Every single time I write about Chick-fil-A, someone, inevitably, brings up the fact that it’s closed Sundays, and infers that the chain would make even more if they just made their sandwiches available on that day. It happened again this week, after I wrote about the brand’s ridiculous average unit volumes on its stand-alone locations.
They could make $9.5 million, rather than $8.1 million, if they just opened that extra day.
And thus we have in one situation everything that is wrong with modern investment strategy in the restaurant business, that assets should be exploited to their fullest extent possible, even at the expense of brand equity, labor turnover and operator satisfaction.
It’s not just Chick-fil-A. First Watch, the breakfast-and-lunch chain, often struggles to convince people of the benefits of being open only for breakfast and lunch. Open longer, some say, and the chain would make even more money—never mind that being open through early afternoon helps the chain with recruitment and retention and improves the lifestyles of the employees working in the restaurants.
First Watch’s sales have demonstrated that. Its system sales have grown 34% since 2019. Only eight other chains among the 100 largest have grown more. And every one of those is a fast-food chain with drive-thrus and big delivery businesses.
A typical First Watch, however, makes about $1.8 million in the 7.5 hours a day it is open, according to Technomic, or nearly as much as an IHOP makes being open 24 hours.
To be sure, any restaurant that is not open when it probably could be is an asset not being used to the most productive extent possible.
Companies pay the same amount of rent on that restaurant whether it’s open six days or seven days, 7 hours or 24 hours. They also pay utilities and other costs.
Restaurants are generally not open overnight because there typically isn’t enough demand to warrant it. But Sundays and evenings are otherwise productive days in the business, and therefore the companies are forgoing potential revenues by remaining closed. What’s more, those periods would be theoretically more profitable because the companies could leverage those real estate costs.
The problem, however, is this rule assumes that a brand would be more successful by remaining open longer and that is not always the case.
In Chick-fil-A’s case, not opening Sundays is a crucial part of the company’s business model. It has established for itself a culture of service. By doing little things such as telling customers “My pleasure” and cleaning tables and caring for customers in the drive-thru or inside, the company is providing a level of service unexpected in the fast-food business.
Closing Sundays is part of that equation. Managers and employees know they have a day off. That helps the company keep managers in particular, which is important for the overall operation of a restaurant.
The same strategy works for First Watch. Its managers know they have their evenings off. They can pick their kids up from school and enjoy dinner with the family and not have to handle a dinner rush.
There’s another point in First Watch’s case. The company is open for two dayparts, breakfast and lunch. That’s no different than a typical fast-casual restaurant that is open for lunch and dinner. What’s the difference if it is simply closed in the evenings?
More to the point: Being open more hours doesn’t guarantee these restaurants enough sales for them to make sense. They may simply spread the same number of customers over more days. We learned that after 2015, when McDonald’s offered breakfast all day. It generated some excess sales, to be sure, but at the expense of breakfast traffic. That morning daypart has recovered much more quickly since the company abandoned all-day breakfast. Making things available longer may generate sales later, but often at the expense of existing sales.
Chick-fil-A is already the industry’s best revenue generator on a per-unit basis and it’s open just six days a week. One would think they’d get a break from the “they should open Sundays” business. First Watch, likewise, generates a healthy average unit volume and it doesn’t have to find workers willing to be there evenings or overnights.
In both cases, the brands’ respective decisions to remain closed when they do is part of their DNA and helps with things like labor and operations. It’s best they keep those strategies the way they are.