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The US Restaurant Industry: An Update

By: Douglas Daly – June 24, 2020

Nationwide, the restaurant industry experienced a dramatic downturn as shelter-in-place policies have taken hold across the US since the beginning of March. In our April assessment, we showed how this sudden change in customer behavior impacted industry sectors (e.g. fast food, dining, delivery) and uncovered various regional biases across the US. In this article, we provide an update to the analysis.

As restrictions nationwide have loosened, customers have steadily increased their spending at restaurants, thus continuing an upward trend, though seemingly approaching a lower steady-state level.

Figure 1: YoY Weekly Restaurant Spend (Facteus)

Though interesting, we seek to understand the state of the industry more deeply.  By leveraging our 17+ billion transaction dataset of nationwide card spend data with over 180 restaurants tagged, Facteus offers a much richer and more nuanced view of the restaurant industry

 

Industry Performance by Restaurant Chain

We first sought a common theme among the many restaurant chains we track by grouping merchants into logical aggregates by sales performance.  To do this, we applied the Gaussian Mixture Model (GMM) to cluster restaurants based on weekly sales relative to the week ending March 1, 2020.1 GMM uses the Mahalanobis distance metric, which ensures different sales results are weighted by the variability of that given week. The resulting clusters, shown below are distinct and striking in their divergence:

Figure 2: Weekly restaurant spend by cluster relative to March 1, 2020 (Facteus)

As we saw in April, the following narrative presents itself: as customers shifted en masse to working and dining at home, their dining needs shifted accordingly.

OUT: Dine In; Experience; Near shopping or the workplace

IN: Close to home; Takeout/Delivery; Value for the money

 

Again, the very best performers (Cluster 3) are the food delivery companies.  However, their growth seems to be dropping from their peak in May.  This may be due to increased dining or restaurants improving their takeout options to avoid paying a high penalty to the delivery company.2

Near the top cluster are restaurants that benefit from a seasonal bias, such as Ritas Ice, Baskin Robbins, Braums Ice Cream, Cold Stone Creamery and Salt & Straw (a popular ice cream company in Portland, OR).

Restaurants with a well-established drive-thru and delivery options tend to perform better than their peers.  For example, among coffee houses, Bigby Coffee and Dutch Brothers performed much better than Coffee Bean & Tea Leaf and Starbucks; Caribou Coffee performed in the middle.  Similarly, for pizza places, Cici’s Pizza and Chuck E. Cheese are doing very poorly whereas Papa Johns and Pizza Hut are doing well.

With offices closed, companies like Aramark and Eurest are near the bottom.  The same is true for “food courts” businesses like Auntie Anne’s, Cinnabon, and Sbarro.  Lastly, restaurants typically associated with dining in are still suffering such as BJ’s Restaurant and Brewhouse, Coopers Hawk Winery, Dave & Busters, Denny’s, TGI Fridays, and The Cheesecake Factory.

 

Restaurant Industry by Region

As before, we applied our segmentation algorithm to restaurant data by state and placed them in 4 groups:

  • Cluster 0: Greatest loss of business and currently 20% below the March 1 level.
  • Clusters 1-2: Performing about 10% better than the states in Cluster 0.
  • Cluster 3: Nearly recovered to pre-pandemic levels

Figure 3 Weekly transaction count & spend by State cluster (Facteus)

We displayed these results on the map below. As expected, business loss roughly aligns with states where restrictions are the greatest.

Lastly, we examine whether a state’s restaurant industry performance is more reflective of its cities or rural areas. We applied the GMM state clustering model to data for the 100 largest metropolitan areas for comparison.

Figure 4 Restaurant industry clusters by metro area

Our data indicates that about ¼ of the major cities map to the cluster associated with the greatest loss of business.  The cities which mapped to the better performing (yellow) cluster are generally located in the South and Midwest regions except for San Bernardino, CA and Fresno, CA.

Here as well, the data seems to confirm what you might expect, namely the fact that large metro areas are shouldering the brunt of the impact, given their population and restaurant density.

We will continue to follow the restaurant industry (as well as others, e.g. grocery stores) using this clustering methodology, and plan to provide updates on how COVID-19 is impacting the health of these businesses. Please visit FIRST.facteus.com often or follow us on LinkedIn or Twitter (@facteus) to be notified when we publish updates.

Footnotes:

1 Some merchants, such as Ritas Ice, tend to open around March 1.  In those cases, we tracked sales relative to March 8.

2 Some restaurants surveyed offer small incentives (like a free drink or appetizer) to customers who pick up their food directly.

Appendix: List of Restaurants included in analysis:3 Square Market, A&W Restaurants, Applebee’s, Aramark, Arby’s, Au Bon Pain, Auntie Anne’s, Avanti Markets, Avi Food Systems, Inc., Bar Louie, Barnes & Noble, Baskin Robbins, Bigby Coffee, BJ’s Restaurant & Brewhouse, Blaze Pizza, Bob Evans, Bob’s Big Boy, Bojangles, Bonefish Grill, Boston Market, Braum’s Ice Cream, Bruegger’s Bagels, Buffalo Wild Wings, Burger King, Café Rio, Captain D’s, Caribou Coffee, Carl’s Jr., Carrabba’s, Charley’s Philly Steaks, Checker’s Drive-in, Cheddars, Chick-Fil-A, Chicken Express, Chili’s, China Buffet, China Wok, Chipotle, Chuck E. Cheese, Church’s Chicken, Chuy’s, Cici’s Pizza, Cinnabon, Coca-Cola, Coffee Bean & Tea Leaf, Cold Stone Creamery, Cook Out, Cooper’s Hawk, Corner Bakery & Café, Cracker Barrel, Crane Merchandising Systems, Culver’s, Dairy Queen, Dave & Buster’s, Del Taco, Denny’s, Dickey’s Barbecue Pit, Disney US Parks, Domino’s, Donato’s Pizza, Doordash, Dunkin’ Donuts, Dutch Bros. Coffee, Eat Street, Eat’n Park, Einstein Noah Restaurant, El Pollo Loco, Eurest Dining Services, Famous Dave’s Fazoli’s, Firehouse Subs, First Watch, Five Guys Burger & Fries, Five Star Food Service, Fox’s Pizza Den, Freddy’s Frozen Custard, Friendly’s Ice Cream, Fuddrucker’s, Golden Chick, Golden Corral, Great American Cookies, Grubhub, Hardee’s, Hooters, Huddle House, Hungry Howie’s Pizza, Hy-Vee, IHop, In-N-Out Burger, Jack in the Box, Jack’s Family Restaurants, Jamba Juice, Jason’s Deli, Jersey Mike’s Subs, Jet’s Pizza, Jimmy John’s, Johnny’s Pizza House, Jollibee, KFC, Krispy Kreme, Krystal Company, Little Caesar’s, Logan’s Roadhouse, Longhorn Steakhouse, Marco’s Pizza, McAlister’s Deli, McDonald’s, Mellow Mushroom, Mod Pizza, Moe’s Southwest Grill, Nayax, Newk’s Eatery, Ninety-Nine Restaurants, Noodles & Company, Nordstrom, O’Charley’s, Old Chicago Pizza & Taproom, Olive Garden, On the Border Outback Steakhouse, P.F. Chang’s, Panda Express, Panera Bread, Papa Gino’s, Papa John’s, Papa Murphy’s Pizza, Peets Coffee & Tea, Pilot, Pizza Hut, Pizza Inn, Pizza Ranch, Pollo Tropical, Ponderosa/Bonanza, Popeye’s Louisiana Kitchen, Portillo’s, Potbelly’s Sandwich Shop, Pret A Manger, Qdoba, Quizno’s, Raising Cane’s, Red Lobster, Red Robin Gourmet Burgers & Brews, Rita’s Ice, Rooster’s, Round Table Pizza, Ruby Tuesday, Saltgrass Steak House, Sarku Japan, Sbarro, Schlotzsky’s, Shake Shack, Shoney’s, Six Flags, Sizzler, Smashburger, Smoothie King, Sonic Drive-in, Sonny’s BBQ, Starbucks, Steak N Shake, Subway, Sweetfrog, Taco Bell, Taco Bueno, Taco John’s, Taco Time, Texas Roadhouse, TGI Friday’s, The Cheesecake Factory, The China King, Tim Horton’s, Tropical Smoothie Café, Twin Peaks, Uber Eats, USA Canteen Vending, USA Technologies, US Connect, Village Inn, Waffle House, Waitr, Wendy’s, Western Sizzlin, What-a-Burger, Which Which, White Castle, Wienerschnitzel, Wingstop, Yard House, Zaxby’s