Financing

Pandemic poses a mixed bag for fast-casual chains

The coronavirus crisis has put into stark relief which brands are adept at handling off-premise transactions—and which are not.
Photograph by John Johnston

For fast-casual chain operators, the most recent weeks of the coronavirus crisis look a lot like a Charles Dickens novel.

It was the best of times for brands like Wingstop (same-store sales up 33% in April) and truly the very worst of times for concepts like Potbelly Corp. (which revealed earlier this week that it likely won’t be able to meet its credit obligations in the coming year).

The pandemic showed which fast-casual chains were ready to pivot to an almost entirely off-premise business model and which were caught completely unprepared. In most cases, the dividing line was clear. A brand was well-positioned to ride out the pandemic if:

  • A large percentage of units have drive-thrus.
  • It had a well-developed digital ecosystem, including an app and online ordering capabilities.
  • It had existing partnerships with third-party delivery providers.
  • Dine-in did not represent the majority of sales, pre-pandemic.

Miss on any of those bullet points, and it’s likely the recent weeks have been devastating to your fast-casual operation.

One of the undisputed winners in recent weeks has been Wingstop, which is crushing its digital sales metrics. What’s more, before the coronavirus, dine-in only accounted for about 20% of sales. Digital channels now account for 65% of all of the wing chain’s sales, up from 45% before the pandemic. Not only are digital transactions well-suited to the contactless environment, but they also carry an average $5 higher check for the chain.

Another gainer, despite the pandemic, has been Chipotle Mexican Grill, whose stock closed above $1,000 this week for the first time. The chain noted that its order-ahead drive-thrus, called Chipotlanes, have been a major boost during the pandemic. The fast casual’s digital sales more than doubled early in the pandemic, providing the brand with millions of new rewards members (along with their valuable consumer data).

If Chipotle is emblematic of the success of drive-thrus, Shake Shack has shown the difficulties of operating without them amid the coronavirus crisis. The burger chain, with locations largely in dense, urban areas, is planning to add pickup windows and drive-thru pickup lanes, which it’s dubbing “Shack Tracks,” to add to its off-premise arsenal.

Other fast casuals, the ones lacking in those crucial bullet points and especially those that were struggling before COVID-19 hit, are in a precarious situation right now.

Same-store sales at Noodles & Co. were down 33.6% early this month, after rebounding from a 54.7% drop the last week of March.

Potbelly Corp., which last week said it might be forced to close up to 100 stores, warned investors early this week it might not survive the coming year. It included a going concern warning in its latest quarterly report, revealing that it is “probable” it will not be in compliance with some credit agreements because it’s been so hard hit by the coronavirus. The chain, which does not have drive-thrus and fairly recently upgraded its digital presence, is seeing same-store sales down 40%—up from a nearly 70% drop in March.

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