Piper Sandler invites RMS Chief Strategy Officer to share restaurant industry insights in the face of coronavirus

In a recent Key Opinion Leader conversation with investment bank and institutional securities firm Piper Sandler, RMS’ Chief Strategy Officer, Joel Davis, shared his thoughts about the current state of restaurant sales and consumer spending trends in the face of the COVID-19 pandemic. We’ve summarized his observations here, along with his proposed action items for addressing each. 

Observation 1: Notable Distinctions Exist Between and Within Segment Trends

Piper Sandler’s report release (March 27, 2020), quick-service, same-store sales were down 35% to 45% range vs. -10% to -30% the prior week. That’s in contrast with fast casual, which reported same-store sales down 30% to 70% vs. 20% to 65% the previous week.

RMS client data as of April 10, 2020 shows QSR negative traffic numbers leveling out around -30% to -45% with coastal regions more affected. Traffic trends for drive-thru are more positive, though still down YOY by 5% to 30%.

Why the difference? Delivery and readiness, Davis said. Restaurants already equipped with a robust digital presence and delivery mechanisms are reporting a smaller decrease than the restaurants that are struggling to catch up and put new systems (online ordering) and partnerships (local and nationwide delivery services) in place.

Within the full-service segment, Piper Sandler reported that same-store sales plummeted, down 70% to 80% vs. -20% to -80% the previous week. The only reason that number wasn’t down 100% is due to off-premise options.

RMS client data as of April 10, 2020 shows full-service leveling out at negative 70% to 80% YOY.

• Action item: QSRs were better positioned than table-service restaurants to weather the storm, as many already had the menus, technology and processes in place to shift more of their sales mix to delivery and takeout channels, said Davis.

  As table-service restaurants begin to transition, a key factor for success will be minimizing the number of menus offered. Many restaurants have already launched limited menus for their new channels. This is a wise move, as offering fewer items with less complexity allows smaller staff to execute consistently and quickly. Speed of service remains critical and should go hand-in-hand when selecting profitable menu items. Davis suggested that restaurants not overlook menu add-ons as another means to ensure profits.

Observation 2: Notable Distinctions Exist Among Channel Trends

Piper Sandler reported that while delivery sales are up more than 2x, sales may potentially reach a peak in the coming days and weeks. Among the three service options remaining for restaurants — drive-thru, delivery and takeaway — only drive-thru appears stable, Davis said. And while it’s good news that customers are open to alternative sales channels, demand for delivery may flatten. “This is worrisome,” he said. “The new ‘normal’ level of sales won’t make up for the loss in revenue now that there’s no channel for dining in.”

While traffic trends for this channel are still negative (-5% to -30%), RMS client data as of April 10, shows intermittent positive YOY sales. These bright spots are likely due to (1) increased check sizes and large bundle purchases, (2) consumers’ desire to minimize contact points while picking up their own orders. Lunch and dinner performed better than breakfast in most cases, though breakfast is holding steady from last week.

• Action item: To prepare for and overcome an anticipated decline in delivery sales, QSRs and fast casual should count on direct digital sales to be the best method of delivery. The reason, Davis explained, is that brands using an indirect channel will have additional costs they need to recoup, putting significant pressure on the brand or the operator to raise prices to recover some of that cost.

Observation 3: Consumer Behavior May Remained Changed

When we emerge post-COVID-19, consumer habits will have changed, and, in many ways, unpredictably so. With mandates to social distance and travel restrictions in place for most of the country, customers so far seem amenable to modified operations (like contactless delivery, curbside-pickup and takeout options, and pre-assembled meal kits from formerly dine-in only restaurants). Davis advised that this may lead to a permanent shift in habits.

• Action item: The reality is, we won’t know what shape the marketplace will take for some time. “I think the best strategy for brands,” Davis said, “is not to assume customers will act in any certain way, but rather be able to react quickly to the shifting landscape.” He advised that restaurants pursue constant testing and to analyze early results to identify the new normal and trends as they emerge.

We realize these are stressful and unprecedented times. RMS is here for you. If you would like to find out more about what we’re seeing now in the market, discuss strategies for getting through the crisis, or learn how we can help you develop recovery strategies, please reach out to us. We’d like to help. We’ll continue to post articles like these on our special RMS COVID-19 site.