NEW YORK/LOS ANGELES (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.
Many top steak restaurants found new customers by reinventing themselves during the crisis, but the comeback of the US$5 billion 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 theatres and other attractions.
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 cancelled.
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 percent 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.
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. said in an Aug. 6 earnings call that it recently locked in about 10 percent 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 concern.
But sales at the “premium” steakhouses peaked in early July 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.
At Peter Luger Steak House in Brooklyn, New York on Aug. 12, 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 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., 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 percent of sales.
Now, it’s at about eight percent as customers return to restaurants, said chief executive officer David Deno in a July 30 interview. Ruth’s Chris permanently closed some of its restaurants that weren’t compatible with delivery and takeout. Its CEO, Cheryl Henry, said the chain has lured new customers.