Delta And Soaring Beef Prices Fry US Steakhouses

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by Tyler Durden
Thursday, Aug 19, 2021 - 01:10 AM

Steakhouses are an iconic part of the American dining out culture, but the resurgence of the virus pandemic and soaring beef prices could diminish the appetite of steakhouse chains. 

The $5 billion US premium steakhouse sector serves up $60 ribeyes and is usually frequented by business account-wielding executives, corporate events, and tourists in popular metro areas. 

But as the Delta infections and deaths increase, businesses are delaying employees returning to the office, and travelers are canceling trips - threatening in-person dining at high-end steakhouses. 

Reuters says, "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." 

Besides the emergence of the virus pandemic scaring patrons from eating indoors, high-end steakhouses are also battling surging beef prices, with wholesale prices rising more than 40% in July than a year ago. It's not just steak. All other sorts of wholesale prices for food essential for steakhouses have increased in the last year. Higher wholesale costs are particularly damaging to steakhouses because it erodes profit margins. 

Restaurant chains like Ruth's Chris Steak House are locking in beef prices because there's a risk food inflation may worsen into 2022. 

San Francisco-based reservation service OpenTable Inc. showed seated diners at steakhouses had doubled by midyear compared with January, mainly because infection cases waned as people felt more comfortable dining indoors with at least half the country vaccinated. Now there are risks seated diners at steakhouses could slump ahead of October, which is the starting point of the flu season in the US, when immune systems are usually weakened. 

Malcolm Knapp, a research firm that tracks steakhouse data, said sales at high-end steakhouses peaked in early July and have fallen in the first week of August. If the trend continues, there's a risk that sales could flatline or go negative in the coming months. 

"We won't get the lift we had expected before the magnitude of the Delta variant came through," said Knapp.

New York City Open Table for the number of seated diners has slumped in the past 30 days.  

Fleming's Prime Steakhouse & Wine Bar has had to adapt to more carryout orders than ever before because people are still afraid to eat an entire three-course meal indoors. During the 2020 pandemic, carryout soared to 47% of sales. The figure is now around 8%. 

Another famous steakhouse is Ruth's Chris Steak House who closed some of its restaurants during the virus pandemic because they couldn't instantly conform to a delivery and takeout model. 

Ruth's Chris has trimmed the fat and shrunk its corporate footprint, and added takeout this summer. Chief Executive Officer Cheryl Henry said the move had attracted new customers: "We started to see younger, more affluent guests trying Ruth's for the first time through our takeout and delivery program."

The emergence of the virus has companies scrambling to delay office reopenings and canceled travel plans. If the virus worsens ahead of the flu season, steakhouses across the US could be widely impacted. To survive, they will need to have a robust delivery and takeout model. 

And making matters worse, soaring food inflation is crushing steakhouses' margins which will ultimately be passed along to patrons.