BJ's Prepares for the Cold Reality of a COVID Winter

The brand gained $21 million in Q3 from outdoor patio seating.

October 2020 Ben Coley

BJ’s Restaurants CEO Greg Trojan is pleased with how weekly sales have progressed through the back half of 2020, but he’s prepared for the realities of a COVID winter.

The summer brought average weekly sales of roughly $64,000, and by the end of September, the figure rose to $78,000. In October, average weekly sales are more than $83,000. From a same-store sales perspective, BJ’s is capturing roughly 80 percent of last year’s marks. The restaurant was able to reach that level with 13 percent of dining rooms still closed.

History tells BJ’s that sales trends typically improve from October into December as the calendar approaches the holidays. But the year is far from typical, and with the mixture of rises in COVID cases, ongoing capacity restrictions, reductions in large parties, and upcoming elections, BJ’s doesn’t expect the average weekly sales needle to move much at all through Q1 2021.

That of course is a conservative estimation, but it’s one that needs to be made given the uncertainties in the industry.

“We're not going to go from low to mid-80s to $110,000 until we're in a very different place from a dine-in COVID immunity perspective,” Trojan said during the company’s Q3 earnings call. “… There’s probably a little more upside than downside you could argue, but who knows what the fall and winter is going to bring here. So we're in that band. And so hopefully, it's not too long in the distant future here that a vaccine and therapeutics really start to make a difference.”

In the meantime, the brand is continuing to focus financial resources toward creating more capacity indoors and outdoors.

BJ's has built “significant outside dining spaces” in half of its 208-unit footprint. Many of those spaces are in California, a state which closed indoor dining in July, but allowed counties to reopen dining rooms in September based on COVID severity. The outdoor patios prove crucial in the Golden State as half of BJ’s dining rooms remained closed there. BJ’s has purchased heaters and breathable panels for the patios to extend outdoor dining as long as possible.

The outdoor spaces averaged more than $15,000 per restaurant per week, or $21 million in revenue in Q3. That was achieved against an incremental cost of roughly $700,000.

“It shows you how much people want to go out in some way,” Trojan said. “I mean honestly, there are sometimes, and I've been out in our restaurants during like the heat waves on the West Coast, and I'm like, I want to kiss these people that are out under tents with no air conditioning, and it's 110. It shows you people want to be out in dining.”

To add more room indoors, BJ’s has invested in glass dividers. The chain expects these to be featured in half the restaurants by the end of this week and in roughly 170 locations by mid-November. The partitions add around 12 to 14 tables, or about 10 percent capacity—similar to what the patios add.

“The will and desire to dine out, enjoying food in a social setting is one of life's real joys,” BJ's CEO Greg Trojan said. “We see a future where we at least gain back our previous in-restaurant dining volumes while augmenting these sales with an increased off-premise business, positioning BJ's as an even more powerful force in the casual-dining restaurant industry.”

According to Trojan, if everything went BJ’s way—continuance of outdoor patios, dividers beyond what they have planned for now, and some easing of restrictions—average capacity could rise from the mid-60s to 80 percent.

CFO Greg Levin said the additional room indoors should offset any loss in outdoor dining in the colder months, but he doesn’t expect revenue from patios to nosedive.

“A majority of our makeshift patios are here in California. There are obviously some other warmer weather states like Texas,” Levin said. “So even as we go into the winter time, we're trying to analyze patio usage from historical periods and prior years. There’s not as much of a drop off as you might think. There is a little bit of a drop off. But that $15,000 that I talked about shouldn't go down zero based on what we've seen historically.”

For the quarter, comp sales dropped 30.2 percent and revenue decreased 28.6 percent to $198.9 million. The brand achieved a positive adjusted EBITDA of roughly $6.6 million after posting a negative adjusted EBITDA of $13.7 million in Q2.

Off-premises remains in the range of $23,000 to $25,000 per week, which is nearly two and a half times pre-COVID levels. Digital ordering accounts for 80 percent of those transactions. To boost off-premises even further, BJ’s added individually portioned group meals to its catering program. The offer currently represents more than 20 percent of catering sales.

"We have significantly improved our game in this area by tapping into our technology platforms to enable easier ordering, text-based updates, and arrival notifications, along with in-restaurant improvements to physical layouts and process reengineering,” Trojan said. “With all of our progress in these channels, our goal is to keep pushing on these fronts until we are able to deliver the most convenient takeout experience possible.”

Trojan also mentioned the progress of the brand’s beer subscription service, which began testing in Northern California restaurants in early September. The CEO said he was encouraged by the high amount of engagement of members, which he believes is an early indicator of word-of-mouth awareness, minimization of defections, and ability to drive occasions.

There are no plans yet to roll out the test to new markets.

“We'll be keeping a close eye on it through the remainder of this year and be looking at that early next year in terms of timing,” Trojan said. “But we've been optimistic and think we're really well-positioned given the expertise and history that we have in craft brewing. So it's something that we're excited about.”

Regarding development, Trojan said BJ’s plans to moderately increase restaurant openings in 2021. As of now, at least two units are planned for Q2 2021.

Levin explained that the brand isn’t seeing “A” sites available yet. He said they’re coming, but still six months to 18 months away. The restaurant has also seen a backlog of construction, and Levin noted that labor, lumber, steel, and other costs haven’t come down. Despite the obstacles, BJ’s still expects to meet its long-term goal of 425 units.

“So we're taking a little bit maybe of a prudent approach here, just in regards that we think that there's going to be some great sites coming aboard and coming into our pipeline,” Levin said. “And while our pipeline is pretty full, we're also looking at what's going to be coming that just is probably, as I said, six to 18 months away. We also haven't seen necessarily like changes in the rental rates for what would consider ‘A’ locations. Definitely, ‘B’ and ‘C’ landlords are coming to us with opportunities, lower rents and those type of things. But we’re not going to give up, and making sure we pick ‘AAA' locations.”

Trojan said that while he is happy with BJ’s progress in many areas, he acknowledged that “the road to post-COVID normalcy will not be a straight line.”

But he’s confident that once the restaurant is able to return to full power, the consumers will return in big numbers.

“The will and desire to dine out, enjoying food in a social setting is one of life's real joys,” Trojan said. “We see a future where we at least gain back our previous in-restaurant dining volumes while augmenting these sales with an increased off-premise business, positioning BJ's as an even more powerful force in the casual-dining restaurant industry.”