Restaurants Feel Impact of Hurricane Sandy

Operators from Massachusetts to Virginia were affected
Staff Writer

East Coast restaurants are dealing with the impact of Hurricane Sandy, the 1,000-mile-wide pre-Halloween storm that pushed into the densely populated Northeast on Monday with gale-force winds, sea surges, flooding from torrential rains and ensuing power outages.

Operators from Massachusetts to Virginia braced for the worst, with many closing or limiting hours as the so-called “Frankenstorm” spun leftward out of the Atlantic and onto land.

The hurricane was expected “to have a considerable impact on restaurant sales and earnings during calendar fourth quarter,” said Bob Derrington, managing director of Northcoast Research, in an analyst’s note Monday.

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“The hurricane has definitely slowed our grand opening,” said Anthony Simmons, manager of a new 9,500-square-foot, 279-seat Gordon Biersch Brewery Restaurant that opened Monday on the waterfront in Baltimore.

Speaking at lunchtime, Simmons said the new restaurant, which is located less than 30 feet from the piers, was serving mostly emergency workers and crews that were sandbagging in the area.

“It’s raining like crazy and getting colder,” Simmons said, adding that the restaurant planned to close before its planned grand-opening-day dinner daypart as potential guests stayed at home due to the storm.

Hurricane Sandy was expected to deal a blow to October sales figures for restaurant chains with significant numbers of units in the region, though the immediate impact is more on casual-dining than fast-food brands, experts said.

Stephen Anderson, senior restaurant analyst with Miller Tabak + Co. LLC, said in a note before the storm that “in terms of the Knapp-Track benchmark index, we think Sandy itself may turn a fractionally positive comp in October into a fractionally negative one but push November comps to the 1-percent level or better.”

Most affected would be Miller Tabak-covered brands like Dunkin Brands, Cheesecake Factory, Chipotle, Darden Restaurants and Panera Bread, Anderson said, adding, “We anticipate the intermediate-term effects of lost sales will be made up at least partially by the following weekend.”

Derrington of Northcoast Research said a hurricane’s “greatest impact” to profit and loss statements typically comes first from loss in same-store sales and then in higher costs, such as food spoilage, repairs and labor. The same-store sales impact is usually difficult to measure in such as situation due to the typical spike in sales for stores able to re-open once power is restored.

“In the case of most bigger hurricanes in Florida, stores away from the storm's path and along evacuation routes get a boost to same-store sales offset by a negative impact to stores within proximity to the storm's actual path,” Derrington explained. “However, following the storms initial impact and as recovery repairs begin, restaurant sales tend to rise given the influx of repair personnel and consumers unable/unwilling to cook during the recovery periods.”

Derrington added that casual-dining chains are typically hurt from hurricanes more than quick-service chains due to the considerable number of employees needed to operate them, who often don't show up for work — especially if public transportation is limited. New York City, for example, shut down the subways and bus service on Sunday, the night before Hurricane Sandy hit.

Quick-service restaurants can stay open with fewer employees, he added, and they benefit from hurried consumers with their drive-thru service.

Derrington said the impact of Hurricane Sandy will be seen mostly in fourth-quarter earnings reports, so the full effect won’t be known until companies report in January and February.

Among restaurant companies covered by Northcoast Research, Derrington said those with significant presence in the Northeast and Mid-Atlantic included Ruby Tuesday with about 44.3 percent of its restaurants in the region, Brinker International with about 32.6 percent, Panera Bread with about 32.6 percent and Cheesecake Factor with 28.2 percent.

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