Focus: Delta, beef prices threaten to take the sizzle out of U.S. steakhouses

Ruth's Hospitality

17/08/2021 11:00

By Hilary Russ and Lisa Baertlein
    NEW YORK/LOS ANGELES, Aug 17 (Reuters) - Just as American
steakhouses are recovering from the first wave of COVID
shutdowns, the Delta variant threatens to diminish the appetite
for a sector seen as a barometer for full U.S. economic
recovery.
    While many top steak restaurants found new customers by
reinventing themselves during the crisis, the comeback of the $5
billion U.S. premium steakhouse sector - known for leather
booths, white tablecloths and $60 ribeyes - depends on
expense-account-wielding executives resuming fancy business
events and affluent tourists flocking to Broadway theaters and
other attractions.
    But travel and group events are again at risk as Delta
infections and deaths mount. Several companies pushed back
target dates for employees to return to offices. Some big
in-person events, including the New York auto show, were
canceled. 
    High-end steakhouses are especially vulnerable to the spread
of the virus because their traditions - such as lengthy, indoor,
three-course dinners - may scare off apprehensive customers. At
the same time, the price of beef is soaring, with wholesale 
prices 40% higher on average in July than a year ago, according
to the U.S. Bureau of Labor Statistics. That threatens
steakhouses' profit margins. 
    Several chains say they are better prepared amid the
pandemic this year since adding outdoor dining and home
delivery, should the latest surge or new government restrictions
scare some diners away again. 
    Some also are expanding their bars - higher-margin liquor
sales can help offset pressure from pricier beef. Ruth's Chris
Steak House parent company Ruth's Hospitality Group Inc  RUTH.O 
said in an Aug. 6 earnings call that it "recently" locked in
about 10% of its beef purchases to help fend off higher costs.
    Data from reservation provider OpenTable showed the number
of seated diners at steakhouses more than doubled by midyear 
compared with January, as vaccination rates rose and before the
Delta variant became a huge area of concern. 
    But sales at the "premium" steakhouses peaked in early July
https://www.datawrapper.de/_/Sm1iE before falling slightly in
the first week of August, according to consultant Malcolm Knapp,
who tracks steakhouse data.
    "We won't get the lift we had expected before the magnitude
of the Delta variant came through," said Knapp.
    
    TOO SOON TO TELL 
    At Peter Luger Steak House in Brooklyn, New York on
Thursday, maitre d' of 26 years Tom Hobby, 66, checked guests'
lunch reservations on a clipboard as waiters in long white
aprons sailed past carrying bread baskets, sole with lemon
wedges and sizzling plates of steak to al fresco diners at
sidewalk tables. 
    The iconic steakhouse only added outdoor seating and home
delivery because of COVID, he said. When its bar finally
reopened after the city allowed full capacity seating in
mid-May, "the whole vibe changed," Hobby said. "It wasn't just
about food. It felt like an event."
    At Fleming's, owned by Bloomin' Brands Inc  BLMN.O , takeout
and delivery orders were rare before the pandemic. But when many
of its dining rooms were shut a year ago, carryout soared to 47%
of sales. Now, it's at about 8% as customers return to
restaurants, Chief Executive Officer David Deno said in a July
30 interview.
   Ruth's Chris permanently closed some of its restaurants that
weren't compatible with delivery and takeout - a business that
went from roughly zero pre-pandemic to as much as 7%. Ruth's
Chris Chief Executive Officer Cheryl Henry said the chain has
lured new customers. "We started to see younger, more affluent
guests trying Ruth's for the first time through our takeout and
delivery program," she said in the earnings call.
    Henry said "it's a little soon to tell" if holiday bookings,
which in recent years have kicked into high gear in September,
would be impacted by Delta.  
    Chicago's Gibsons Bar & Steakhouse restaurants - which are
among the nation's highest-grossing independent restaurants -
and other chains like Del Frisco's Double Eagle Steakhouse
started delivering premium steaks and other meats to customers
during the first wave of coronavirus - and continue to do so. 
    The Gibsons boxes, which sell for as much as $268, boosted
revenue at a time when health restrictions limited diners to
delivery and carry-out.
    But the industry now is closely watching trends in private
room bookings - where bills easily run $150 to $250 per person,
boosted by expensive wine and whiskey.
    On a recent afternoon at Fleming's steakhouse in Edgewater,
New Jersey, with airy views of the New York skyline across the
Hudson River, Cynthia and Bill Rosen were exploring the dining
room as a venue for their son's planned October wedding. The
restaurant charges $55 to $125 per person depending on the menu
they select.
    Fleming's saw private dining drop to zero from 17% of sales
pre-pandemic, but it has come back to 7% currently, Deno said. 
    Keith Beitler, chief operating officer at Landry's Inc 
 GNOG.O , whose high-end steakhouse brands include Del Frisco's
Double Eagle and Morton's, was cautiously optimistic as the
Delta variant loomed.   
    "If things don't get any worse, we expect this December to
be pretty much normal," Beitler said.  

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 (Reporting by Hilary Russ in New York and Lisa Baertlein in Los
Angeles; Editing by Andrea Ricci)
 ((Hilary.Russ@thomsonreuters.com; +1 (646) 223-7381; Reuters
Messaging: hilary.russ.thomsonreuters.com@reuters.net))