Dive Brief:

• BTIG analyst Peter Saleh predicts that most casual dining operators can achieve cash neutrality in one to two months,  according to a note emailed to Restaurant Dive based on a call with TGI Fridays COO Jim Mazany.
• When TGI Fridays is ready to reopen its dining area, the initial seating capacity will not exceed 30%, according to Mazany. Although he believes the company will retain about 70% of its current off-premise sales volumes, he doesn’t expect a full sales recovery until Q1 2021.
• The casual dining sector has been hit particularly hard during this lockdown, Saleh notes, pointing to Darden’s same-store sales quarter-to-date, for example, which were down nearly 45%, while Olive Garden was down by 38%. 

Dive Insight:

While sales declines across the segment are severe, the trend has steadily improved by an average of 5% per week and has gone from 75% down in mid-March to about 60% in April, according to the BTIG report. Olive Garden improved from a decline of 71% to a decline of about 45% within a month. This improvement has been driven by off-premises sales, which have grown every week since the middle of March, increasing from $15,000 in weekly sales per unit to nearly $53,000 as of April 19, and equating to 55% of the concept's historical average weekly sales.

For casual chains that have found a cadence in off-premise, the big takeaway from this note is that relief is within reach for the segment. However, casual dining chains could look very different in a month or two when dining rooms are reopened. With those dining areas predicted to be operating at just 30%, operators will be forced to use outdoor space to increase capacity — a shift that bodes well for warmer states. 

The degree to which operations are reduced should be fairly consistent across the casual dining segment, which has stayed afloat by shifting to delivery and carryout. But that doesn’t mean off-premise has been a panacea for all brands. Two-thirds of restaurants say they are uncertain that takeout or delivery will be enough to sustain their businesses until they are able to fully reopen, and many restaurants have also tried to pivot to off-premise only, but realized the sales were not enough to remain open.

Still, it’s not all doom and gloom. Saleh predicts casual dining concepts will correct their over-expanded systems, an issue that has affected the segment for about the past decade. That bloat peaked in 2017, when casual dining started to retrench for the first time. The crisis could expedite that retrenchment, causing casual dining brands to exit "this environment with a smaller but healthier revenue stream,” Saleh writes.

The National Restaurant Association predicts that as many as 11% of all restaurants could close permanently by the time this crisis ends. That will lead to an even more intense competitive landscape and those that will likely come out on top are the ones that can keep up with consumers wherever they are. As it turns out, many of them are going to continue staying put at home. According to a survey from Civic Science, more than 60% of respondents plan to wait more than one month to visit a restaurant dining room after lockdowns are lifted, while 20% of respondents plan to wait six months or more before returning to a restaurant dining room.  

“With that said, we expect many restaurant operators to allocate more capital and resources to support the booming off-premise business,” Saleh writes.