The very largest chains performed far better than anyone else during the pandemic-riddled year of 2020 when steep declines were the norm.
As we wrote back in April when we first covered our Technomic Top 500 Chain Restaurant Report, the 10 largest chains’ sales rose 0.1%, while sales for all companies on the ranking declined 8%.
That’s not surprising. Big chains have had what it takes to survive the pandemic. Drive-thrus? Check. Well-known brand names? Yep. Loyalty programs and mobile ordering? Definitely. The financial wherewithal to push out more advertising and new menu items? Clearly.
But nothing has apparently changed this year, either, and if anything big chains’ advantages have only grown more intense.
In this week’s episode of our podcast, “A Deeper Dive,” Kevin Schimpf, senior research manager for Restaurant Business sister company Technomic, noted that the biggest chains are leading the recovery.
Technomic’s forecast for the Top 500, Schimpf said, was up 14.5%. After a decline of 8% a year ago, that is an impressive recovery. But, he said, “It’s all coming from those top 100 chains and in a lot of cases the top 10 chains.”
And then he noted the performance of McDonald’s, whose same-store sales rose 15% over 2019 levels in the first quarter. Chipotle is thriving. So are chains like KFC. And Starbucks’ recovery is improving. Median two-year same-store sales for publicly traded companies was 7.6% last quarter.
“The industry is really top-heavy,” Schimpf said. “And these top-heavy players, they’re seeing a lot of growth.”
Total restaurant sales are now up about 8% over pre-pandemic levels. But that doesn’t tell the full story. The industry itself has shifted dramatically. Today there are fewer locations, and about 1 million fewer workers, than there were before the pandemic. So those additional sales are coming from a smaller overall supply.
Chains have been more likely to expand during the pandemic and now make up a much larger portion of the overall industry. And within those chains is a lot more takeout. Companies like McDonald’s, for instance, have seen their drive-thru sales soar from 70% pre-pandemic to 90% now.
Consumers have yet to fully normalize their dining behavior for various reasons—they’re still working from home; they’re not going on business trips and many remain leery of eating inside of restaurants. All of that has been to the benefit of these big chains. Chains like Domino’s, Papa John’s and Wingstop continue to generate sales growth even though they were among the only chains generating positive sales a year ago.
Chains are also notably able to withstand hiring challenges because they can better afford higher wages and better benefits.
The broader question is how long this can last. Chains can be expected to maintain their advantage in the coming years because they have the resources to build those additional units and they are currently pressing their advantage on digital orders and marketing. The four biggest burger chains, for instance, are all spending big on loyalty programs to keep customers coming back. Most independent restaurants get loyalty from food and service and that’s about it.
Yet customers prefer independents. And once the pandemic does truly end—and it will, hopefully—then they can be expected to shift their business back to the independents they prefer. What that looks like, however, is anybody’s guess. And in the meantime, the recovery belongs to the big chains.