Full Service Restaurant Chains Continue to Struggle

Chicago, July 12, 2020 — Customer transactions at major U.S. restaurant chains declined by -10% in the week ending July 5 compared to same period year ago, an improvement over last week’s decline of  -14%, reports The NPD Group.  All of the improvement in the week sources to major quick service restaurant chains (QSRs) where customer transaction declines improved by 4-points from the prior week’s decline of  -13% versus year ago. Full service restaurants (FSRs) continued to struggle in the week with customer transactions down  -30% compared to year ago, a 5-point decline from the prior week, according to NPD’s CREST® Performance Alerts, which provides a rapid weekly view of chain-specific transactions and share trends for 72 quick service, fast casual, midscale, and casual dining chains. 

“We are entering a new phase of the restaurant industry evolution:  the divergence of quick service restaurants and full service restaurants,” says David Portalatin, NPD food industry advisor and author of Eating Patterns in America . “Long before anyone ever heard of social distancing, consumers were showing an increasing preference for off-premise restaurant meals.  Then suddenly this March, we entered a reality where the entire restaurant industry was off-premise only. That harsh reality was far harsher for FSRs, a segment that saw transaction declines near  -80% or worse at the depth of the pandemic in the U.S.  In contrast, QSR declines were roughly half as severe thanks to their abundance of drive-thru windows, capacity for high volume pick-up, and the ability of large QSR chains to leverage digital apps as an accelerant as well as provide a contactless experience.”

Two things have happened since dine-in services were closed in mid-March, according to Portalatin. The first is that QSR chains have doubled down on their off-premise prowess with streamlined menus optimized for volume and efficiency and by expanding drive-thru capacity with reconfigured traffic flow and added lanes. These changes are among the reasons QSRs have continued to improve, whether or not their state and local authorities have granted reopening of dining rooms.  Given this new off-premise capacity, many QSR chain operators have found the incremental cost of opening a dining room to be greater than any incremental margin dollars they might gain and are remaining closed even when governing bodies allow reopening.  Secondly, FSR performance remains largely at the mercy of governmental regulation and the persistence of the coronavirus.  For many FSRs, making the pivot to off-premise is far more difficult, he says.  These restaurants can employ similar tactics as QSRs, like streamlined menus, temporary drive-thrus made of pop-up canopies, and traffic cones, but none of these tactics play to the inherent strengths of these restaurants.  Furthermore, as on-premise dining restrictions are lifted, many FSR operators are forced to dismantle much of their temporary off-premise infrastructure so that guests can park, have a waiting area that allows for social distancing, and labor can be redirected to the front of the house.  Many FSRs are now faced with shutting down all over again.