No corner of the US, and no aspect of the hospitality industry, has been untouched by the global Covid-19 pandemic. Unfortunately, few markets have experienced the scale of economic loss that Las Vegas, Nevada has experienced. Between governmental regulations, travel restrictions, and skittish customer behavior, Las Vegas has been uncharacteristically slow in 2020.
The hospitality industry is Las Vegas’ and Nevada’s biggest employer and economic driver—by far. According to the Nevada Resort Association “Nevada relies more on tourism than Alaska does on oil, Wyoming does on coal mining or New York City does on the financial sectors.” In Las Vegas, the larger the crowd, the bigger the opportunity—and now in the era of Covid-19—the greater the threat.
In Las Vegas, nearly 90% of the major restaurant outlets on The Strip, and many off-Strip outlets are Avero customers. That gives us a unique ability to assess the market there via detailed POS data. The Avero Index shows Las Vegas F&B sales at 63% below normal this November in a year-over-year (YoY) comparison. That is the highest we’ve seen sales in Las Vegas since early March. We did a deep dive into Las Vegas via the Avero Index. To better understand how fluctuating regulations in response to coronavirus infection rates has impacted restaurant sales, see the analysis below.
Las Vegas F&B Sales Take a Nosedive in March
At the end of February heading into March, YoY sales were trending up according to the Avero Index. Food was trending 4% higher YoY, and alcohol was outperforming 2019 by 11%. On March 5th, the first Covid-19 infection was reported in Nevada. Like most other states, Nevada Governor Steve Sisolak ordered statewide stay-at-home orders mid-March. He hoped to reopen in 30 days. Once it was clear that events were being canceled and a travel advisory was issued, large venues like Wynn, MGM, Caesars, and Sands closed in advance of the stay-at-home order.
Things escalated quickly in March.
- March 10th MGM International closed buffets at Las Vegas properties
- March11th WHO declared a pandemic
- March 12th Governor Sisolak declared a state of emergency; NCAA/NHL canceled public games
- March 14th Cirque du Soleil canceled shows
- March 15th Wynn Resorts closed; MGM International suspended operations on Strip resorts and T-Mobile arena
- March 17th Sisolak ordered statewide shutdown of casinos and non-essential businesses for 30 days; Las Vegas Sands closed The Venetian Resort
Casinos and Entertainment Venues Go Dark for 78 Days
With casinos, nightclubs, sports arenas, and entertainment venues shuttered, the iconic Strip was quieter than it had been since President John F. Kennedy’s funeral in 1963. Restaurants were relegated to takeout and delivery orders only.
Unfortunately, successfully switching to a takeout and delivery-based business model isn’t feasible for most restaurants on the Strip. They rely on the hotels, casinos, and entertainment venues to drive traffic to restaurants. In April and May, the Las Vegas Convention and Visitors Authority reported that the number of visitors declined 96.4% from the previous year. Gaming revenue was down 99.4%.
By April, sales show a flat line on the Avero Index that extends throughout May. Though there were some sales happening in April, they were so insignificant as to not make a dent on the line chart. The Avero Index shows just over half a million dollars in sales in April. By contrast, YoY data for April 2019 approached $300M.
For those restaurants that were still doing some level of operations, the average check fell 33% in April. With essentially no customer traffic, and a drastic hit to average check, it was impossible for most outlets to stay open.
On May 9th, restaurants got clearance to serve food indoors at reduced seating capacity and with social distancing. Without access to gambling and entertainment venues, in addition to Las Vegas’ stay-at-home orders and travel restrictions in several states, the city just didn’t have the customer traffic required to support F&B outlets.
The upside of no traffic is that new Covid-19 cases remained well controlled throughout May. That triggered the end of stay-at-home orders on the 15th. The Phase 2 Reopening Plan began at the end of the month. Phase 2 had no meaningful changes for the restaurants that already had clearance to operate at reduced capacity indoors. Bars and other establishments that don’t serve food were permitted to reopen at 50% capacity. Customers had to remain seated. Nightclubs and casinos remained closed.
Weekday Customer Traffic Disappears Without Conventions
The lack of sporting and entertainment events was a major blow to the hospitality industry in Las Vegas. But tourists only represent a portion of Las Vegas’ visitor profile. Las Vegas also hosts millions of business travelers who come to the city for large corporate events like conventions and industry conferences.
According to the Las Vegas Convention and Visitors Authority, 6.6 million people attended conventions in the city last year. Their data shows that Las Vegas has 11.5 million square feet of meeting space. Plus, they have an additional 3.5 million currently under construction. That square footage has remained mostly empty in 2020.
On the Avero Index, we see weekly totals broken down by weekday versus weekend. Before the pandemic hit the US, weekday traffic in Las Vegas was fairly high. It accounted for just under 40% of total weekly restaurant sales in January and March. That portion fell to less than 20% from July through the fall.
Convention prospects seemed to be on the horizon again in late September. Sisolak raised the gathering limit from 50 to 250. He created a special permit process for conventions and stadiums to resume activities at reduced capacity up to 1,000. That hope was short-lived. Those plans were dashed when he announced stay-at-home 2.0 on November 12th. The new orders lowered capacity and gathering limits once again.
F&B Sales Begin to Recover in June
A few days after Phase 2 began, Casinos reopened with restrictions to accommodate social distancing. After 78 days of closure, the return of gaming was a huge boon to the hospitality industry in Las Vegas.
In June, sales recovered about 25%. With bars and casinos open again, we see alcohol sales beginning to recover on the Avero Index as well. Overall volume however remained very low. The high point in June shows sales still lagging 75% below 2019.
Las Vegas Becomes a Red Zone, Hampering F&B Recovery
In July, sales and Covid-19 were both on the rise in Las Vegas. By July 10th the increasing infection rate spurred Governor Sisolak into announcing new regulations for the industry. Restaurants were permitted to stay open but could no longer seat parties larger than six. Bar areas were required to close, and only bars that serve food were permitted to stay open.
On July 16th, the White House Coronavirus Task Force listed Las Vegas as a “red zone” in their report. At the end of the month, Sisolak abandoned the “phased” approach. Instead he extended orders limiting businesses to 50% capacity and gatherings to 50 people.
Mid-to-Late Summer Volume Remains Low But Average Check Grows
F&B sales growth was sharp in June and started to flatten a bit in July. For the first time since February, average check began to grow. July shows a 9% increase in average check compared to 2019. That percentage doubles in August, showing sales 18% higher than August 2019. In September average check was 11% higher than last year.
With casinos open, but other entertainment venues and nightclubs still closed, we can look to operational changes to explain this increase. In the early months of the pandemic, operators were dealing with massive layoffs, dark venues, and an oversized helping of uncertainty. Optimizing operations was simply not the task at hand. By June however, recovery is front and center and optimization becomes central to the plan.
Las Vegas Operators Rise to the Challenge
Many of Avero’s Las Vegas clients rolled out new menus with a different product-mix and price-point in June. Avero’s casino account specialist, Jessica Thompson said, “One common strategy I’ve heard from enterprise clients in Las Vegas is that they’re taking a hit on rooms revenue in order to bolster traffic on the casino floor.” That has helped increase traffic a bit. But the lower price point has resulted in a shift in customer demographics. “Some of our clients have altered menus to appeal to customers who are more likely to bring coolers into their rooms than seek out fine dining experiences on-property,” Thompson said.
Sales growth requires either an uptick in customer traffic or a higher average check. Cheaper lodging may have helped bring some traffic to the city, but not enough to overcome the severe deficit caused by the pandemic rollercoaster. Despite a lack of customer traffic, Las Vegas F&B operators have been very successful in optimizing every check to achieve YoY growth. Especially considering they weren’t able to leverage alcohol sales to boost average check since alcohol service has been more highly regulated during the pandemic than food service.
Alcohol Sales Remain the Biggest F&B Loser
In general, alcohol is one of the most profitable items in restaurant operations. Markup is better and the labor cost is considerably lower than food which requires more preparation and therefore, more labor. Dismal alcohol sales have been a particular challenge in Las Vegas’ recovery.
Bars were open in May and June, closed in July and August, and reopened in mid-September. May had very little F&B activity, including alcohol sales. Alcohol as a percentage of total sales was down 17% in May. It recovered in June. As a percentage of sales, alcohol fell behind 2019 levels by 38% in April. In June it returned to nearly zero.
Zero sounds bad, but in this context it’s good. It means that the ratio of alcohol to food sales returned to pre-pandemic levels. The percentage difference between food and alcohol was nearly zero as well. Meaning alcohol and food sales in dollars were neck-and-neck in June.
Looking at the Avero Index, we see interesting things starting to happen in July. Food and beverage sales continue to trend up. But food starts pulling ahead of beverage. With bars closed again and more customer traffic on The Strip than there was in the spring, we can see a clear pattern emerging. By the end of the month, food outperformed beverage sales by about 4%.
In August, the gap between food and alcohol sales doubled to 8%. Bars reopened 20 days into September and the food to alcohol differential fell to 5%. It’s interesting to note that in August, when the average check soared 18% higher than in 2019, alcohol was significantly underperforming.
Bars reopened on September 18th. In October, the difference between food and beverage sales quickly returned to zero. November shows the food and beverage lines on the chart beginning to diverge again by 2%. That is likely due to further restrictions put in place in November.
The Outlook Heading into 2021
Covid-19 infections continue to rise across the country and Las Vegas is no exception. Sisolak’s latest stay-at-home order restricts capacity in bars, casinos, and restaurants to 25% through January 15th. The gathering limit has been reduced again to 50 and allows tables of no more than 4 people. Capacity limits will further disrupt the convention calendar. The amount of planning that goes into hosting conventions does not allow for the variability of fluctuating Covid-19 restrictions.
In October, the Bureau of Labor Statistics reported Las Vegas unemployment at 13.5%. Among the states, only Hawaii has a worse unemployment rate than Nevada. By comparison, the national average for unemployment in October was 6.9%–essentially half of the rate currently in Las Vegas. If we look at the number in terms of people instead of percentage points, that translates to roughly 185,000 unemployed hospitality workers.
The bright spot on the horizon for Las Vegas and the nation at large is the arrival of vaccines. Staff at University Medical Center received the first vaccines in the state on December 14th. A shipment of 12,675 doses is being distributed to healthcare workers and the most vulnerable population. Additional shipments will arrive over the coming weeks and months.
Vaccines provide a path for the hospitality industry’s recovery in earnest, not just in Las Vegas, but across the globe. Conventions will return. Concerts will be booked. Audiences will return to sporting events. Hotels and casinos will fill up. Las Vegas’ exceptional hospitality operators will get back to work. Their dedication, talent, and ingenuity will blow 2019 sales out of the water. We can’t wait to see it!