We take you now to the set of “Jeopardy,” where the gameshow’s last round of competition is about to begin. As luck would have it, today’s Final Jeopardy category is Restaurants in a Pandemic, and the clue on the board reads, “In a dramatic comeback, this segment is now handily outpacing the industry.” Contestants, remember to put your answer in question form.
Now let’s see how they did.
Our third-place contestant wrote, ”What are chicken-wing concepts?” Oh, I’m sorry, but that is incorrect. You’ll go home with nothing more than a coupon to Wingstop.
How did our contestant in second place do? She wrote, “What are pizza places?” That, too, is incorrect. Those brands did well virtually from Day One of the crisis, and we were looking for a segment that only recently returned to top form.
Now for our leader, an insufferable know-it-all who’s probably never been on a date. He wrote, “What are buffets?” That’s so stupid that we’re going to disable his buzzer.
The answer we were looking for: What are steakhouses?
Yes, steakhouses, the businesses that fell hard when dining rooms were closed back in 2020. With the exception of Outback Steakhouse and a few others, concepts in that sector were ill-prepared to generate the volumes of takeout and delivery that were needed to keep sales even remotely close to even. Sales declines exceeding 70% were more routine.
High-end brands were walloped especially hard. Business travel and expense-account dining disappeared overnight, and $40 steaks lose something—a big something—when crammed into a takeout container. Many places found they were better off selling their meats raw instead of cooked.
That situation has changed seemingly in less time than it takes to flip a fillet. During the first quarter, sales at Fleming’s Prime Steakhouse and Wine Bar, the upscale sister of Outback, were running 15% below the levels for the same period of 2019. In the first four weeks of Q2, sales at comparable restaurants were outstripping the pre-pandemic levels of two years ago by 16%. That’s a 31-point swing.
During the second quarter of 2020, comparable sales for high-end Ruth’s Chris Steakhouse were 74% below the levels for the same stretch of 2019. Only two public chains posted a steeper drop in same-store sales for the 13-week period.
From June 1 through June 7, Ruth’s comps shot 6.2% past the level for the same week in 2019.
One of the two chains that posted worst results than Ruth’s in Q2 of 2020 was STK, the pricey international steak brand owned by One Group Hospitality. Its comparable sales for the period fell 81.4%, with sales down 95.5% in April of that quarter.
Through the first two-thirds of 2021’s second quarter, STK same-store sales were overshooting the comparable 2019 levels by 49.2%.
The high-ticket brands appear to be beneficiaries of pent-up demand from consumers eager to splurge after 15 months of caution. It also helps that they have federal aid money in their pockets.
Lower-priced operations are also enjoying that freer spending.
“You're seeing guests trading up to higher-price steaks and items, bigger steaks,” Texas Roadhouse CFO Tonya Robinson told investors. In addition, “you see that alcohol mix coming back into play as the dining rooms reopen.”
Steak specialists with less expensive menus have the added benefit of promising value, according to Gene Lee, CEO of LongHorn Steakhouse and The Capital Grille parent Darden Restaurants. He sees that as a key reason for LongHorn’s recent sales surge.
For the first time in not just recent memory, the moderately priced steakhouse brand significantly outpaced its big sister, Olive Garden, in its quarterly sales performance. For the 13 weeks ended May 30, LongHorn posted a same-store sales gain of 13.5% over the figure for 2019, when pandemics were still the stuff of science fiction. Olive Garden’s sales were still running below the level of two years ago, though just by 1.5%.
Olive Garden didn’t suddenly flag, Lee told financial analysts. Rather, LongHorn shot past its Italian sibling because of the aura of affordability that brand chief Todd Burrowes has been cultivating for five years “He and his team have just done a great job of improving the value perception,” said Lee. “They moved from middle of the pack to Number One.”
But Lee was quick to add that a rising tide factor also came into play for LongHorn. “The whole steakhouse segment has outperformed other segments,” he said, attributing the market’s good fortune to a favorable impression among consumers. “So they're definitely getting a segment lift.”