Transaction Data Shows Improving but Uneven Recovery
In a deep look at restaurant credit card data, Capital One shows that the recovery from COVID-19 is going well in some markets and some segments, but others continue to struggle.
The biggest distinction in transaction data is no news to industry watchers: quick-serve restaurants are thriving and casual dining is not.
As of month-end July, the QSR segment was sitting at 99.7 percent of 2019 sales. As noted in many an earnings report, the segment outperformed last year. Broadly, it ticked up over last year’s sales in the first three weeks of July. Overall, the QSR segment bottomed out at 74 percent of sales in the first week of April as dining rooms were shut down across the country and everyone was sitting on a pile of panic-bought groceries.
According to Capital One analyst and managing director of restaurant investment research Paul Westra, QSR is solidly into what he calls “stage four” of the recovery. Concepts underperforming going into the pandemic continue to struggle, and “some unknowns exist around the stimulus bump to sales and long-term sustainability of these levels,” wrote Westra. Stage four is also showing which stores are closed permanently and where potential real-estate opportunities exist for growing, share-taking concepts. The segment only briefly dipped into “stage three” where everyone was forced into all off-premises traffic and cash flows muddled along with lower volumes.
Conversely, casual dining had some very different stages. Like QSR, the casual dining segment broadly bottomed out in the first week of April, but has been much slower to return because of ongoing shutdowns and jurisdictional limits on in-person dining.
The segment did emerge from the “survival” mode of what Westra called stage one, climbed through stage two where companies began to break even and is now in stage three. For casual dining, stage three brings earnings (measured in EBITDA, or cash flow) to breakeven but volumes remain down. The segment hovered in the low 70 percent range compared to last year’s sales, ending the month with 74 percent of sales compared to last year. But this might be good news. Initial projections from Capital One had casual dining struggling for much longer, reaching current levels only in late January.
Looking at the data market by market shows that while broadly, recovery is happening, certain markets are crippled. Across the restaurant industry, sales are down about 29 percent. In open states, that ticks up to negative 24 percent. In states that are in the process of reopening with mixed dine-in rules, sales are down 32 percent. States that have paused reopening efforts are down 27 percent and states reversing course are down 31 percent. All data is from the week ending August 2. Some markets, however, are doing better than the mean.
Dallas is at negative 23 percent of sales compared to 2019; QSR there is down just 6 percent and casual is down 30 percent. Atlanta and Houston both sit at negative 25 percent, with QSR in those markets down 15 percent and 10 percent, respectively.
At the other end of the results is San Francisco. That market is down 52 percent overall, with QSR down 42 percent and casual dining down 54 percent. And results are getting worse as the market reverses course on reopening plans. Only Miami at negative 43 percent and Pittsburgh at negative 42 percent overall come close to that sales decline. Even New York, which gets so much attention for being a ghostly version of its former self, is down 35 percent—great results, relative to San Francisco.
How the shift to remote work, which is clearly affecting markets like San Francisco, will impact restaurants broadly remains to be seen.
As for how the market will play out for the year and through 2021, performance will continue to be muted overall. Demand will remain down about 20 percent, according to Westra; supply will be down about 10 percent, representing permanently closed restaurants. In all, he predicted same-store-sales for the restaurant industry to hover in the negative 10 percent range.