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Why the pandemic takeout boom may fade

Darden Restaurants CEO Gene Lee doesn’t think growth in to-go orders is as “sticky” as people want it to be, says RB’s The Bottom Line.
Darden Restaurants
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The Bottom Line

Casual-dining restaurants, not to mention fast-casual and quick-service chains, have received a big boost in takeout sales during the pandemic. With dine-in service less of an option, and potentially risky at that, delivery and takeout have exploded.

The general feeling, particularly among casual-dining operators, is that it’s here to stay. But not everybody agrees with this point.

“This off-premise dining is not going to be as sticky as everybody wants it to be,” Gene Lee, CEO of Darden Restaurants, said during the ICR Conference on Monday. Consumers “are tired of eating restaurant food in their homes. They want to get back out and socialize with their friends. I don’t think it’s as sticky as everybody wants it to be.”

It’s a legitimate argument. Fundamentally, eating restaurant food at home is less of an experience than it is eating inside the restaurant. The food has a lower quality—no matter how good the takeout packaging is—and when you’re done you have to clean everything yourself.

Perhaps more to the point, you’re eating it all at home, where most of us have been cooped up over the past nine to 10 months—which is not where we’ll want to be once the pandemic is over. I have no intent on maintaining my personal consumption of at-home restaurant food once I’m able to go out and do things that we did pre-pandemic.

If consumers shift more spending back to dine-in restaurants, it only takes away from their spending elsewhere—and that likely means pressure on the takeout business so many concepts generated over the past several months.

Restaurants may be counting on an absolute increase in total spending if they’re going to maintain takeout while also increasing the amount of dine-in sales consumers generate post-pandemic. Such an idea is a fantasy, especially as any stimulus—either the $600 being paid out now or a possible $2,000 payment once President-Elect Joe Biden takes office—wears off.

To be sure, at least in the near term, restaurants will get a benefit from a lower supply. The industry will come out of the pandemic with a lower supply of locations than when it went in, and on balance that should benefit overall unit economics.

Full-service restaurant executives like to mention their ability to keep takeout over the summer, even as their capacities were increased due to state reopenings of dine-in service. But such a phenomenon was likely temporary, the result of pent-up demand as well as the closure of existing locations.

It helped, too, that consumers weren’t spending on things like concerts and movies and other things. Restaurants were something they could do.

We believe consumers will return to dine-in restaurants once this is over, and they will shift that spending away from takeout. Full-service restaurant chains could keep some of the takeout they generated during these few months of quarantine, but a lot of it goes away.

What’s more, the growth in use of delivery, either through third parties or through self-delivery pizza chains like Domino’s and Papa John’s, could be expected to fall back once consumers revert back to some semblance of normal.

All that said, the pandemic has changed the consumer, which has grown accustomed to curbside service and smartphone apps. Full-service restaurants have learned how to serve such customers, which should definitely be a help. Restaurants that make it through the pandemic will likely get a significant benefit coming out of it.

But as Lee said, the takeout boom isn’t quite as sticky as many people think.

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