Posted on April 17, 2022

Omicron’s impact on restaurants was significant, but it doesn’t appear to be lingering like past surges. Just take The Cheesecake Factory, whose Q4 sales were 10.6 percent ahead of 2019 as the third week of December approached. Once the quarter ended on December 28, the casual chain’s comps dipped to 7.7 percent, and it also paid $3.8 million of incremental costs related to COVID sick time.

In a departure from previous plunges, though, especially in the early pandemic window, staffing proved a battle of attrition more than an effort to predict traffic. Employees weren’t furloughed due to broad dine-in closures; rather they had to quarantine or call out sick as Omicron stampeded across the country. In turn, Cheesecake Factory’s ensuing Q1 sales through February 15 soared 24.3 percent over the prior year as hiring levels in January rose 10–15 percent compared to Q4.

Starbucks mirrored this movement, too. It posted a record holiday quarter before the variant pulsed in the last two to three weeks of Q1, which ended January 3. Customer mobility declined, call-outs, as mentioned, surged, and Starbucks opened the coffers for COVID pay. In all, Starbucks said Omicron would drag margins by roughly 200 basis points.

However, recent signs suggest the industry’s Omicron panic is over. Revenue Management Solutions data in February showed quick-service restaurant sales up 4.8 percent, year-over-year, after a 0.8 percent drop in January. Traffic declined 2.3 percent, yet made a 5-point jump back to centerline from the previous month, when it was negative 7.7 percent. Average check hiked 7.3 percent versus 2020’s comparable stretch—a sure reflection of rising prices. The food away from home index rose 6.8 percent over last year, which represented the largest 12-month increase since December 1981. Limited-service meals increased 8 percent, year-over-year, while full-service menu prices grew 7.5 percent.

RMS said February’s results indicate consumers are regaining confidence as cases relax and restrictions lift—a rebound cycle that’s repeated itself throughout the past two-plus years: the so-called “pent-up demand” central to the industry’s recovery. Or, as soon-to-retire Starbucks CEO Kevin Johnson said in February, “For over two years now, and thanks to our partners [employees], our business has emerged stronger after each wave of a COVID surge has peaked, and we expect this will be the case as Omicron runs its course.”

“Furthermore,” RMS added, “it appears that the drop in January’s performance was due to external factors, likely the rise in cases due to the Omicron variant, rather than a systemic shift in consumer demand.”

It’s a familiar COVID tale—restaurants weathering regulatory and macroeconomic hurdles when it comes to driving business, not necessarily downturns in guest preference.

On the pricing note, RMS said, “now is the time for [quick-service restaurants] to communicate value meals, bundles, and specials that outweigh the cost of cooking at home.” Just as sector prices climbed, the same was true in grocery (up 8.8 percent, year-over-year, the largest 12-month increase since April 1981).

“Consumer habits are fundamentally different,” RMS Director of Research and Consumer Analytics Francois Acerra said in an analysis of last year’s trends. “Traffic is down, but the relative increases in average check indicate that [quick-serves] haven’t lost customer segments. Instead, we believe that quick-service restaurant customers have permanently changed their behaviors—visiting less frequently than pre-pandemic yet spending more per visit.”

It’s not all about price, either.

“Given the intense pressure on margins caused by rising commodity prices and labor shortages, analysts may give credit to price increases for the overall rise in average check,” Acerra added. “But when we dug deeper into the numbers, it’s clear that a behavior change is also driving up average check. In short, consumers are ordering more food, and for larger parties. We’ve noticed that the increase in basket size is partly due to more guests being on the same check and that, in fact, the share of single-party orders has declined.”

Last year, the quantity per transaction was up 14.3 percent compared to 2019, RMS reported. Compared to average net price, which was 7.5 percent higher, “and it’s clear that net sales performance was sustained by average check growth,” the company noted.

RMS conducted a November survey of more than 800 restaurant consumers. Seventy-six percent said they were going to the drive-thru at least once a week compared to 63 percent for dining in. Delivery peaked in 2020 and has settled since (from 60 percent in November 2020 to 49 percent this past November).

“Wait times, poor customer service and order inaccuracy—not price—are being cited in our surveys as the top reasons for dissatisfaction,” Acerra said. “[Quick-serves] that can overcome challenges and deliver meals quickly, accurately, and with a smile will deliver value to customers and potentially outweigh necessary price increases.”

The company also fielded data from north of 8,000 diners to check on digital adoption and where it's taking the industry. Nearly half of respondents said they’d download a restaurant app to earn loyalty rewards and 39 percent said they’d do so for a deal or a promotion. “With app adoption growing—36 percent of respondents have five or more [quick-service restaurant] apps installed—[quick-service] brands should focus on loyalty rewards and app-exclusive promotions to stand out from the competition,” the company said.

In addition, 43 percent of respondents said they believe it’s “better” or “much better” than ordering in-person. And yet there’s room to separate. Nearly one in four respondents reported not being able to customize or make substitutions, receiving an incorrect order, or not being able to order wanted items. The first two issues presented the biggest consequences—nearly one in three people said they stopped using an app after experiencing either.

According to Oracle Food and Beverage’s “Restaurant Trends for 2022” study, 34 percent of consumers felt online and delivery orders were being prioritized over in-person guests. Forty-seven percent added in-person orders were taking “significantly” longer than order-ahead and drive-thru customers.

While it’s clear digital adoption rode the COVID tailwind, what happens now within loyalty/rewards might just present the next frontier of fast-food value. In Paytronix’s 2022 Restaurant Friction Index, research showed 96 percent of restaurant managers marked down prices for loyalty program members. The average loyalty discount was roughly 3.8 percent.

Overall, restaurants charged an average of 24 percent more for menu items listed on aggregators than their own websites. Quick-serves were the most likely to bump up third-party prices, with 27 percent of managers confirming they sell the same foods for higher prices. Just 14 percent of table-service restaurant managers noted the same.

Black Box Intelligence’s March 16 report noted restaurants posted positive sales growth for the third consecutive week, and the strongest growth since the week before Thanksgiving (excluding the Valentine’s Day period). Although guest counts remain under pre-pandemic levels, traffic improved more than sales compared to the previous week, Black Box said.

Breakfast was the daypart with the highest sales growth during the week, followed by mid-afternoon and dinner. Lunch and late-night continue to lag.

Staffing remains a roadblock to capturing upcoming pent-up demand as well. As of January, restaurants were operating in each of their locations with fewer hourly staff than they did pre-pandemic, in 2019, per Black Box.

Drops in staffing levels, however, remain lower for limited-service brands, with the median brand operating restaurants with 4.4 percent fewer hourly crew members per unit than two years ago. This translated into one less hourly employee per restaurant.  

Original article: https://www.qsrmagazine.com/fast-food/where-does-restaurant-industry-go-here