No sizzle, no steak

Delta variant, beef prices threaten to take the sizzle out of steak houses seen as key recovery indicator

A waiter walks among diners at Peter Luger Steak House in Brooklyn, New York August 12, 2021.

Reuters – Just as steak houses 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 economic recovery.

While many top steak restaurants found new customers by reinventing themselves during the crisis, the comeback of the US$5-billion U.S. premium steak house sector — known for leather booths, white tablecloths and US$60 rib-eyes — depends on expense account-wielding executives resuming fancy business events and affluent tourists flocking to Broadway theatres 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 cancelled.

High-end steak houses 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 per cent higher on average in July than a year ago, according to the U.S. Bureau of Labor Statistics. That threatens steak houses’ 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. said in an Aug. 6 earnings call that it “recently” locked in about 10 per cent of its beef purchases to help fend off higher costs.

Data from reservation provider OpenTable showed the number of seated diners at steak houses more than doubled by mid-year compared with January, as vaccination rates rose and before the Delta variant became a huge area of concern.

But sales at the “premium” steak houses peaked in early July before falling slightly in the first week of August, according to consultant Malcolm Knapp, who tracks steak house 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 breadbaskets, sole with lemon wedges and sizzling plates of steak to al fresco diners at sidewalk tables.

The iconic steak house 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., takeout and delivery orders were rare before the pandemic. But when many of its dining rooms were shut a year ago, carry-out soared to 47 per cent of sales. Now, it’s at about eight per cent 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 seven per cent. 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 US$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 US$150 to US$250 per person, boosted by expensive wine and whiskey.

On a recent afternoon at Fleming’s steak house 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 US$55 to US$125 per person depending on the menu they select.

Fleming’s saw private dining drop to zero from 17 per cent of sales pre-pandemic, but it has come back to seven per cent currently, Deno said.

Keith Beitler, chief operating officer at Landry’s Inc., whose high-end steak house 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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