Timely Insight from Large FSR Operator

Call Summary 4/3/20 with Joe Langteau, Summit Restaurant Group

  • It could be a big challenge to bring back former employees who may take other jobs during the closure periods.
  • The key is to keep open lines of communication via social media and phone calls.
  • The current assumption is that restaurants will re-open with limited hours and menus (probably extending the use of limited off-premise menus at first).
  • The possibility of initial capacity limitations will be driven by the government’s decision of whether to continue social distancing requirements.
  • It is unlikely that the entire industry will open simultaneously on the same day given the significant operational challenges with re-opening a restaurant for dine-in.
  • It may prove a financial challenge to sustain the return of all former employees at once unless the restaurant’s AUV re-opens at a sufficiently high level.
  • It would be great if 75% of laid-off employees return. In any case, it is likely that a considerable amount of training will be required for new employees. As operators are unlikely to enjoy the luxury of being able to remain closed for 1 week to train new employees, it is likely they will be required to incorporate on-the-job training.
  • It could take 3 months to regain lost sales and traffic.
  • The issue is how long will it take for the consumer to rebound?
  • Another important consideration – how many competitive restaurants will remain closed? This will play an important role in determining AUV levels for those restaurants that do re-open.
  • Depending on all this, it may be possible for the performance of re-opened restaurants to achieve normal metrics by year-end 2020.
  • Permanent closures are most likely to be generated by poorly capitalized independents and chains with previously weak fundamentals.
  • It is a good thing that many of the new sanitary operational procedures will remain in place permanently.
  • A deep-dive is coming of how to better prepare for a similar crisis if should one present in the future.
  • Along these lines, restaurants in Florida have refined procedures with how to deal with hurricane closures.
  • One of the key learnings is the need for operators to maintain a rainy-day fund to deal with situations like this.
  • The expectation is that consumers will fully appreciate the fun of dining out after being pent-up for so long.
  • Consumers will continue to look for a fun experience to put the stress behind them.
  • The industry will recover from this event in the same way that it rebounded from the Great Recession of 2008–2009.
  • The industry is resilient and will come back stronger.

Forward Looking Consumer Survey

1,500 Respondents

  • RR’s Intent to Eat Out Index (forward looking survey of 1,500 consumer respondents) was not as negative as we anticipated.
  • While 37% of respondents indicated their intent to eat-out a lot less (up +13% on month/month basis), a total of 18% consumers plan to eat-out more.
  • Notably, these results reflect an increase in the average price of both QSR & FSR promotional prices. Currently, the promotional efforts are focused on delivery (52% of chains under coverage offering free delivery) & family bundles.

 

Closure & Re-Opening Benchmarks from Yum China & Starbucks China

  • Yum China reported that store closures peaked at 35% in February with 95% of stores either partially or fully opened by 3/23.
    SHANGHAI, March 23, 2020 /PRNewswire/ — Yum China Holdings, Inc. today updated stakeholders on the impact of the coronavirus (COVID-19) situation.
  • We are seeing early signs of recovery, as business gradually resumed and people returned to work in China. However, restaurant traffic is still heavily impacted as people continue to implement social distancing measures.
    Stores Gradually Re-opening
  • Yum China is gradually re-opening stores across China when possible and appropriate to do so, on a partial or fully operational basis. Store closures peaked in February with approximately 35% of restaurants closed. For the restaurants that have remained open, some stores provide only delivery and takeaway services and/or have shortened operating hours. Almost all stores that remained open experienced significant declines in traffic. As previously disclosed, same-store sales declined 40% to 50% during the Chinese New Year holiday period, compared to the comparable period in 2019.
  • In recent days, approximately 95% of our stores in China are either partially or fully open. Approximately 10% to 20% of open stores provide only delivery and takeaway services, and some stores continue to have shortened operating hours. Traffic at open stores is recovering slowly and remains well below pre-outbreak levels. The pace of recovery varies by region and is slower during weekends as people avoid going out. In recent days, same-store sales were down approximately 20%. Sales performance fluctuates as the recovery is uneven, and the situation continues to evolve.

 

  • As condensed from Starbucks’ 3/5 press release “One global company’s steps to navigate COVID-19 in China – and the lessons learned”.
  • Over the next few days (after the Chinese New Year on 1/25), thousands of Starbucks stores in China would shut their doors, including the iconic Shanghai Reserve Roastery. Starbucks would be among the first major brands to proactively close their retail stores, eventually totaling more than half of the company’s 4,300 stores that employ 58,000 people.
  • Earlier this week, Wong got stuck in a traffic jam. She couldn’t have been happier, she said, after all of the weeks of isolation and people unable to go out, gather and connect.
  • And, best of all, she said, as the number of new infections began to decline, Starbucks China was able to start re-opening doors again. On March 5, the company announced 90 percent of the stores are open again, operating under modified hours and conditions.
  • Last week, the Shanghai Reserve Roastery re-opened after being closed for more than a month.