Restaurants Sorting Out the Post-Pandemic's ‘New Abnormal’

Restaurant performance finds itself in a “new abnormal” coming out of the pandemic, with more venues opening but also profits declining despite upticks in sales.

Remote work schedules aren’t helping revenue, according to A&G Real Estate Partners.

Based on the time of day and location, “Fridays are turning into Thursdays” in markets such as New York City and for other downtown restaurants. The hybrid-work model has contributed to decreases in average unit volumes of 40 or 50 percent.

Many restaurants have raised their prices enough to boost their sales totals, but they may still be on the bubble or losing money, according to Chicago-based principal at A&G Real Estate Partners Joe McKeska, in prepared comments.

“What’s scary to me is, we have seen cases where sales are actually up by 5 or 10 percent but the restaurant operator’s profitability is down by 30, 40, 50 percent or more,” he said.

Be Willing to Close Underperforming Stores

McKeska, who routinely renegotiates and terminates leases on behalf of restaurant clients, encouraged operators to engage with landlords and be willing to close underperforming stores.

Chains pursuing out-of-court restructurings should huddle with their secured lenders to gain clarity on what it will take to avoid going into default, he said.

“You really need to have alignment with your senior secured lender before you go out to the landlord community because otherwise, you’re trying to hit a moving target,” McKeska said.

McKeska also advised taking an aggressive effort to negotiate lower rents and seek additional lease options for on-the-bubble or even healthy stores.

He said to try telling landlords, “Maybe I will extend your lease if you give me a rent reduction,” McKeska said.

Omicron Variant Affecting Jan YoY Data

According to NPD’s fall 2022 restaurant census, which includes restaurants open as of Sept. 30, total foodservice traffic, restaurants, and retail food service combined, was up 2%, and restaurant visits were up 3% in January.

This compares to visit losses this time last year because of the omicron variant.

Food service spending rose 7% in January compared to a year ago.

The census also reported that dine-in visits at restaurants were up 24% over a gain of 41% in January 2022.

“Even with the increases, dine-in or on-premises traffic is still recovering from the steep pandemic-related declines in 2020,” according to NPD.

“Off-premises, primarily drive-thru, and delivery, was a default beneficiary of pandemic restrictions, and visits for both order modes remain up, 9% and 88%, respectively, versus three years ago.

Traffic at morning meals, including breakfast and A.M. snack periods, has fully recovered from pandemic declines. Restaurant visits at breakfast and A.M. snacks increased in January by 13% compared to a year ago, and are up 3% versus three years ago, reports NPD.