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McDonald’s, Chipotle, and Domino’s celebrate during the Coronavirus while your neighborhood restaurant fasts



The coronavirus pandemic is splitting the restaurant industry in two. Large, well-capitalized chains such as

Chipotle Mexican Grill Inc.

is

Domino’s Pizza Inc.

they are gaining customers and adding stores as tens of thousands of local restaurants fail.

Larger operators generally have the benefits of more capital, more leverage on lease terms, more physical space, more geographic flexibility, and legacy expertise with drive-through, carryout, and delivery. A similarly uneven recovery is occurring across the business world as large corporations tended to fare much better during the pandemic than small rivals, thinning the ranks of entrepreneurs who could eventually become major U.S. employers. In the retail world, the larger chains like

Walmart Inc.

is

Target Corp.

they are seeing strong sales as many small shops struggle to stay open.

The gap between large and small restaurants emerged in the summer. Chipotle more than tripled its online business sales in the second quarter while Domino̵

7;s,

Papa John’s International Inc.

is

Wingstop Inc.

all reported double-digit sales increases in the same store in the third quarter compared to the same period last year. McDonald’s also said that same-store sales in the US increased 4.6% in the third quarter. This included an increase in the low double digits in September, its best monthly performance in nearly a decade. He credited drive-throughs and faster promotions.

Menu off

People are spending less than during the last recession in restaurants, especially smaller independent ones, putting a strain on the finances of many companies.

Consumer spending in US restaurants, change from the previous year

Food Service Sales in the United States,

change from the previous year

US small business default rate on loans and leases

Accommodations

and restaurant services

US small business default rate on loans and leases

Consumer spending in US restaurants, change from the previous year

Food service sales in the United States, change from the previous year

Accommodations

and restaurant services

Consumer spending in US restaurants, change from the previous year

Sales of restaurant services in the United States, change from the previous year

US small business default rate on loans and leases

Accommo-

shares e

food services

Consumer spending in US restaurants, change from the previous year

Sales of food services in the United States,

change from the previous year

US small business default rate on loans and leases

Accommodations

and restaurant services

Many other large restaurant companies have taken additional steps to take advantage of the move to take-out.

Brinker International Inc.’s

The Chili division has pushed the summer debut of a delivery-only brand, Just Wings, which expects to generate more than $ 150 million in sales in its first year.

“The bright side of this pandemic is that we will come out stronger,” he said

Bernard Acoca

, CEO of

El Pollo Loco Holdings Inc.,

a chain of 475 Tex-Mex restaurants throughout the Southwest. El Pollo opened three restaurants in 2020 and aims to add more in the years to come, he said.

The outlook for many independent restaurants, meanwhile, is dimming. According to the classifieds site Yelp.com, three-quarters of the nearly 22,000 restaurants that closed in the United States between March 1 and September 10 were businesses with fewer than five locations.

The Midtowner is one of several restaurants that Mr. St. John has kept open in Hattiesburg.


Photo:

Daymon Gardner for the Wall Street Journal

Frequent closures have always been an aspect of the restaurant business. Restaurants typically have low margins. According to the National Restaurant Association, about 60,000 restaurants open on average in a year and 50,000 close.

But this upheaval is the most profound in recent decades. The association expects 100,000 restaurants to close this year. The sudden loss of many independent restaurants could permanently alter the landscape of American cities. Some chefs and restaurant operators fear that the recent resurgence of urban centers across the country could turn the tide.

Fewer cooks in the kitchen

Independent restaurants have lost more workers this year than chains as the industry takes a bigger hit since the last recession. Many more restaurants are expected to close forever this time around.

US restaurant employees scheduled, change from previous year

US payroll, change from previous year

Food Service Outlets in the United States,

change from the previous year

Food services

and to drink

places

US restaurant employees scheduled, change from previous year

US payroll, change from previous year

Food Service Outlets in the United States,

change from the previous year

Food services

and to drink

places

US restaurant employees scheduled, change from previous year

US payroll, change from previous year

Food Service Outlets in the United States, change from the previous year

Food services

and to drink

places

US restaurant employees scheduled, change from previous year

US payroll, change from previous year

Food services

and where to drink

Food Service Outlets in the United States,

change from the previous year

Employment in restaurants and bars fell by 2.3 million jobs from a total of more than 12 million before the pandemic, according to the Department of Labor. Indeed, the broader leisure and hospitality sector has seen the total decline in employment since February in a large industry.

The pandemic will wipe out $ 240 billion in sales this year, according to a projection from the National Restaurant Association, a commercial group. Last year, according to data from the Bureau of Economic Analysis, the industry contributed more than the agriculture, aviation and rail transport industries combined.

Becoming bolder

The pandemic has not spared all the big chains.

Many casual restaurant businesses have experienced double-digit sales declines. More than a dozen companies have filed for bankruptcy protection, including Ruby Tuesday Inc. and California Pizza Kitchen.

Shake Shack Inc.

is

Ruth’s Hospitality Group Inc.

returned millions of dollars in federal aid to small businesses affected by the coronavirus pandemic.

Starbucks Corp.

,

Dunkin Brands Inc.

and Pizza Hut said they are planning to close 1,500 stores between them over the next 18 months.

Ready to go

Covid-19 could change the experience of grabbing fast food. Restaurants are planning changes to their locations to make dining safer and more convenient.

Some of the possible changes in fast food

1. Elevated dining room

Raised dining rooms to reduce building footprint.

5. Server

Drivers park and scan a QR code when they arrive. An employee brings their order.

2. Digital menus

Easier to read and update, making ordering faster

6. Fewer meals on site

Fewer people inside

7. Multi-lane drive-through

More aisles speed up orders. A third lane could be used for delivery drivers or for mobile pickup.

3. Walk-up windows

Orders are placed without entering.

4. Mobile ordering

Meals purchased on the mobile app direct customers to a designated parking lot to pick up their order.

9. Solar panels

Generate electricity to reduce costs

Some of the possible changes in fast food

1. Elevated dining room

Raised dining rooms to reduce the footprint of the building.

5. Server

Drivers park and scan a QR code when they arrive. An employee brings their order.

6. Fewer meals on site

Fewer people inside

2. Digital menus

Easier to read and update, making ordering faster

7. Multi-lane drive-through

More aisles speed up orders. A third lane could be used for couriers or for mobile collection.

3. Walk-up windows

Orders are placed without entering.

4. Mobile ordering

Meals purchased on the mobile app direct customers to a designated parking lot to pick up their order.

9. Solar panels

Generate electricity to reduce costs

Some of the possible changes in fast food

1. Elevated dining room

Raised dining rooms to reduce building footprint.

6. Fewer meals on site

Fewer people inside

7. Multi-lane drive-through

More aisles speed up orders. A third lane could be used for couriers or for mobile pickup.

2. Digital menus

Easier to read and update, making ordering faster

3. Walk-up windows

Orders are placed without entering.

4. Mobile ordering

Meals purchased on the mobile app direct customers to a designated parking lot to pick up their order.

9. Solar panels

Generate electricity to reduce costs

5. Server

Drivers park and scan a QR code when they arrive. An employee brings their order.

Some of the possible changes in fast food

1. Elevated dining room

Raised dining rooms to reduce the footprint of the building.

2. Walk-up windows

Orders are placed without entering.

3. Mobile ordering

Meals purchased on the mobile app direct customers to a designated parking lot to pick up their order.

4. Server

Drivers park and scan a QR code when they arrive. An employee brings their order.

5. Multi-lane drive-through

Multiple lanes speed up orders. A third lane could be used for couriers or for mobile collection.

Yet many other chains say now is the time to get more aggressive. The parent of Olive Garden,

Darden restaurants Inc.,

is looking to expand into urban areas, including Manhattan, where rents were previously too expensive to justify growth. Much space is opening up: 87% of New York’s 450 restaurants, bars and clubs said in a recent survey that they couldn’t pay full rent for August, according to the NYC Hospitality Alliance.

Starbucks, while closing some locations, plans to spend $ 1.5 billion during its current fiscal year in part to add 800 stores in its American and Chinese markets, accelerating the move to restaurants that emphasize drive-throughs and pickup counters. Darden plans to spend $ 300 million by the middle of next year, part of which to add 40 new restaurants. Papa John’s HB Restaurant Group LLC affiliate plans to open dozens of stores, and Wingstop said it added 43 restaurants in the quarter ended September.

Share your thoughts

What do you think of chain restaurants making money as independent restaurants close? Join the conversation below.

“There is no better time than now to be bold”

Wyman Roberts

, Brinker’s chief executive said in an interview.

Some customers have already shifted more expenses to restaurant chains in ways they say they expect them to last beyond the pandemic.

Employees prepare meals at a Taco Bell in Plano, Texas.


Photo:

Rahim Fortune for The Wall Street Journal

Joyce Hill, a 52-year-old professor at the University of Akron in Ohio, said she ordered more from Cracker Barrel Old Country Store Inc. and

Bloomin brands Inc.’s

Bonefish Grill and the Italian Grill divisions of Carrabba. She said she intends to stick with the chains because it’s easier and she doesn’t feel safe eating in restaurants.

“With just a few clicks, I can order a full meal, pay for it, and not have to leave the car to pick it up,” said Ms. Hill. She said she recently stopped at a local Mexican restaurant for shrimp tacos after not visiting for months. It was closed.

One restaurateur benefiting from this change is Tabbassum Mumtaz, the operator of 400 KFC, Long John Silver’s, Pizza Hut and Taco Bell restaurants in nine states. Things weren’t going well at first. It closed all of its dining rooms after the pandemic escalated in the spring, and its sales, typically around $ 500 million a year, dropped by an average of 25 percent.

But he said he has moved many of his 10,000 employees to cleaning and drive-through personnel, which he says have become the hub of his business.

“Everyone was on a beat,” said Mr. Mumtaz, owner of Richardson, a Texas-based restaurant operator Ampex Brands LLC.

Mr. Mumtaz said his cash balance improved around April after the parent company

Yum Brands Inc.

he deferred royalty payments by the 5% he owed for several months. Yum introduced larger family business promotions, such as $ 30 buckets of KFC chicken, to boost sales as customer counts remained low.

Some landlords have provided rental breaks and his three banks have agreed to make him pay interest only on the loans, suspending principal payments. Mr. Mumtaz also received a salary protection program loan worth more than $ 5 million in April to help keep 500 jobs, according to federal data. He said he used the money to avoid layoffs.

At the same time, Mr. Mumtaz said, it began attracting new customers, including those who were used to frequent nearby independent restaurants and bars that were still closed. Mr. Mumtaz said his sales at the same Pizza Hut store were up 18% from last year by the summer and that KFC, Taco Bell and Long John Silver’s business also rebounded. It has since repaid some of its deferred royalties.

Mr. Mumtaz said he felt optimistic: “I’m taking every step carefully.”

No lever to pull

The turmoil between independent restaurants is reducing to a number of suppliers, including many seafood companies and small farmers who primarily serve diners rather than supermarket customers. According to the left-wing economic policy institute, every 100 restaurant jobs sustain another 50 at suppliers such as wholesalers and farmers.

Kate McClendon, co-owner of McClendon’s Select organic farms in Arizona, said 95% of her restaurant orders vanished when the state shut down the food service in March. The family-owned farm has put together a canned produce program to stay afloat, but many of the special vegetables they grow for the chefs have not translated into demand from home cooks. He said the farm has recovered fewer than 60 of its 90 restaurant regulars, and orders are placed roughly half the time.

“Independent farms rely on independent restaurants. Big chains don’t buy from local farms, ”Ms. McClendon said.

Many independent restaurants are suffering in part because they tend to have smaller physical footprints, especially in larger cities at higher costs. Camilla Marcus closed the West-bourne café in Manhattan’s SoHo neighborhood in September after her landlord refused to offer a break for her rental. West-bourne didn’t have a patio, and Ms. Marcus said returning indoor dining with a 25% capacity wouldn’t work at communal tables in her 1,000-square-foot dining room.

“With just one location, there are no levers to pull,” said Ms. Marcus, co-founder of the Independent Restaurant Coalition, which is lobbying Congress to pass a Democrat-backed stimulus package in the House that would award $ 120 billions for the sector.

Nick Kokonas, co-owner of the Alinea group of four Chicago-based upscale restaurants, has relied on a rotating menu to keep his businesses afloat. Two of his restaurants made money last month, one broke even and one lost $ 100,000, he said. He is considering closing some for the winter to save money.

“We will be open until December. Then we don’t know,” said Mr. Kokonas.

Robert St. John, owner of restaurants and bars in Hattiesburg, Miss., Closed his restaurants in March when the state shut down the food service and filed a mass unemployment claim for its 300 employees.

Banks restructured some of his loans, Mr. St. John said, and he received a PPP loan of about $ 600,000. But with sales down about 70 percent in the six restaurants, he said, he couldn’t justify the return of many employees. An attempt to socially dine at his Italian restaurant ended due to insufficient demand.

“There was no real excitement or fever for our reopening,” said Mr. St. John.

By the summer, Mr. St. John decided to close his flagship Purple Parrot Café, a destination restaurant for the area that boasted $ 4,000 bottles of wine, after 32 years. He said he knows the couples who celebrated prom with the Purple Parrot and have now been together for decades.

The Purple Parrot Café, one of Mr. St. John’s independently owned restaurants, has closed after 32 years in operation. It had a loyal following as a destination restaurant, offering $ 4,000 bottles of wine.


Photo:

Daymon Gardner for the Wall Street Journal

It has since closed a cocktail bar and a luxury donut shop as well, as business at the University of Southern Mississippi in Hattiesburg dried up as the school switched to virtual learning. Mr. St. John, who described himself as an optimist, takes out a $ 500,000 small business loan to build a new restaurant with a large patio where he can serve people outdoors.

“It’s scary, I’ll tell you,” he said. “I would refuse to think I should have shut down more.”

Write to Heather Haddon at heather.haddon@wsj.com

The future of eating outside (and inside)

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