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Restaurant sales are soaring, but full recovery remains a long way off

Total industry sales increased 20% last month, but they remain well off pre-COVID-19 levels and uncertainty remains, says RB’s The Bottom Line.
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Restaurant sales surged again last month. According to federal data released last week, industry sales rose 20% in June to $47.4 billion.

It’s a substantial improvement. Consumers began returning to restaurants in April, filling drive-thru lanes and ordering delivery before states began reopening dining rooms. Monthly restaurant sales have increased 58% since then.

Yet in a sign of just how bad things were, the industry remains far off from where it was just a year ago.

What’s more, restaurants face considerable uncertainty in the coming months, as the virus spreads again and states take more steps to limit dine-in service.

Restaurant sales are recovering

 

Source: U.S. Census

Restaurant sales were down 26% in June compared with where they were one year ago, for instance. That is a substantial improvement from the 38% decline the previous month, but that 26% will likely take considerable time to get back.

There are several reasons for this. First, a huge number of restaurants have closed and will likely be closed permanently. The loss of supply almost certainly cuts sales.

More to the point, of course, is the slow recovery of dine-in capacity and likely reluctance of consumers to eat inside restaurants. Most states have limited the capacity for dine-in consumption, and traditional eat-in concepts are not making up for the lost sales with takeout.

With the virus on the increase, that won’t recover anytime soon. For one thing, states have been rolling back their reopening plans to slow the spread of the virus.

Business travel could also take a lot of time to return, as could tourism. And then there is the specter of restaurants in the north losing their patios as the weather cools down.

Restrictions don’t appear to be going away anytime soon as the virus is spreading again and states roll back their own reopenings. In addition, consumers seem unlikely to eat inside of restaurants again for some time, at least until they feel adequately safe.

Backed largely by stimulus payments to consumers that began in April, the economy has recovered much of what it lost in April as Americans started spending again. Reinfections risk that recovery.

In a report earlier this month, Moody’s Investor Service noted that “widespread restrictions due to a second wave of infections could hamper the positive momentum” the economy has enjoyed the past two months. Spending declined at the end of June, and as we’ve reported industry same-store sales based on numerous reports indicate that the industry hit something of a ceiling.

The biggest uncertainty, however, is the future of the stimulus. Extra unemployment benefits are set to expire at the end of this week, and though most analysts expected Congress to pass something that pumps more money into the economy, the loss of that income is expected to be significant.

That stimulus is not small: $600 a week in excess benefits equates to about $30,000 a year, so the loss of that benefit is the equivalent of millions of people making $30,000 a year suddenly losing their job without anything to fall back on.

Those funds have clearly provided a backstop that has enabled consumers to spend at restaurants even as they lost jobs by the millions. The loss of those funds could theoretically encourage people to go back to work, filling job openings at restaurants, the improvement in the labor market is nothing compared to that potential loss of sales.

And, though the economy is improving, the job market hasn’t recovered enough to offset the loss of those funds.

Still, the industry appears to be recovering sales at a rate faster than expected once the pandemic hit in March.

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