Casual dining chains are stuck in a ‘state of limbo’ in the pandemic

  • Sit-down casual dining chains like Chili’s, The Cheesecake Factory, and TGI Friday’s are struggling to boost sales during the coronavirus pandemic. 
  • Research firm Gordon Haskett says that the casual dining segment will be “in a state of limbo” for the next three-to-four months, due to dining rooms closing again and state-mandated caps on how many people can eat in a restaurant.
  • Some chains are being forced to close locations, with TGI Friday’s planning to shutter up to 20% of its US locations and Ruby Tuesday quietly closing more than 150 restaurants since January.
  • Visit Business Insider’s homepage for more stories.

Casual dining chains dependent on indoor seating are struggling to boost sales. What’s worse is that without a coronavirus vaccine readily available to the public, a full recovery to pre-pandemic levels will likely be difficult to achieve.

While restaurants across the board saw impressive gains in sales in April, May, and June, fast-food chains recovered quicker than sit-down casual dining restaurants like Chili’s and Applebee’s – due to their established drive-thru and takeout businesses.

As casual dining chains continued to build out their off-premise verticals and dining rooms were allowed to reopen, sales improved significantly. Yet state government officials have again begun requiring dining rooms to close as coronavirus cases have spiked around the US in recent weeks. Many other states are still only allowing restaurants to sit diners up to 50% of a location’s total capacity.

Gordon Haskett analyst Jeff Farmer wrote in a research note that the casual dining segment will be “in a state of limbo over the next three-to-four months with our expectation for a stalled SSS [same-store sales] recovery offset by potential vaccine headlines that could quickly inflate valuation multiples.”

Farmer notes that the best-performing casual dining chains — Texas Roadhouse, Outback Steakhouse, and Chili’s — have seen same-store sales declines improve to the low double-digits in July.

For declines to move into the mid-single digits, states such as Texas and Florida will need to increase their capacity limits from 50%, Farmer says. News of a vaccine would be one of the only things that could end the slump, sending valuations skyrocketing. 

Casual dining brands are struggling far more than fast-food chains

The stalled recovery puts casual dining brands in a worse financial position than their fast-food peers.

Casual dining chains, including Outback Steakhouse’s parent company Bloomin’ Brands as well as Chili’s and Maggiano’s parent company Brinker International, are among the most likely restaurant companies to default in the next year, according to recent report from S&P Global.

Some casual dining chains are already closing locations. TGI Friday’s plans to close up to 20% of its US locations, and Ruby Tuesday has quietly shuttered more than 150 restaurants since January.

California Pizza Kitchen

California Pizza Kitchen sells groceries to stay afloat in reaction to the coronavirus.

Photo by Amy Sussman/Getty Images

While the pandemic is weighing heavily on casual dining chains, the restaurant concept has also struggled to compete over the last decade, thanks in part to the aftermath of The Great Recession and the rise of fast-casual offerings. The latter, especially, proved detrimental to many casual dining chains’ business models, as customers’ tastes evolved beyond traditional sit-down restaurants.

California Pizza Kitchen is one casual dining brand that has already been forced to file for bankruptcy. While the chain blamed plummeting sales on the coronavirus, CPK said in a filing that some factors weighing on the casual dining industry predated the pandemic. The chain struggled to compete with cheaper fast-casual options, as well as attract customers who skipped trips to the mall in favor of staying home to watch Netflix or shop on Amazon. 

“The Company now has to draw people out of the comfort of their homes and has lost a number of customers who would otherwise have dined at a CPK on impulse while out for other purposes,” the filing reads. 

Source Article