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OPINIONFinancing

Restaurants appeared to be enjoying a strong start to 2020

The coronavirus interrupted great quarters for several chains, making a year of growth into one of financial rescue, says RB’s The Bottom Line.
Photograph by Jonathan Maze

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Several restaurant chains have prereleased same-store sales figures to explain their financial plight to investors.

They revealed a remarkably similar pattern: In almost every case, the sales drop that happened in March wiped out stronger-than-expected same-store sales from earlier in the quarter.

For instance, same-store sales at McDonald’s locations in the U.S. were up 8.1% in January and February. They declined 13.4% in March. Considering that the problem hit it in the second half of March, that’s probably a 27% decline, and a 35-point slowdown from the early-quarter numbers.

That wiped out what would have been its best quarter since 2012.

It’s even worse for Starbucks, which has taken more aggressive steps by closing half of its restaurants.

Its same-store sales were up 8% through March 11, including 4% transaction growth, in what was on pace to be its best quarter in four years. Same-store sales were down as much as 70% in the back half of the month.

Similar reports have come from other chains, including Wendy’s and Olive Garden owner Darden Restaurants.

That follows general patterns. Weather was fantastic in January and February, providing fuel for strong sales in the early part of the year. Same-store sales rose 2.2% in January, according to Black Box Intelligence, though they slowed to 0.3% in February and then fell 28% in March.  

We can also see a pattern among the different kinds of companies that have reported sales or shared them with Restaurant Business.

For instance, chains that are devoted almost entirely to delivery and takeout, such as pizza chains and Wingstop, saw a 3% slowdown almost across the board between January and March. At fast-food chains with drive-thrus, that slowdown was about 35%.

Casual-dining chains with strong takeout strategies declined 65%. Upscale-casual chains that are still in operation have lost approximately 75% to 90%.

The good news is that the industry has likely hit bottom, as Black Box mentioned this week, and could see some slight recovery as consumers readjust in April and some of the restrictions are slowly lifted in May.

Yet the killer for many chains is that the coronavirus completely altered the trajectory of 2020.

Many executives were undoubtedly thrilled by their numbers, preparing to tell investors about how well their teams had executed their sales strategies. Now they’re all in rescue mode, hoarding cash and hoping that they don’t burn through all of it before the industry has recovered. It was like the entire industry was hit with a giant hurricane, all at once.

It’s basically a massive reset.

The problem now is that they will have to scrap much of their plans and shift their thinking.

That’s because a ton of consumers are now out of work. Consumer confidence has plummeted just like those sales did. And restaurants need a healthy, confident consumer to generate sales.

While the shutdown is expected to ease this summer, consumers aren’t necessarily going to rush back. Starbucks, for instance, has seen its sales build since mid-February in China, where same-store sales fell as much as 90%. But they were still down 40%.

In the U.S., some consumers can be expected to return to restaurants, especially at first. But much of the population will still be fearful, reopening of the country likely won’t take place all at once, and the entire economy will be badly weakened.

Remember: 17 million people have lost their jobs over the past three weeks. And more layoffs have taken place this week in many of the industries that serve restaurants and other businesses affected by the shutdown.

Not all of those people will return to work immediately, suggesting a potentially prolonged economic slump that could last for at least several months after reopening.

As such, all of those strategies that were in place in the early part of the year were generally geared toward a consumer base that was employed. While takeout strategies are surely helping, especially for casual diners such as Olive Garden and Chili’s, many of the other ideas will have to be retooled for an industry in recession.

But at least things were working for a while.

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