Big restaurant chains appeared to be poised to further their dominance before the pandemic. The three-month quarantine did nothing to change that.
According to a new report by Bank of America, big restaurant chains have largely recovered their pre-pandemic sales, while smaller chains continue to lag behind.
The report measured year-over-year changes in sales on a seven-day average. During the seven days ended July 1, for instance, spending at big chains was down 4%, while spending at other concepts was down 25%.
To be sure, the gap between large chains and everyone else has narrowed, from the low 30% range in mid-April to 20% more recently.
Yet Bank of America also noted that sales in recent weeks have seemed to stagnate after growing for the past three months, likely a sign that increases in COVID-19 rates in several states in the South and West “have weighed on the industry.”
And the gap between big and small chains have increased recently as well, suggesting that consumers are starting to shift spending again as the pandemic worsens.
The biggest reason for the difference in performance between big and small chains is relatively simple: The largest chains are far more likely to be fast-food or other limited-service concepts that have heavy concentrations of takeout either through online ordering or the drive-thru.
The drive-thru has been one of the biggest factors in determining a restaurant chain’s performance through the pandemic. Concepts like McDonald’s, Burger King, Wendy’s and others have largely recovered from the pandemic as customers flocked to their drive-thrus.
Chipotle Mexican Grill has used its delivery and takeout to generate sales, and coffee giant Starbucks now wants to build more drive-thru locations, shifting away from shopping centers and malls that don’t have drive-thru windows.
Smaller restaurants and independents, however, are more likely to be full-service concepts and they’re less likely to have the healthy rate of takeout that chains such as Olive Garden and Chili’s have used to great effect during the pandemic.
In addition, the smaller concepts are more likely to be fast-casual chains that do not have drive-thrus.
Perhaps the best way to illustrate the difference is to look at a pair of burger chains. The growing fast-casual burger concept Shake Shack’s same-store sales declined 42% in both May and June.
At McDonald’s, same-store sales declined 5.1% in May. The bulk of that decline came during breakfast, which Shake Shack does not have.
Going into the pandemic, large chains had numerous advantages, including their ability to spend heavily on marketing and on technology, more favorable deals with third-party delivery providers, and their focus on takeout.