High-End Steakhouses’ Recovery at Risk

Delta Variant Could Curb Spending on Steaks

The Delta variant of COVID-19 and rising beef prices are causing difficulties for steakhouse operators including Ruth’s Hospitality (RUTH), Bloomin’ Brands (BLMN), and Landry’s. Upmarket steakhouses rely heavily on corporate customers and affluent travelers to thrive. With companies delaying their reopenings and consumers worried about catching the transmissible variant of COVID-19, traffic at steakhouses could drop. These restaurants are far more dependent on in-person dining than fast-food restaurants and fast-casual restaurants.

As steakhouses deal with the prospect of falling demand, they are also facing surging beef prices. In July, wholesale prices for beef jumped 40% year-over-year.

Steakhouse Operators Better Equipped for Outbreaks

Despite the rising coronavirus cases and rising prices for beef, steakhouse operators feel that, compared to last year, they are more equipped to handle pandemic shutdowns if they were to happen in the future. Many establishments already have outdoor dining options, as well as home delivery, which could offset declines if new shutdowns take place. Fleming’s, a high-end steakhouse owned by Bloomin’ Brands, saw takeout account for 47% of its sales during the height of the pandemic. Now that is down to about 8%, but the company would be able to ramp up its takeout offerings again.

Focusing on takeout and outdoor seating may soon become more important for steakhouses. While the number of reservations at steakhouses surged in the first six months of the year as vaccinations rolled out, sales peaked in early July. They have now fallen, albeit slightly, in early August.

Ruth’s Hopsitality’s Strategy

To counter any COVID-19 declines in sales, Ruth’s Hospitality, which owns Ruth’s Chris Steak House, is counting on its takeout business, which was almost nonexistent before the pandemic and now accounts for about 7% of its sales. The steakhouse operator closed restaurants which could not support takeout and is now working on attracting a younger, more affluent demographic. As for rising beef prices, Ruth’s Hospitality locked in prices for about 10% of its purchases. However, rising costs could still weigh on its balance sheet.

The Delta variant of COVID-19 is permeating all areas of the US economy as consumers worry about the impact it will have on their health and bank accounts. This time around, steakhouse operators have learned a thing or two, which should help the industry weather future outbreaks and potential shutdowns.

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