Financing

In a tough 2020, one story dominated the restaurant industry

The coronavirus pandemic, restaurant shutdowns and their impact dominated headlines this year and will change the industry for good.
Illustration: Restaurant Business staff

On March 14, following a phone call from his frustrated police chief, Hoboken, N.J. Mayor Ravi Bhalla limited restaurants and bars in his city to takeout and delivery.

In the process, Bhalla lit a match that started a fire that would engulf much of the restaurant industry. Within a few days, just about every state in the nation would take a similar step in the name of fending off a rapidly spreading coronavirus pandemic that has gone on to kill more than 300,000 Americans.

As we look back on 2020 and pick its top stories, there really isn’t a question of which story was biggest.

In the restaurant industry, the coronavirus and state and federal efforts to limit its spread was the story, a historic moment unlike anyone has seen, one that seems certain to influence the business like nothing else that had come before.

From that moment on, everything operators would do during the course of 2020 would be done under the influence of a pandemic. And everything beforehand just seems so long ago, as if it was in another era altogether. Because, frankly, it was.

The pandemic and the shutdowns of dine-in service reset the restaurant industry. It would force operators to adapt to a takeout-only climate on the fly, with makeshift drive-thrus and curbside service using folding tables and handmade signs. Plexiglass would become as common as the POS, hand sanitizer as valuable as saffron and much harder to get.

Consider the impact of those two weeks in March. By the end of that month some 6 million restaurant workers would lose their jobs, according to federal data. The industry employment in April, 6.3 million, was at the lowest point dating back to at least 1990. Those few days, in other words, wiped out more than three decades’ worth of job creation.

Between February and April, industry would lose more than half of its sales, plunging by $35 billion.

Even now, following a summer of recovery, the industry remains $10 billion in monthly sales short of where it was in February. The National Restaurant Association estimates that the pandemic will cost the industry $240 billion.

That kind of sales plunge has decimated the industry. Dozens of restaurant chains have declared bankruptcy, including major chains like Ruby Tuesday, California Pizza Kitchen and Chuck E. Cheese.

As many as 10% of all restaurant locations will shutter permanently because of the pandemic, including everything from mom-and-pop diners to landmark restaurants such as the 157-year-old Cliff House in San Francisco, a restaurant started during the Civil War and which survived the Great Depression.

Closures also included some entire restaurant chains. Souplantation and Sweet Tomatoes, a health-focused buffet concept, opted to declare Chapter 7 after deciding it could not survive without the return of dine-in service. It was a rare complete shutdown of an entire restaurant chain.

At the same time, customers ordered delivery by the bunch, sending sales at Papa John’s and Domino’s skyrocketing while fueling such strong growth at third-party delivery company DoorDash that it would become one of the year’s hottest IPOs earlier this month. Customers flocked to Mexican chains on Cinco de Mayo and waited in long lines for takeout on Mother’s Day. Casual-dining chains found their takeout footing, which many managing to survive during the quarantine’s long months with to-go options created on the fly.

Restaurant chains quickly deployed online ordering and inked deals with multiple delivery providers. They also started redesigning restaurants, testing new technologies and seatless restaurants to adapt to a new reality.

The drive-thru has become the hottest area for innovation, as all sorts of chains added drive-thrus or new drive-thru lanes and found new technologies such as artificial intelligence to improve service. Customers, eager for restaurant food and a break from the quarantine monotony, have waited for long periods of time in drive-thru lanes—resulting in at least one lawsuit over such lines at an Ohio Chick-fil-A.

Many restaurants found new methods for outdoor dining. They also found new efficiencies, cutting menu items to improve speed. Fast-food chains kept their dining rooms closed altogether, opting for the ease of operations that comes with serving customers through a single window.

It remains to be seen what the restaurant industry will look like coming out of the quarantine. But few disagree with the statement: This singular event has altered the industry’s course for good.

Here are a few of the year’s other big stories:

Inspire Brands buys Dunkin’ Brands

In almost any other year, this would have been the biggest story, a massive $11.3 billion deal that will make Inspire the second largest U.S. restaurant operator, based on domestic system sales of its various brands, including Arby’s, Sonic and Buffalo Wild Wings. (It has a ways to go to reach the global stratosphere occupied by giants like McDonald’s, Yum Brands and Restaurant Brands International.)

The Burgerim Disaster

In early 2019, Burgerim was considered the fastest-growing restaurant chain in the U.S. By January, we figured out why, thanks to a Restaurant Business investigation: The franchise operated largely like a Ponzi scheme. Hundreds of people paid at least $10,000 to open a business. Most never did. Those that did got a system that lost a lot of money. Operators closed by the dozens. Many others paid into a system only to not even get a restaurant. And once things started to collapse, the owner fled the country and abandoned company headquarters.   

The McDonald’s-Steve Easterbrook lawsuit

Easterbrook was ousted as CEO in November of 2019 over a consensual affair with a staffer. Then, in August, the company sued the man it once credited for its turnaround, saying that he had multiple affairs with employees and lied about it. The company wanted to claw back the severance it agreed to pay Easterbrook as a result of the actions. Easterbrook, not all that eager to lose a package valued at $57 million, has fought back.

The bankruptcy of NPC International

NPC isn’t just any franchisee. It is the nation’s second largest, and is the largest operator of Pizza Hut locations and Wendy’s. The company, which took on too much debt in a 2018 buyout, almost filed for bankruptcy in January and then was helped somewhat by the pandemic—which lifted sales at Pizza Hut in particular. It filed for bankruptcy in July and was put up for sale, and the buyer could be mammoth Arby’s, Taco Bell and Panera Bread owner Flynn Restaurant Group—which is trying to work out a deal with Wendy’s to operate those units.

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