United States / Analyst Insights
For Restaurants in 2020, Bigger is Better

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Jeremy Moses, Lead Analyst
Nov 30 2020

2020 has been an extraordinarily challenging year for restaurants, and the coming months are likely to only add to the strain. As COVID-19 (coronavirus) cases climb across the United States, and states consider reimposing stay-at-home orders, the restaurant sector as a whole is expected to suffer.

However, within the restaurant sector, there is a stark divide between large multinational chains and independent restaurants. Larger companies in the Chain Restaurants industry (IBISWorld report 72211a) and the Fast-Food Restaurants industry (72221a), such as McDonald’s Corporation (McDonald’s) and Chipotle Mexican Grill Inc. (Chipotle), have been able to weather the storm, while independently owned restaurants in the Single Location Full-Service Restaurants industry (72211b) struggled to stay afloat.

Larger physical footprints

Bigger chain restaurants have been able to take advantage of their larger physical footprint over the past few months. Smaller restaurants, often with one location, do often not possess the ability to revamp their facilities for outdoor and take-out capabilities. Additionally, with more locations, chains typically have more leverage while negotiating rent with their lessors, compared with smaller independently-owned restaurants that have only one location.

Driving through it

Bigger restaurant chains have increasingly leaned on drive-through operations to boost its earnings. McDonald’s reported an increase in sales in the third quarter of 2020, which it attributed to revamping its drive-throughs to reduce wait times. Chipotle has also added drive-through to many of its locations for the first time, which the company partially credits for its rebounding sales. Starbucks Corporation (Starbucks), while planning to close some locations, has also added stores that emphasize drive-through and pick-up counters.

Delivery and take-out

Chain restaurants also have more ability to shift their operations towards take-out and delivery, compared to small, independent restaurants that typically operate with tight profit margins. For example, Chipotle has been able to more than triple sales made through its online business platform. Chili’s Bar & Grill, owned by Brinker International Inc., debuted a delivery-only brand, Just Wings, which is expected to perform well in the current environment.

Revamped indoor dining

While these restaurants have been able to capitalize on other revenue streams, they are also still seeking to generate revenue from their dining rooms. Big chains have taken steps that they claim have made their dining rooms safe for their customers. The Cheesecake Factory Incorporated, for example, has installed glass partitions in its locations to ensure that diners are socially distanced from each other. Starbucks has also opened its indoor cafes for limited seating, with enhanced hygienic and cleaning practices. These companies claim that these changes have made their dining rooms safe and low risk, even as the Centers for Disease Control and Prevention continues to warn of the transmission risk of indoor dining.

Overall, large chain restaurants have found themselves better able to weather the effects of the coronavirus pandemic, compared with independent restaurants that have struggled and often been forced to close.

 

Edited by Alexandria Valenti