• by Steve Ellwanger , March 30, 2020

When the economy is healthy, full-service restaurants like Cracker Barrel Old Country Store and Olive Garden typically enjoy strong traffic. But all that can change dramatically in less than one month—as evidenced by what's been happening since the pandemic hit.

The damage is particularly pronounced for dining/entertainment venues like Dave & Buster’s and Punch Bowl Social, whose business model depends on people gathering in groups and socializing for hours on end.

So while Burger King and McDonald’s continue to spend on advertising for their takeout offerings, Cheesecake Factory says it can’t pay its landlords on April 1 for some 300 locations. 

Darden Restaurants—which owns Olive Garden, LongHorn and others—has tapped a $750 million credit line while it waits to see how long individual locations can survive on to-go business.

Meanwhile, Cracker Barrel has ceased investing in Punch Bowl Social—in which it had a stake worth roughly $79.5 million on Jan. 20—and Dave & Buster’s has adopted a poison-pill strategy in what is seen as an effort to ward off a potential hostile takeover.

Business had been fairly stable at Cracker Barrel’s 664 signature outlets and its 28 Maple Street Biscuit locations, the company explained in a Feb. 25 earnings call. Revenue had risen 4.2% in the quarter ended Jan. 31 on higher average-check amounts, offsetting a slight decline in traffic.

On the earnings call, there were only two mentions of the virus. Both dealt with a possible disruption in the supply of nonfood merchandise like holiday ornaments that Cracker Barrel buys from suppliers in China.

One month later, Cracker Barrel told the Securities & Exchange Commission that it would focus its finances solely on Cracker Barrel and Maple Street Biscuit—virtually all of whose locations had suspended dine-in service. The company has ceased investing in Punch Bowl Social, whose 19 locations have been shut down.

Similarly, results at Darden had been stable in the third quarter ended Feb. 23—with total sales growth of 4.5% and a rise in same-restaurant sales of 2.3%. But things had gone downhill fast by the time the company provided an update on March 19, when mandatory and voluntary restaurant shutdowns had begun to sweep the country. 

By March 18, same-restaurant sales were “down roughly 60%,” CEO Gene Lee told investors. At that point, 60% of Darden’s restaurants—which employ a total of 190,000 people—were only filling to-go orders with staffers, as the company had chosen not to partner with a third-party delivery service.

“As far as third party goes, I would say that everything is on the table,” said Lee.

Asked about the viability of to-go business, Darden CFO Rick Cardenas said it will depend on each individual location. "If our variable margins are negative, we probably end up closing that restaurant.”

The Cheesecake Factory has told landlords of its nearly 300 locations that it won’t be able to pay rent as of April 1, as first reported by Eater and confirmed by CNN Business. Many Cheesecake Factory restaurants are located in malls, which have been impacted by social-distancing strictures.

In a letter addressed to the company's landlords, CEO David Overton wrote that significant decreases in restaurant traffic have "severely decreased our cash flow and inflicted a tremendous financial blow to our business," Eater reported.

On March 19, Dave & Buster’s Entertainment—which operates 136 “eat, drink, play and watch” venues in 39 states, Canada and Puerto Rico—adopted a shareholder rights plan. Also dubbed a “poison pill,” it was seen as a response to KKR & Co. having increased its holding of Dave & Buster’s stock to just over 8%.

On March 20, the company announced it had temporarily closed all of its locations.

“We will reopen as soon as health agencies say it is safe for restaurant and entertainment venues to resume operations,” CEO Brian Jenkins said in a letter posted on the Dave & Buster’s website.