Big Chains Thriving, 75k Local Restaurants to Close by the End of 2020
The coronavirus has wreaked havoc on the restaurant industry, with lockdowns and subsequent restrictions closing many businesses for good.
But a new analysis by the Wall Street Journal shows that the restaurant industry has been a kind of tale of two cities. Well capitalized, national chains are thriving, while the brunt has been felt primarily by tens of thousands of local, independent eateries.
McDonald’s USA has reported its best September in a decade, while Chipotle and Domino’s Pizza are both adding customers with thriving online and delivery businesses. Papa John’s Pizza and Wingstop are two other success examples, both reporting higher sales compared to the same period last year,
Larger operators generally have the advantage of more capital to weather periods of slow sales, can better negotiate favorable lease terms, have more physical space, and prior expertise with drive-throughs, carryout, and delivery, according to the Wall Street Journal.
So what about smaller, local operators? Three-quarters of all restaurants closed between March and September were businesses with fewer than five locations, according to Yelp.
The National Association of Restaurants predicts 100,000 businesses will close this year, double compared to last year. If the trend highlighted by Yelp continues, this means 75,000 local restaurants will go bust this year compared to just 25,000 franchised eateries.
The pandemic hasn’t spared all big chains. Starbucks, Dunkin Donuts, and Pizza Hut said they are planning to close 1,500 stores between them in the next 18 months. But many of these chains also plan to open new locations, and they have the capital to do that.
So how does this look in terms of job losses: the food service industry, which includes drinking establishments, has so far lost 6M jobs during the pandemic according to the Department of Labor. While many have returned to work since, the industry was still 2.3M jobs short at the end of September compared to February of this year.
Secret to Success: Drive-throughs and Takeout Among Others
So what are big chains doing to stay afloat and thrive? Adapting their business model to take out and drive-throughs appears to be part of the answer. While many patrons will continue to avoid dining in due to health-concerns, they will flock to drive-troughs, which offer a fast and safe way of ordering food.
On the other hand, many local and independently-run restaurants are suffering partly because they tend to have smaller dining areas, especially in expensive cities such as San Francisco, Washington D.C., and New York. For many of these restaurants opening up at half-capacity or even worse, at 25% of capacity, is just not feasible.
While takeout and drive-throughs are important, availability of capital to weather periods of slow sales and ability to negotiate better lease terms are also key advantages of chains over small independent restaurants.
Collateral Damage: Independent Restaurant Suppliers
Every 100 restaurant jobs support 50 more at suppliers such as wholesalers and farmers, according to the Economic Policy Institute. “Independent farms rely on independent restaurants. Big chains don’t buy from local farms,” Kate McClendon, co-owner of McClendon’s Select organic farms in Arizona, told the Wall Street Journal.
Only 6 of the 9 local restaurants the McClendon farm was doing business with have re-opened, and among those, orders are half what they were pre-pandemic.
How is your business doing? Let us know in the comments below.
