Casual dining's recovery is moving at a "lumbering pace." And, it's not expected to speed up any time soon.
The stagnant recovery of chains such as The Cheesecake Factory, Applebee's, and Red Robin will be "almost entirely driven by increased capacity limits" in the coming months, according to a report released by Gordon Haskett on Friday.
Analyst Jeff Farmer said in the report that most chains have already aggressively built out outdoor seating, added restaurant partitions, and boosted off-premise sales. As restaurants reach the limits of how much these new channels can bring in, chains' only hope for a full sales recovery is a COVID-19 vaccine, according to the report.
While COVID-19 cases are declining across the US, Farmer says there are three factors that will make recovery more difficult in the coming months:
- Capacity limits on how many people can dine inside, which will continue in most states until there is a vaccine, widely available treatment, or elimination of new cases.
- Higher unemployment rates and the loss of the extra $600 in federal unemployment benefits, which helped boost restaurant sales earlier in the pandemic.
- Reduced flexibility around outdoor seating, as the weather gets colder in the fall.
'Winter is coming' — and that's bad news for casual dining chains
Restaurant owners in areas with stricter limitations are already pushing back. This week, the NYC Hospitality Alliance threatened to sue the city or state over the current indoor dining ban. While the rest of New York state allows for indoor dining at 50% capacity, restaurants in New York City have been banned from opening dining rooms.
Experts note that reopening dining rooms at 50% capacity will not allow most restaurants to build sales to their pre-pandemic figures.
Reopening dining rooms also brings new costs that could ultimately result in the restaurant losing money if it doesn't operate at full capacity, industry expert John Gordon told Business Insider. Restaurants will have to invest in new safety features and hire more employees to reopen dining rooms.
Some chains have turned to outdoor dining as a potential solution, with Red Robin building out patio seating and Texas Roadhouse erecting tents in parking lots to seat customers outside. However, with fall weather approaching, restaurants cannot rely on outdoor dining forever.
Some chains have already been forced to close locations during the pandemic. TGI Friday's could close up to 20% of its US restaurants, and Ruby Tuesday has quietly shuttered more than 150 restaurants since January. California Pizza Kitchen said in its bankruptcy filing that it had already closed a number of locations in recent months.
"Get a vaccine, it'll turn around," said Robert Rattet, an attorney who specializes in bankruptcies. "Without a vaccine, you'll have more closures."
"Winter is coming," Rattet added.