While government mandates are keeping guests out of dining rooms in light of COVID-19 case surges, is it a reflection of lowered demand? Hardly.

According to The NPD Group’s restaurant census, ReCount, the estimated percentage of restaurants allowed to serve dine-in guests declined from 90 to 82 percent this past week. Essentially, 8 percent of the entire U.S. market paused in light of COVID-19 rollbacks. The impact was felt most in California, which re-shut indoor dining July 13.

In the Golden State, full-service restaurant transactions decreased 6 points to negative 51 percent versus year-ago levels (week ending July 12), NPD reported. That was the lowest percentage of any state.

For all major chains, total customer transactions dipped 14 percent compared to 2019. Also reflecting heightened restrictions brought on by case spikes, the result was a 3-point deceleration from the previous week. Quick-service restaurant chains fell back 4 points to negative 13 percent, while full service upped 3 points to negative 26 percent.

These figures paint a complicated and uneven landscape. If COVID-19 has been consistent in anything, it’s a lack of uniformity.

NPD believes California’s stall could alter the industry’s trajectory. Given brands are forced (again) to shift to off-premises-only models, things like delivery programs, streamlined menus, and other coronavirus reactions, such as repurposing parking lots into drive-thrus, could regain widespread prominence. “As the state with the nation’s largest number of restaurants, this will certainly contribute to the reshaping of restaurant operations in the ‘new normal,’” NPD said.


How long will it really take the industry to recover?

What the Restaurant of the Future could look like

The National Restaurant Association last week noted state and local government mandates reclosed nearly 100,000 restaurants in a 14-day span. If you go by the assumption there’s roughly a million venues nationwide, it aligns pretty closely with NPD’s 8 percent. It’s too early to predict a permanent-temporary split.

But what is clear, the Association said, is that hordes of restaurants are going to be saddled with reopening costs—a challenge that might prove too great for some without direct aid. It called on Congress for comprehensive federal support with a “Blueprint for Restaurant Revival” to “allow us not to profit, but simply to survive this pandemic,” Sean Kennedy, executive vice president of Public Affairs for the Association, said in a statement.

It includes everything from a $120 billion recovery and revitalization fund to a second installment of the Paycheck Protection Program to an employee retention tax credit.

One of the key themes of the Association’s blueprint, though, is that restaurants need extra funds not only to endure the coming COVID-19 months, but also to kickstart business. In a June study, 75 percent of operators said it was unlikely they would be profitable within the next six months. Association CEO Tom Bene said the average restaurant only has about eight weeks of cash on hand.

And, in addition to the standard buckets of fixed costs—labor, rent/utilities, food—restaurants have to pay for PPE, training programs, plastic partitions, and other requirements of the “new normal.” Pivots come at a cost.

Eating and drinking places registered sales of $47.4 billion on a seasonally adjusted basis in June, according to preliminary data from the U.S. Census Bureau as reported by the Association. It marked the second consecutive monthly sales gain after April registered a low of $30 billion.

June showed the highest volume since the beginning of pandemic lockdowns in March, but still $18 billion down from pre-COVID-19 sales levels in January and February.

These seasonally adjusted figures don’t quite provide a complete picture of sales losses, the Association said. Rather they offer a directional look at spending trends from month to month.

A better measure might be the Census Bureau’s unadjusted data set, since it represents actual dollars coming in the door.

In total, between March and June, eating and drinking place sales declined more than $116 billion from expected levels, the Association noted. Add in the sharp reduction in spending at non-restaurant foodservice operations in the other sectors, like retail and lodging, and the total shortfall in restaurant and foodservice sales likely surpassed $145 billion during the last four months.

Yet not every outlook is entirely dire. Consumer trends show clear pent-up demand for restaurants. And it’s persisting through case surges.

Financial services company Rabobank Monday called another widespread shutdown “unlikely” in an updated report on the industry’s recovery.

Initial hotspots, like New York, have not shown the same kind of COVID-19 resurgence, and, perhaps more notably, Rabobank said, the consumer spending trajectory has remained largely unchanged in fresh hotspots, such as Texas and Florida, “likely signaling that the delayed onset in these areas has enabled both businesses and consumers to prepare for the ‘new’ normal,’” the company said.

In other terms, locking down in today’s climate is far different than it was four months ago. Consumers are not, by and large (versus March and April) staying home. They have their own pandemic protocols and feel more confident about going out. People can get masks if they want. Toilet paper and paper towels are not being stashed like apocalyptic times.

Consider this stark gap in NPD’s full-service metric: A transaction drop of 26 percent last week is still 54 points better than the sector’s lowest point of negative 80 percent in April.

“Though local and state governments have begun to re-impose restrictions in some hard-hit areas, there is little appetite among governments, businesses, or consumers for another lengthy nationwide shutdown, given much lower hospitalization/mortality rates in new hotspots, higher/quicker recovery rates, and the widespread desire to achieve a better balance between public health and economic recovery,” Rabobank said.

By the end of June, stay-at-home orders were lifted in all but six states. Forty-three states reopened all or some non-essential businesses. Large gathering bans were removed or limits raised in 42 states. Dine-in services (with capacity restrictions) kicked back on in all states except California. Bars reopened in 42 states.

As noted, however, the industry reversed course over the past two weeks. Ten states slowed planned reopenings, including bar closures and reduced dine-in capacity in Florida, Texas, and California, and bar closures and public gatherings limited to 50 people in Arizona. Additionally, Colorado, Delaware, and Michigan shut bars, and New York City and New Jersey paused indoor dining.

These graphs from Rabobank show what’s unfolding.

Rabobank graph.

Rabobank graph.

The kicker in the conversation

The message today is concerning. After declining in April and May, COVID-19 cases started to rise again in late May alongside reopening plans. The U.S. exceeded 50,000 per day in early July, more than double the rate a mere two weeks prior and well above the previous peak of 32,000 in early April.

While the information has been hotly contested and mismatched, to put it lightly, what we do know is the U.S. is testing more—up to 650,000 daily tests in the last seven days—and seeing a higher rate of positive results. Recently, it’s upped to roughly 8 percent positives versus 5 percent in late May. “Consumer anxiety is high, given the lack of a cohesive action plan on reopening, and it could be worsened by mainstream media reporting of an upcoming second wave,” Rabobank said.

The company said a deeper look at state- and county-level data softens the grim picture. Early centers, like New York, New Jersey, Connecticut, Massachusetts, and Pennsylvania, have witnessed daily cases decline from a peak of nearly 19,000 in early April to 1,900 in the last seven days. Hospitalization and mortality rates have declined, too, Rabobank said, “paving the way for further easing of restrictions on non-essential businesses, including foodservice.”

Also, new hotspots (Florida, Nevada, Texas, California, etc.) have lower positive rates, measured as positive per million, younger “positive” cohorts, lower rates of hospitalization, and quicker recoveries. Rabobank said this possibly indicates that the disease poses a relatively lower threat to public health and the economy in these regions compared to the early red zones. It may enable local governments in these areas to adopt a more nuanced approach to business/consumer restrictions compared to the blanket shutdown of all non-essential services in March and April, the company said.

Some more illustrations from Rabobank:

Rabobank graph.

What does this mean for restaurants?

Here’s the prevailing line from Rabobank: The recent spike in COVID-19 cases has paused, but not reversed, the broad-based improvement in consumer spending, particularly for foodservice. That’s something backed by NPD’s transactional data as well.

Total consumer spending, per Rabobank, improved from a peak decline of negative 33 percent in late March (relative to average spending in January) to negative 9 percent in early July.

During this same period, foodservice and accommodation spending rebounded from negative 67 percent at the onset of the national shutdown to negative 37 percent in early July.

“More encouragingly, foodservice has held on to most of its recovery, even as daily COVID-19 cases more than doubled, likely signaling that the delayed spike in new hotspots has given both consumers and operators sufficient time to prepare for the ‘new’ normal,” the company said.

Again, it’s the idea that restaurants and consumers understand better how to navigate today’s conditions. However, it’s worth noting that negative 37 percent, while a relative boost, is still not a sustainable figure for the majority of restaurants, especially independents, across the country. At least not for any significant duration. Bene said countless restaurant operators, namely on the full-service and independent side, can’t survive if they’re not above the 50 percent capacity mark, especially if they don’t offer outdoor dining. And even that lifeline has a shelf life and is reliant on things restaurants can’t control, like it being 100 degrees outside.

So much of this sits on how long states keep the “pause” in play. If cases don’t start dropping, the hill is going to get a lot steeper.

Aggregate consumer spending on foodservice and accommodation was down 33.8 percent on July 1, Rabobank said. That was largely unchanged from negative 34.1 percent on June 15, even as average daily positive cases jumped from 21,000 to 43,000 during the same period.

It offers a glimmer into why restaurants have long been recession proof—few, if any, sectors enjoy this kind of consistent consumer demand. People wake up hungry, every day, in every market across the globe.

Rabobank’s data shows restaurants have plenty of opportunity to earn visits, digital or in-person, and are getting credit from consumers for safety measures. It might just come down to whether guests can dine out or not, not whether they want to.

The stickiness of foodservice recovery is also evidenced by the absence of a consumer shift to at-home food during the recent spike, Rabobank said, unlike the massive turn to food retail during the initial surge in March and April. Food retail spending is up only mid- to high-single digits compared to January, which is mostly in line with spending patterns in mid-June and well below the 20–30 percent increase in March and April.

Rabobank graph.

Dressed down, unless consumers are forced by officials to avoid restaurants and return to early quarantine behavior (grocery two-week stock ups, and so forth) it doesn’t appear likely they will do so on their own volition. The demand and transactional behavior suggests people have crossed past COVID-19 fatigue and don’t want to return, despite a rise in cases.

If you take this to the state and city level, it’s even clearer. The top five markets with the sharpest increase in COVID-19 cases in the last two weeks—Florida, Texas, California, Arizona, and Georgia—show only modest declines in foodservice spending from pre-surge levels, Rabobank said. It ranges from negative 1 percent in Arizona to negative 6 percent in Texas, and this as daily positive cases more than doubled in California, Arizona, Georgia, and more than tripled in Florida and Texas.

Larger hotspot cities, like Miami (which also shut indoor dining), Houston, and Los Angeles, are also turning in modest impacts. Meanwhile, spending continues to recover or remains intact in prior high-case areas, like New York, or in states with relatively low infection rates

Rabobank graph.

As always, the situation is far from stable. More states could follow California’s lead, or go the other direction. How cases are being reported and the level of trust from the general public continues to smolder. There’s a stark split between reopening proponents and lockdown advocates. And there’s no evidence we’re going to find a middle ground anytime soon. Not to be discounted, either, the election is fast approaching.

This uncertainty is one of the biggest weights for restaurants. Reopening to reclose to reopen again makes it harder to prepare for a future nobody can draw a clear picture of yet. Perhaps a lot of guest behavior shifts back and some “new normal” changes need to be removed so dining out can “feel like it used to.” Nobody knows.

Regardless of what the other side might look like, though, restaurants appear to be at the mercy of mandates more than consumer demand today. And that’s something worth building on.

Consumer Trends, Feature