Unfortunately, 2021 began in much in the same way 2020 ended, with continued consumer concern about the coronavirus and the tumultuous nature of American politics dominating the conversation. Given that cancelling our collective subscription to 2021 is not an option, it is time to try to cut through the chaos to get a better idea of what the year ahead might look like for the restaurant and foodservice industry. With that in mind, here are five points to ponder as we start 2021.
1. 2021 Sales: Better than 2020 but not as good as 2019.
In terms of overall dollars spent, restaurant industry sales declined 28.4% in 2020, according to data compiled by Datassential and IFMA. For the coming year, Datassential projects sales will increase 7.3% from 2020. While that provides a good look at the industry’s top line, the conversation becomes more nuanced when looking at the individual segments. For example, the QSR segment saw sales dip 20.3% in 2020 and Datassential’s projections call for a 10.8% increase in the coming year. Fast-casual sales dipped 24.6% last year and are forecasted to grow by 3.8% in 2021. Coming off a 33.8% decline in 2020, sales at midscale restaurants are expected to rebound by just 3.7% in 2021. And after posting declines of 35.2% and 39.5% in 2020, projections call for sales increases of 4.7% and 4.6% for casual and fine-dining restaurants. In other words, while 2021 will seem an improvement compared to last year, it will only represent a partial recovery. It will take the industry a while longer to reach 2019 levels, per these projections.
2. The top chains feel the pinch, too.
Much of the discussion has focused on the plight of the independent restaurants, and rightfully so. But that does not mean restaurant chains, including the larger ones, have immunity to the business ills brought forth by COVID-19. Sales for the top 100 restaurant chains will decline by 6.2% in 2020, resulting in a net loss of more than $17 billion in total U.S. sales volume for the group, per projections from Technomic. Relatively stable performances among some of the larger quick-service restaurant chains have helped moderate these numbers, per Technomic. To put the decline in context, in 2019, the top 100 chains posted a 5% sales increase. So last year’s decline wiped away all of that growth and then some.
3. Have restaurant closures reached a breaking point?
On a national, as well as a state-by-state basis, there has been plenty of discussion about how many restaurants have closed or will close due economic hardships brought on by the pandemic. Trying to focus the conversation further, Datassential reported more than 87,500 restaurants have closed to date, during a Jan. 7, 2021 webcast. With the holidays behind us and winter here, though, one can’t help but wonder what’s in store for the industry. Has the industry reached a breaking point in terms of unit closures? Outdoor dining kept many operators afloat for a while but in areas like Chicago and New York City, snow, ice and wind will be formidable foes in the coming months, making this style of service less appealing. And surging cases of COVID-19 in states like California make it more difficult for restaurants to operate. Takeout and delivery help, but the lack of on-premises dining cuts into operators’ ability to sell higher margin items like cocktails, appetizers and desserts, points out Datassential’s Jack Li. “There’s going to be a real strain on the bottom line,” he notes. He expects the bottom line to play an even greater role in operators decision making in 2021. This was a trend that started gaining momentum late last year, when operators in Chicago and other markets concluded that they would lose less money by closing, at least temporarily.
4. Despite the slowdown, restaurants are still opening.
Since March 11, 2020, 11,884 new restaurants have opened in the U.S., Datassential reported in its Jan. 7, 2021 webcast. That is the good news. The bad news is that this represents roughly one quarter of the opening rate the industry would expect to see in normal times, per Datassential. Not surprisingly, QSRs led the way with 54.5% of the openings, followed by casual dining at 16.5%, fast-casual at 16.3%, mid-scale restaurants at 12.5% of openings and fine dining at 0.3%.
5. A few points of light.
OK, I realize that is a lot of sobering data to digest so early in the year. For that reason, lets close this blog with a few rays of sunshine, courtesy of David Portalatin of the NPD Group, who offers five reasons why the restaurant industry will persevere. He rightly points out that off-premises orders will stick, and digital will make the experience safer and more efficient for everyone. Portalatin also points out there’s pent up consumer demand for restaurants, so the industry does not have to wonder whether consumers will want to use its services. And the closures, while sad and frustrating, will pave the way for new independent restaurants to open, adding some excitement and intrigue to the industry.