Restaurant Industry Starts Climb Out of Deep Hole

After the restaurant industry suffered through one of its steepest declines since the Great Recession, things started to improve into December, according to The NPD Group.

Overall, customer transactions at major restaurant chains in December were down 10% compared to the same period a year ago. However, they did post a 27-point improvement from April, which was the height of the shelter-at-home and restaurant dine-in closure mandates.

When the shutdown orders went into effect in March, full-service restaurant chains relied on dine-in customers. They had few if any off-premises services when the dine-in restrictions went into effect, according to The NPD Group. These chains bore the brunt of the transaction declines throughout the pandemic.

In April, restaurant customer transactions declined by 70% compared to a year earlier. But they improved their declines to 30% in December.

“Many full-service restaurant chains quickly pivoted to offer more off-premises services by turning parking lots into drive-thru stations, offering curbside pick-up, and enhancing delivery options,” according to the NPD Group. “For full-service restaurants now, it’s about government restrictions.”

In more restrictive states, transactions are down  60% to  70% in full-service restaurant chain transactions. By contrast, there isn’t as much of a gap between quick service and full-service restaurants in less restrictive states, according to The NPD Group.

The bulk of restaurant industry transactions occurred in major quick-service restaurant chains, which learned to expand their already high capacity for off-premises volumes. The NPD Group says that these chains’ carry-out, drive-thru and delivery orders soared throughout the pandemic as consumers looked for relief from preparing most of their meals at home.

While quick-service chain customer transactions fell 35% and bottomed out in April versus a year ago, they quickly improved as shelter-at-home orders were lifted, according to The NPD Group. In December, their transactions only declined 8% versus last year.

“The struggles of the restaurant industry are well documented and we acknowledge that some operators have not survived the pandemic,” David Portalatin, NPD food industry advisor and author of Eating Patterns in America, said in a statement.

Restaurant bankruptcies were occurring before the pandemic due to heightened competition, shifting consumer tastes and rising labor costs. However, risk remains high due to the pandemic.

Numerous restaurant chains have filed for bankruptcy this year, including Ruby Tuesday’s and California Pizza Kitchen. Unit closures will continue as the number of distressed restaurants increase. Fitch restaurant bankruptcy studies indicate bankruptcy filers closed 25% of units on average.