KANSAS CITY — The outlook for the restaurant industry is dire. An inability to operate in the current market environment due to the coronavirus (COVID-19) outbreak is challenging for even the most stable foodservice operators. In the long term, the situation will be exacerbated by additional COVID-19 outbreaks that are expected to occur this fall or next spring and an economic downturn of unknown depth.
Data from The NPD Group, Chicago, starkly demonstrate the near-term impact. For the week ended March 29, total restaurant transactions were down 42%, with full-service restaurant transactions down 79%. McDonald’s Corp., the largest fast-food restaurant chain in the world, saw its March 2020 sales fall 22% compared to the first two months of the year.
With about 97% of the restaurants in the United States subject to some level of restriction, the National Restaurant Association forecasts the industry will lose approximately $225 billion in sales and shed 5 million to 7 million jobs. The figures assume the effects of the outbreak pass in a few months and the US economy resumes normal function afterward.
Unfortunately, the outlook currently is for COVID-19 to continually resurface until a vaccine is developed, and public health agencies will have to act to minimize its spread. Anthony Fauci, MD, head of the National Institute of Allergy and Infectious Diseases within the National Institutes of Health, and other public health authorities have said getting beyond the current outbreak is not the end. The threat of resurgence will need to be something communities must prepare for. Such preparations may include social distancing and restrictions on how restaurants and other businesses may operate.
This prospect is devastating for restaurant operators. Few businesses can recover and thrive under such a looming threat. While operators may qualify for the federal government stimulus funds, the bigger challenge facing the industry is in the long term. What lenders or investors would invest in a business sector that may be plagued by shutdowns every few months?
Many food and beverage manufacturers that supply the restaurant industry will be equally pressured. The ripple effect through the foodservice supply chain will be severe.
The NPD Group’s overall industry transactions versus full-service restaurant results do demonstrate how some restaurant business models are better suited for the current environment than others. Those with effective drive-thru, carryout and delivery operations are weathering the storm better than others. Some chains also are adapting by offering grocery products. Both Panera Bread and Subway are selling staples like bread, milk and meat alongside their traditional prepared meals.
Operators will need to follow Panera Bread and Subway in developing solutions that create new revenue streams. Those chains with the most accessible real estate and established drive-thru, takeout and delivery operations will have the greatest opportunity. Those restaurants linked to malls, business and entertainment districts face a far more uncertain future.
Major restaurant chains represent 70% of total industry traffic, according to the NPD Group. Small chains and independents account for most of the rest. It is the smallest chains and independents that are most imperiled as the nation and the world continue to deal with the devastating ramifications of the COVID-19 pandemic.