Before mid-March, when COVID-19 began its assault on restaurant sales, the industry was tracking toward a fate akin to retail. From 1970–2015, malls boomed at twice the rate of the population. The eventual outcome—a landscape with too much retail and too few customers. When ecommerce entered the equation, it tipped already delicate scales.
But resulting closures weren’t so much an apocalypse as they were a course correction. It forced big-box and independent retailers to reinvent themselves around guest experience and a changing customer.
As we approached 2020, according to The Wall Street Journal, restaurants were suddenly growing at twice the rate of the population as well. While expansion crawled in the past two years, the number of restaurants jumped close to 16 percent in the previous 10, per the Bureau of Labor Statistics. Essentially, from the Great Recession to 2018.
In the same data, the number of restaurant workers increased by 2 million. From 2010–2018, restaurants accounted for one out of every seven new jobs—to give you a sense of the inflation.
Supply was outpacing demand. And so bankruptcies started to proliferate the restaurant world against an oversaturated backdrop. Just like retail in 2008, though, we weren’t witnessing the end of a sector; we were observing “bad” brands get innovated off the map.
COVID-19 introduced a new character to this drama, one that’s actually benefited a lot of quick-service restaurants. Domino’s in May reported a “material increase in U.S. same-store sales,” to the tune of 22 percent from April 20 to May 17. In normal times, a 20-percent plus year-over-year increase would stun the public restaurant sector (unless you were behind the Popeyes chicken sandwich).
Yet Domino’s pushed double-digit comparable results all the way from March 23 on. CEO Ritch Allison called this “a tailwind,” as opposed to some long-term shift in the chain’s business. Consumer behavior during the pandemic leaned toward delivery and carryout, and it provided a jolt to brands that specialize in it. Especially those with long, ingrained consumer habits around off-premises and guest databases to incentivize future visits.
However, Allison admitted, Domino’s had no real clue whether this trend would continue throughout the remainder of Q2, let along six months or a year from now.
Along with a shift toward delivery, curbside, and takeout, many quick-serves enjoyed a bump from what could be labeled a short-term course correction. Temporarily closures, permanent ones, and simply a lack of off-premises awareness and functionality for other brands, shrunk the restaurant field. Domino’s and other counter-service chains were battling for visits in an industry with far fewer options.
As dine-in continues to return, the dynamic is going to tilt. And thus, Domino’s can’t predict the length of this sales leap. To some degree, they’ll return to competing with dine-in occasions as well as other chains that thrive with delivery and carryout.
Black Box Intelligence Monday said quick-service restaurants were able to achieve positive comp sales during the first week of May. To date, it’s the only segment to move into positive sales territory since the pandemic began.
Even more revealing, comp sales in quick service since the beginning of May have actually been better than the sales growth reported by the sector for years, Black Box said.
The NPD Group reported quick-service transactions fell 13 percent in the week ending June 7 versus 2019 levels, a week-over-week improvement of just 4 percent—a sign the category has been stable for a while. Also to note, while transactions might be depressed compared to year-ago numbers, the vast majority of limited-service restaurants have reported a significant bump in order size and average check. Domino’s brought this up during its Q1 review, also noting weekday sales have gained prominence as weekends slip. Lunch and dinner moved up as late night declined, too.
Overall, the restaurant industry experienced an uptick in comp sales during the first week of May, Black Box said, hovering around negative 45 percent. The growth coincided with the reopening of dining rooms in some states.
As restrictions lift and consumers get more comfortable with the process, sales should continue to rise. But it might take a bite out of quick-service’s pandemic boon. Getting closer to the norm could detract a bit as options flood back into the dining-out decision-making process.
How long this takes, however, is anybody’s guess. And there’s the possibility of a second wave, or a swath of customers who elect to avoid dine-out for some time despite being allowed to do so. There are a lot of factors in the pot.
Worth considering, too, the National Restaurant Association said in recent data “tens of thousands” of locations could close. With most projections putting the emphasis on independents and full-serves, quick-service chains might find expansion opportunity on the other side. Not just to compete in a less-saturated landscape, but also to grow prime real estate through conversations and more friendly landlords. Think drive thrus, and lots of them.
Additionally, quick-serves in this “new normal” will be ideal growth targets because they don’t need a lot of square footage to operate, which fits perfectly into a widening consumer shift toward contactless, off-premises service. A potential, optimistic result: More profitable venues with lower overhead and plenty of customers to go around.
So it bears reason to say COVID-19 sparked a lot of quick-service restaurants in recent months. While that will taper off, it could transition to an era of chain-dominated growth and new concept development. Not all that different, once again, from what transpired in retail coming out of the financial crisis.