yearning for experiences in the post-pandemic environment.
It’s worth noting that the first quarter was indeed complicated, filled with weather-related uncertainty and continued shifts in consumer patterns. All that makes it difficult to fully explain the existing environment.
Eatertainment concepts, however, were the beneficiaries of a consumer that did, indeed, crave entertainment coming out of the pandemic. They had plenty of cash at their disposal, too, as they spent less in 2020 and 2021 and received some government benefits, enabling them to build up their savings.
Investors pumped money into these concepts, sensing an opportunity. Brands emerged to combine food with all kinds of entertainment options, including pickleball, minigolf and bowling.
Consumers, however, have fulfilled whatever pent-up demand they had during the pandemic. And they’ve run out of pandemic savings. While they are working and receiving healthier paychecks than they did before the pandemic, inflation has eaten into buying power, particularly for those with lower incomes.
As such, they are now readjusting their spending. While that apparently means tough times for chain restaurants that cater to large numbers of lower-income consumers, it also means many people rethink some of their visits to more experiential concepts.
To wit: Some of the higher-end concepts that thrived coming out of the pandemic have struggled more recently. Publicly traded fine-dining chains averaged a 3.5% same-store sales decline in the first quarter. That weakness has been evident for the past two to three quarters.
In other words, the current environment as it relates to eatertainment brands may simply be a reversion to the mean, as consumers simply go back to normal. But that may also mean the sector wasn’t quite the boom business many thought a few years ago.