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Operations

Restaurant chains use the pandemic to hack off weak stores

Thousands of units are being closed sooner than they might have been without the pandemic.
Photograph: Shutterstock

The casualty figures are a gut punch: Dunkin’, 1,150 units. McDonald’s, 200. Starbucks, 400.

The closings announced by restaurant chains in recent weeks are even more jaw-dropping when expressed as how much the operations will shrink. Pret A Manger is turning off the “Open” signs at 66% of its U.S. stores, or all 17 of its outlets in Chicago and Boston, plus 30 branches in its U.K. homeland. PizzaRev permanently fired down the ovens in more than 50% of its locations. Zinburger turned off the grills in 15 of its 18 East Coast locations.

The list goes on and on: Denny’s has lost 31 locations. Dine Brands Global, parent of Applebee’s and IHOP, won’t say how many additional units will be shut, but acknowledges that more closures are coming. That’s with 56 Applebee’s locations currently shut, some possibly forever.

Ruth's Chris said Friday that he may have to close five more company-run units after shutting five during the second quarter. The high-end steak chain also backed out of two leases for future sites.

Every one of the chains describes the closed stores as weak links that would have likely shut down if the nation had never learned to say “COVID-19.” They contend that the pandemic has merely accelerated the plug pulling. “They are likely not going to make it through the next remodel cycle or the next lease renewal,” Denny’s  CEO John Miller said of the 30 franchised restaurants and one company-run unit that have closed so far this year within his charge.

Some, including Dine Brands, hint that the shutdowns could create an unprecedented expansion opportunity for operators with deep pockets and a brand identity strong enough to pull the system through the crisis. In any case, says CEO Steve Joyce, the drop in supply should translate into improved market share for his concepts.

Chipotle is even reaching out to operations that are clearly wheezing but haven’t decided yet to throw in the napkin and shut down.

Technomic projects that about 11,000 units of the Top 500 chains will go dark. The carnage is expected to be far more severe among small chains and independents presumably on their way to becoming regional chains. The research company sees those categories shrinking collectively by 100,000 stores, or about 19%.

The cutback announcements have come in a flurry, making the planned prunings challenging to track. Here’s a scorecard of sorts:

Dunkin’: 800 domestic stores, 350 more abroad
CEO Dave Hoffmann assured investors that the brand is cutting the brand’s laggards—“off-strategy locations” with abysmal sales, a part of current management’s strategy of focusing onquality over quantity.” Indeed, the asterisk to the announcement is that 450 of the branches are satellite stations inside Speedway convenience stores. That retrenchment in Dunkin’s non-traditional siting plan had been previously announced.

All told, the domestic branches account for about 8% of the U.S. store count, according to CFO Kate Jaspon, but generate only 2% of systemwide domestic sales.

McDonald’s: 100+ embedded units, nearly 100 more from the general U.S. for the burger giant has also decided to pull back significantly on its non-traditional siting, with plans to shut more than 100 units embedded inside Walmart stores. It’s a continuation of the retreat from retail locations that McDonald’s began years ago. The notion of putting an outlet within earshot of “Welcome, Walmart shoppers!” has been eclipsed by the greater convenience for a broader swathe of the public of developing a drive-thru-equipped unit near

Starbucks: 400 traditional units
Similarly, the king of coffee intends to shutter 400 stores sporting dining rooms to facilitate a strategic shift to takeout-only operations surrounding a few traditional Starbucks cafes. Starbucks’ announcement in mid-June called for the transformation over an 18-month stretch.

Pret A Manger: Fewer commuters, 17 fewer U.S. stores, 30 fewer in the U.K.
Among the victims of America’s shift to working at home is the British grab-and-go chain, which had struggled for years to secure a U.S. foothold. With fewer office workers dashing into a unit for a breakfast nosh or a lunch they could munch in their cubicles, sales have fallen 87%.  The brand will continue operating in New York City, Washington, D.C., and Philadelphia, but it’s completely pulling out of Boston and Chicago.

California Pizza Kitchen: ?
A brand conceived as a way of bringing gourmet pizzas to the masses has filed for bankruptcy protection, in part because of an inability to pay its overdue rents. Management has said that unit closings are coming, but has not revealed how many may be saucing their last pies. About 200 locations are currently in operation.

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