Trends and developments
As independents await news on potential aid, the industry has begun to grow from a unit count perspective. According to NPD’s Fall 2021 ReCount restaurant census, which counts restaurants opened as of September 30, 2021, the independent field expanded by 1 percent, or 2,893 units, last year.
Independent locations are growing in seven of the nine Census regions, NPD said, and large areas like Los Angeles, Dallas-Fort Worth, and Seattle-Tacoma.
Another evolving development is independents who purchase enough volume to order from broadline foodservice distributors hiked spending and orders. Independents increased cases of food and supplies ordered from leading vendors by 27 percent in the 12 months ending March 2022 compared to the same period a year ago, NPD reported. That’s 5 percent above the pre-pandemic level in the period ending March 2020.
Dollars shipped from broadline distributors to independents also rose 47 percent in the calendar ending March 2022, year-over-year—a 25 percent jump versus the pre-virus figure in the 12 months end March 2020.
On the ground level, consumer online and physical visits to independents increased by 12 percent in the 12 months ending March compared to the same period a year ago and are now 7 percent below pre-pandemic in the 12 months closing March 2019.
In the same period, visits to independent full-service restaurants, which in NPD’s definition mix 63 percent of the category, upped 19 percent versus the year ending March 2021, resulting in a 14 percent decline from the year ending March 2019. Quick-service independent traffic lifted 5 percent and was 1 percent above pre-virus March 2019 marks.
"The pandemic lockdowns and restrictions were particularly tough for independent restaurant operators since they have fewer resources and capital than chains to withstand tougher times," said David Portalatin, NPD Food Industry advisor and author of Eating Patterns in America. "Some independents didn't make it, but many did, and they are thriving and contributing to the overall vibrancy of the U.S. foodservice market."
Demand really hasn’t been the anvil, however. It’s clear consumers are returning to restaurants, independents and chain operations alike. In fact, the reality has accentuated other forces at work, like higher costs and lack of supply. Meeting demand, in other terms, has become as, if not more, difficult than trying to generate it.
And there’s a lot going on under the surface. Dine-in restaurant visits in Q1 of this year increased 38 percent versus a 45 percent decline a year ago, NPD said. Off-premises, through carryout, drive-thru, and delivery, fell 9 percent from a 24 percent gain in Q1 2021. The full-service category grew on-premises traffic by 26 percent against a year-ago drop of 34 percent. Off-premises, which continues to account for about a third of full-service visits today, remains on the downswing—it declined 24 percent to start the year over a 63 percent surge last year, per NPD.
While off-premises business has stuck well above prior levels (Texas Roadhouse is more than twice pre-COVID, even without delivery), there are distinctions forming. From February 2020 through February 2022, digital and non-digital carry-out restaurant orders declined by 2 percent, according to NPD, while delivery increased 116 percent, and drive-thru grew 20 percent. Digital ordering, which hiked 117 percent in the two years, contributed to the delivery and drive-thru growth, the company noted. Although digital carry-out orders doubled through the pandemic, these gains were offset by a double-digit decline in non-digital pickup orders that account for the bulk of pickup orders.
In the year ending February 2022, 76 percent of carry-out were non-digital orders, and these orders declined by 16 percent compared to the prior year. Non-digital drive-thru orders rose 20 percent in the same period, and non-digital delivery, which represents 25 percent of delivery orders, increased by 25 percent.
"Several factors have encouraged consumers to move away from ordering carry out. The convenience of drive-thrus, delivery, and mobile ordering, in addition to dining room closures, have influenced consumers' willingness to get out of their car, walk into a restaurant, and order to go," Portalatin said. “Convenience rules and the more convenient options will win."
So full-serves and independents have started to regain share where they historically fought for it. But those brands with resources to couple on- and off-premises business, without eroding margins beyond repair, are beating 2019 baselines. Again, it’s a conversation favoring chains with scale and collective bargaining power, either from a tech stack perspective or their ability to weather supply shortages and lifting costs.
First Watch, for example, posted Q1 same-store sales of 27.2 percent and traffic growth of 21.9 percent. On a three-year stack basis, those figures were 30.6 and 9.9 percent, respectively. Against, pre-COVID 2019, they’re 26.1 and 3.4 percent better.
In March, the chain experienced a surge in sales that boosted its restaurant-level operating margin to 19.6 percent, exceeding expectations. Dining rooms recovered to 90–92 percent of pre-COVID levels, and off-premises maintained a mix of 22 percent. It was just 6 percent back in 2019.
However, the movement back into dining rooms is clear from a broader level—Texas Roadhouse pushed $19,500 in average weekly sales in Q1. So far in Q2, it’s down to $18,000. That number was north of $21,000 last summer, yet Texas Roadhouse was taking in $126,442 on average.
The Q2 number (at $18,000 to-go) is $135,000.
Also, Texas Roadhouse’s Q1 same-store sales growth of 16 percent comprised of 7 percent traffic and average check of 9 percent. The latter got a 3 percent boost from positive mix tied to guests ordering higher-margin and priced items in-store than they were from their cars. Mainly, drinks and appetizers.
According to recent data from Revenue Management Solutions, drive-thru experienced a 13.4 percent drop in the company’s May 2022 impact report. Dine-in had the most marked increase, 2.4 percent growth, year-over-year, while takeout and delivery both ticked 0.8 percent higher.
RMS credited the drive-thru slide to Gen Z in particular, which might be due to rising costs and gas prices. Among the demographic, drive-thru frequency dipped from 91 percent in Q4 2021 to 81 percent in Q1 2022 (asking if they visited a drive-thru at least once a week).
Intent to hit the drive-thru more or “much more” in the future fell from 34 percent to 12 percent in those same windows.
Nearly 50 percent of Baby Boomers and Gen Xers said they believed they were getting less value from restaurants today. And the 40-plus crowd were managing spend primarily by ordering less, choosing less expensive items, and going to less expensive restaurants.