Customer Experience

Restaurant SSS drop 55% in April: Time for comeback?

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May 8, 2020

April was the first month truly impacted by COVID-19 pandemic's stay-at-home guidelines, and declines in restaurant sales clearly illustrate the damage. Same-store sales dropped 55% during the month year-over-year, according to Black Box Intelligence data from over 50,000 restaurant units. Same-store traffic also dropped 55%.

"As bad as the results were in April, the latest Black Box Intelligence data suggests the worst of the sales decline is behind us and we are now starting the long road toward recovery," Victor Fernandez, vice president of insights and knowledge for Black Box Intelligence, said in a press release. "During the last two weeks of March, restaurants lost 67% of their sales year-over-year, but since then the decline in same-store sales improved by 20 percentage points. By the last two weeks of April, sales decline slowed down to 47% year over year.”

Kelli Valade, CEO and president of Black Box Intelligence, said that although the industry is still far from an ideal situation, the improvement in recent weeks is a bright spot. She called it a "testament to the resourcefulness and grit of restaurant operators who adapted and shifted quickly to this new restricted environment and have begun to turn things around."

Limited-service brands hanging on
As would be expected, brands that traditionally conduct a significant portion of their business through off-premise sales and have the lowest price points are best positioned to face the current challenges. By the last week of April, quick service same-store sales were down less than 2 % year over year. Fast casual sales were down 30% by the last week of the month, having recovered by 20 percentage points from where they were by the end of March, according to Blackbox.

Brands that rely more on dine-in experiences continue to navigate a much tougher scenario. By the last week of the month, full-service restaurants were still reporting lost sales of 62% year over year. Though much better than the 77% sales drop reported for the end of March, these are still problematic results for these companies.

Within the full-service sector of the industry, fine-dining and family dining have been the segments hurt hardest by the pandemic. Their improvement over the last month is much smaller compared with the rest of the industry and they continue to see sales loss in the 75% to 85% range in recent weeks, according to Blackbox.

Guest checks growing 
As restaurant operations shifted toward off-premise only, and limited-service began capturing a bigger percentage of overall restaurant sales in recent weeks, an interesting phenomenon began in relation to the average guest check.

While spending per guest decreased year over year for full-service brands, surely a reflection of lost beverage sales and likely the effect of guests skipping pricier items or even reduced menu offerings, the opposite has been true for limited-service brands.

In the case of quick service, the average check has been increasing by almost 20% year over year during the last two weeks of April. The growth for fast casual also accelerated significantly at 16% for the same period.

Off-premise alcohol sales provide little padding
So far, allowing restaurants to sell alcoholic beverages for off-premise consumption has had a small positive impact on lost beverage sales in states in which it has been authorized. For example, same-store beverage sales for casual dining in Texas, Nebraska, Arizona, Connecticut and California (states that allow off-premise alcohol sales and were the best performers on alcoholic beverage sales growth) were all within -92% to -94% for the last week of April. Although better than the -98% national change in alcoholic beverage sales for casual dining, this represents only marginal improvement.

Huge off-premise sales growth isn't enough
For full-service restaurants, which typically had less than 15% of their sales coming through off-premise, the shift caused by COVID-19 has meant massive growth in those channels. As restaurants have been focusing their efforts on expanding their off-premise offerings and consumers have started receiving some aid from stimulus checks and expanded unemployment benefits, combined sales growth in to-go, delivery and drive-thru topped 200% year-over-year by the end of April. The problem, however, is that even this enormous growth is not enough to offset the huge hit from lost dine-in sales for concepts that were designed with that sit-down experience in mind.

For limited-service brands, it was common for off-premise to represent more than half of their total sales, so sales growth has been much more moderate given the larger base. But even these brands are reporting to-go, delivery and drive-thru sales growing at a pace nearing 25% year-over-year. This growth has not been able to offset the total decline in sales yet, but in the case of quick service, it has lifted the segment to recoup most of the lost revenue.

The reopening will be uneven
The damage to the economy has been significant. Growth declined in the first quarter and is headed for a huge drop in the current period. Estimates range from -20% to a high of -40%.

"The unemployment rate remains on target to reach the 20% range," Joel Naroff, president of Naroff Economic Advisors and Black Box Intelligence economist, said in the release. "But businesses are starting to reopen, though slowly and extremely unevenly. There doesn't seem to be a uniform plan that states and localities are following to determine what should be opened and when. That means the process of reopening the economy will not be smooth and is likely to take many months."

He said there are two critical factors that are unknown.

"The first is how consumers and workers will react to having businesses open," he said. "Will they be willing to go to stores, restaurants and workplaces? If not, how long and what will it take to get them comfortable again?"

The second is what will happen if there is an uptick in new coronavirus cases and deaths.

"The extent of any resurgence will determine whether a new lock down is required," Naroff said. "If that happens, the implications are dire as much of what was accomplished by the social distancing and government support programs would be wiped out. Until we have better answers to these questions, the course of the economy after the initial recovery will remain unclear.”    

Looking ahead
The data suggests full-service restaurants need dining rooms to reopen if they are to speed up their path to recovery, Fernandez said.

"Even fast casual brands, with almost half of their sales typically coming from dine-in sales, could use the boost from guests being allowed to dine in again," he said.

"However, there are many questions related to states easing up restrictions. Among them, are restaurants going to reopen immediately if the capacity limitations are severe and are guests going to return immediately?"

Early data from the newly launched Black Box Intelligence Restaurant Recovery Sales Flash shows that in Texas for Saturday, May 2 (the second day restaurant dining rooms were allowed to reopen in the state but at only 25% capacity), same-store sales for full-service restaurants was -36%, which is almost 30 percentage points better than the decline in sales recorded at the national level for that day.

Additionally, data from Texas and Georgia (both allowing dining rooms to be open in some capacity May 1), revealed that, on average, full-service restaurant operators only opened dining rooms in about 40% of their locations in Texas and 31% of them in Georgia.