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As omicron spreads, restaurants face more labor and supply chain issues

More evidence says the latest surge is hurting sales, but analysts and executives are expecting more of a “bump in the road” this time.
Photo Illustration by Nico Heins

The renewed surge in coronavirus cases has hurt restaurants around the country, resulting in more sporadic shortages of staff and supplies, while traffic and sales took a big hit at the end of the year.

Yet restaurant analysts and industry executives suggested on Monday that these challenges are more of a “bump in the road” than any sort of long-term problem, and they suggested the industry knows how to respond to the challenge.

“The biggest near-term risk is on the supply side as high case counts are likely to exacerbate staffing issues, with increased closures and reduced operating hours,” Lyle Margolis, senior director with Fitch Ratings, said on the first day of the ICR Conference Monday—itself rendered virtual because of a surge in infections.

“But it’s more of a bump in the road rather than a detour. The situation is much more manageable. The industry is much better prepared for it today than it was two years ago.”

The omicron variant was first discovered around Thanksgiving and quickly spread around the globe, becoming the dominant variant in the U.S. before Christmas. That has led to the biggest surge in infections since the start of the pandemic two years ago. According to the New York Times, 7.9 million Americans have been confirmed with COVID-19 in the past 14 days.

While that has not been met with the sort of restrictions that were put in place in March 2020, the presence of so many sick people has been disruptive. And it’s clearly hurting sales. According to Placer.ai, restaurant visits declined 10.5% the week of Dec. 20 compared with the same period in 2019—the worst in three months, and a 13% slowdown from the week before.

That decline exceeded “the high single-digit declines in visits that the industry experienced amid concerns about the delta variant in September.”

Carrols Restaurant Group, the 1,000-unit Burger King franchisee, on Monday blamed the rise in infections for a slowdown in restaurant sales the last two weeks of December.

Mike Whatley, VP of state affairs and grassroots advocacy for the National Restaurant Association, told Joe Kefauver and Franklin Coley during this week’s "Working Lunch" podcast that the holidays were tough. “Omicron has really had an impact on the industry, especially during the holiday season,” he said.

He noted that the association heard that up to 40% of New Year’s Eve reservations were canceled at the last minute. The association is the majority owner of Restaurant Business parent company, Winsight.

Michael Osanloo, CEO of the newly public hot dog and Italian beef chain Portillo’s, told analysts that he worked in one of his company’s restaurants on Christmas Eve, typically one of the chain’s busiest days. Yet he noticed there was a “little bit of a slowdown” that day as customers canceled large holiday gatherings because of the latest COVID surge.

The 850-unit Checkers and Rally’s has also had challenges with the latest surge. Company executives said they had spot outages during the chain’s late-night hours and had “sporadic closings” of restaurants for a day or two.

“The biggest challenge has been on the supply chain side,” CFO Bob Baker said during the ICR Conference. “Some of our distributors are struggling with drivers. The availability of product has slowed.” Still, he said, the problem “hasn’t shown up in our sales results” yet.

Indeed, some operators said that the omicron surge has not created much of a sales problem and even suggested that it’s improving.

Mel Hope, CFO of First Watch Restaurant Group, said the company had some workers call out sick around the turn of the year. “But it’s fallen precipitously since then,” he said. “It seems to be correcting itself, but it raised the stress level for the restaurants.” Hope cited the shorter period of recommended isolation, to five days for vaccinated people without symptoms.

“The headline here is we’ve had no material impact from omicron,” CEO Chris Tomasso said.

Likewise, TGI Fridays President John Neitzel said the biggest problem his chain had was “some challenges, as people get sick.” Yet it hasn’t led to “material outages,” as managers had workers on call to fill in when needed.

It’s worth noting that, in some markets, omicron hit just after they were getting out of waves created by the previous iteration of COVID, the delta variant. Noodles & Company locations in the Midwest and Rocky Mountain regions saw significant disruption from that wave, forcing temporary store closures, CEO Dave Boennighausen said at ICR.

That impact came as “a little bit of a surprise,” he said. But, “as delta did start to wane, those markets came back extremely strongly.”

Boennighausen said the chain is using what it’s learned in those markets from delta as the latest omicron wave takes hold.

Portillo’s Osanloo, meanwhile, suggested that the omicron wave might have helped his chain, which generates a heavy percentage of its sales from the drive-thru. “We feel like we’ll be able to withstand whatever chicanery COVID throws at us,” he said.

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