How COVID-19 Changed the Fast Food Landscape – Permanently | Sponsored content






Andrew W. Lapin, shareholder, Robbins, Salomon & Patt, Ltd.


* This is sponsored content provided by Robbins, Salomon & Patt, Ltd.

Q. What impacts have you seen in the industry as a result of COVID-19?

From closures to new social distancing rules to employee safety concerns, almost no aspect of the Quick Service Restaurant (QSR) industry segments and quick casual operations have been left untouched. Sales fell sharply in March and April when people were afraid to go out. After May 1st they started to progress and the lineups are currently positive month over month for QSR, especially chicken and pizza. Burger chains hold up but don’t see the same increases. For QSR, the food costs are down and the margins are up because there is no need for discounts when you are the only game in town. The Fast Casual segment continues to see its margins erode with continued updating.

Part of this is because QSR has built-in benefits for this environment: They are mostly stand-alone locations with established drive-thru and the dining area is not the center of attention. People felt safe getting their food behind the wheel and it was relatively easy to integrate curbside pickup if they already had an app. However, Fast Casual chains are often located in linear shopping malls, which are suffering, lack drive-thru and many have not been able to integrate effectively at the curb.

Q. What are the main operational pressures facing QSR and Fast Casual right now?

In short, Labor. It is almost impossible to recruit workers at this time. Operators have implemented ways to save on labor, such as kiosks and apps to eliminate order takers. In addition, there is a reduced need for dining room staff since the dining rooms are closed or only partially used. Another factor is the increase in unemployment benefits, which has hampered the ability of franchisees to retain their employees. Workers were afraid to come to work and interact with the public, and being able to stay at home and collect unemployment and government benefits was a more attractive option, especially when government benefits were equal to or greater than salary. ‘an employee.

A secondary pressure that we see is the uncertainty of future customer revenues. We don’t know if customers will continue to buy if they don’t have a job and if stimulus funds run out. When the economy is in difficulty, tablecloth restaurants are the first to be cut from the family budget; then quick and relaxed. Now that the pandemic has passed the one-year mark, budgetary concerns have shifted to QSRs, which are usually the last to be reduced.

Q. What is changing regarding the food delivery model? How did Uber Eats, Door Dash and more have an impact?

In March, food delivery took off. People were afraid to leave their homes, so delivery services like Uber Eats and Door Dash stepped up. No one could do this work from the point of view of profit. Franchisees have a love / hate relationship with delivery services – they increase their business, but at a loss or at breakeven.

In April, QSR operators realized they already had a solution and started pushing the drive-through. Before COVID-19, drive-thru already accounted for around 70% of the total QSR volume. There was less emphasis on the dining room than it was years ago. With COVID-19 leading to increased traffic behind the wheel, service times would increase dramatically and customers would give up. Operators improved drive-thru efficiency by retraining underutilized counter and cleaning workers. Operators have doubled counter counters and increased food preparation to increase efficiency and move more customers faster. The average wait time has decreased significantly and abandonment rates have decreased. By the end of 2020, drive-thru and curbside pickup reduced reliance on delivery services like Door Dash.

Q. Tell us about the Ghost Kitchen model?

Ghost Kitchen goes hand in hand with delivery. It’s a concept where you have multiple cuisines – say Pizza Hut, Burger King, Popeyes, Taco Bell, Portillos, Qdoba, Chipotle, etc. – all in a warehouse or shopping center that only fulfills delivery orders. So if a family wants to order from different restaurants, delivery drivers can go to a single pickup center for all of this rather than having to use multiple deliveries from different locations. I think the Ghost Kitchen model can work as the logistical issues subside, especially for the quick and relaxed chains. The big real estate operators are working there now, reusing spaces they can’t use, like malls that have turned dark.

Q. How did franchises have to be nimble with employment?

They had to be creative with the reassignments, as I mentioned earlier. Restroom and dining room use is reduced or closed, but the pick-up lanes and sidewalks are very busy. Thus, the employees were redeployed to take charge of the collection lanes and sidewalks.

Q. What do you see for FFF in the future in a stable economy?

The large national QSR channels will be the winners. This is in part due to the availability of real estate. With many small players and casual restaurants closing their doors or shutting down places, QSRs can reclaim goods they wouldn’t have been fortunate enough to have before the pandemic. Another factor is the availability of capital. Banks find it difficult to deploy money as many businesses are suffering and banks need certainty and clarity. For all the reasons we talked about, QSRs are a good place to deploy capital, they’re doing well. The more successful you are, the more attractive you are to banks. The big chains therefore have access to cheap capital now.

Unfortunately, casual restaurants will be the losers if they cannot easily change their business models with sidewalk, drive-thru and delivery services. White tablecloth restaurants are dead in the water – with estimates of over 50 percent being bankrupt before this was over. This is not only due to COVID-19, the pandemic has just pushed marginal restaurants to their limits. Finally, people get used to new routines with drive-thru and curbside pickup. The longer it lasts, these habits will not disappear. There will be less demand for restaurants overall.

Bio for Andrew W. Rabbit

Andrew W. Rabbit, lawyer and shareholder for Robbins, Salomon and Patt, Ltd. has over 35 years of experience in real estate, business franchising, business transactions, banking and finance, and labor and employment. Its representation to its clients includes business owners, franchise owners / operators, real estate investors, developers and syndicators. Lapin also represents banks and other financial institutions in connection with lending and loan restructuring and restructuring; as well as in syndicated, single bank, secured, unsecured, structured financing, immovable, commercial and industrial operations, private banks and asset lending.

* This sponsored content was supplied by Robbins, Salomon & Patt, Ltd.


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