One of the surest signs yet that the industry has moved past Covid-related business challenges is the resurgence of late-night sales. Indeed, according to Circana, Crest data emailed to Nation’s Restaurant News, traffic in this daypart increased by 7.5% in Q2 2023 versus Q2 2022.
As such, the daypart has commanded quite the spotlight during second quarter earnings calls thus far, indicating that consumers’ usage of restaurants is back to breakfast, lunch, dinner, and late-night munchies.
Denny’s, for instance, reported that 75% of its restaurants are back to 24-hour operations. During the company’s Q2 call earlier this month, CEO Kelli Valade said, “We are not only proud of the great progress we’ve made, but also the fact that we have cemented our late-night leadership position in the market again.”
“Late night is frankly one of our strongest dayparts when you look at it over the course of the total week,” CFO Robert Verostek added.
One of the ways Denny’s is recovering its late-night business is through its virtual brands – Burger Den and The Melt Shop – which Valade says generate younger customers and bring in more late-night orders. She called these brands a “sweet spot” during the late-night daypart because of kitchen capacity.
Virtual brands have also helped IHOP capture some of the nocturnal crowd. During parent company Dine Brands’ Q2 call Aug. 3, CEO John Peyton said the chain remains bullish on virtual brands, “which allow us to leverage scale and kitchen space to add incremental sales” during both dinner and late-night hours.
Then there are the quick-service brands that mastered the late-night business for years before Covid threw its giant wrench in the mix. To get an idea of how quickly this has changed in less than three years, consider Yum’s Q1 2020 earnings call in April 2020, in which CEO David Gibbs noted that Taco Bell had the most impact from Covid because, in part, the company relies on late night. In Q3, reported in October that same year, Gibbs said the daypart was impacted by one or two points of same-store sales.
Taco Bell’s sales have more than recovered since then, and part of that recovery is due to the return of its late-night business. During Yum’s most recent earnings call Aug. 2, Gibbs said “strong growth” in the daypart helped Taco Bell’s second quarter results.
This recovery correlates in part to the return of late-night activities. Employment at bars is nearly back to pre-pandemic levels, for instance, while this summer’s Barbie and Oppenheimer blockbusters helped expedite a movie theater comeback. Concerts and shows have also returned and the Federal Reserve even cited Taylor Swift’s Eras Tour as a major boost to the economy. Of course, the biggest impetus behind the daypart's recovery is the continued staffing recovery in the industry.
All of this “normalization” not only gives brands license to focus again on their late-night business, but to also compete for those crowds. Jack in the Box is doing just that with the recent launch of a national late-night “Snoop’s Munchie Meal” activation featuring Snoop Dogg.
“It enhanced our belief that Jack can truly own late night,” CEO Darrin Harris said during the company’s Q2 call Aug. 9. “While this collaboration was a key sales and transactions driver, it can also be seen as our first big opportunity since Covid to replant our flag in this all-important daypart.”
Such flags are starting to crowd that territory. Wendy’s, for example, also recently started advertising its late-night offerings for the first time in four years and 90% of its restaurants are now open until at least midnight. The daypart experienced double-digit sales growth last quarter.
“Late night is a big opportunity for us. It is highly incremental, adding business we don’t have today. It’s a strong category that’s been growing consistently for the last couple of years and we’re well positioned to compete with our made-to-order, great food,” CEO Todd Penegor said during its Q2 call Aug. 9. “The piece we really like is it continues to drive sales without adding labor, so it’s really margin accretive to the bottom line.”
Wendy’s will continue to drive awareness to ensure people know restaurants are open during that daypart and Penegor expects to gain market share in the near term, which means this post-Covid late-night battle is about to get even more interesting.
Contact Alicia Kelso at [email protected]