Sales at US Restaurant Chains Slumped in Q2, Outlook Troubling Without More In-Dining

Despite increases in delivery and pickup orders during the second quarter of 2020, revenue at US, restaurant chains declined significantly, when compared to 2019. as COVID-19-related government restrictions to in-restaurant dining continued to tamp down business.

In a recent report, S&P Global Market Intelligence said “much of the industry’s recovery will continue to be held back as long as dining restrictions continue.”

According to the report, the restaurant chains, which suffered after lockdowns and dining room closings in April due to the coronavirus, started to recover in May and June as states reopened economies. But that recovery stalled after an uptick in COVID-19 cases led to states walking back some of the reopening orders.

Eric Herrmann, a partner and head of restaurant investment group at CapitalSpring, told S&P Global Market Intelligence that he doubts there will be much improvement during the third quarter of this year.

“We’re kind of in this purgatory for the foreseeable future for a lot of companies that are being physically limited by restrictions today,” he said.

Following year-over-year sales growth in the first quarter, a number of chains reported declines in same-store sales growth during the second quarter including. McDonald’s Corp., Starbucks Corp., Yum! Brands, Darden Restaurants, Restaurant Brands International, and Chipolte Mexican Grill. Domino’s Pizza also reported a decline for its US operations.

S&P Global Market Intelligence reported that the chains indicated that sales stabilized or improved as the second quarter progressed, in part due to outdoor dining and government-enhanced unemployment benefits.  But, David Henkes, a senior principal at Technomic, told the S&P unit that winter weather is likely to put a damper on that.

“In a lot of parts of the country outdoor dining has been a savior. If you’re in Minneapolis or Chicago or Detroit as soon as October rolls around or even September sometimes, it can be very hard to sustain that, and so if dine-in operations aren’t reestablished it could be really bad news for the industry,” he said.

Revenue and net income for each of the restaurant chains declined for the second quarter, compared to the prior year, except for Domino’s Pizza, which posted small increases.

With dining-in still restricted, chains are developing new ways to provide pickup and delivery. Chipolte, for instance, reported at the end of July that it had opened 100 drive-through lanes devoted to digital orders.

Also, Taco Bell, owned by Yum! Brands, plans to open a new concept called Taco Bell Go Mobile during the first quarter of 2021. Customers would order ahead through Taco Bell’s mobile app.

And Brinker International launched a virtual brand in June called It’s Just Wings in 1,050 company-owned locations in partnership wtih DoorDash.

Meanwhile, the increase in delivery during the pandemic has boosted the business of delivery companies such as Grubhub, and Uber Technologies, according to the S&P report.