Why Fast Food Chains Are In No Rush To Reopen

Many have nearly recovered to pre-pandemic levels because they were already getting 75% of their business from drive-through.

Since drive-through is inexpensive, safe - and profitable - re-opening the dine-in sections of fast food restaurants may not be worth the cost. JL

Jonathan Maze reports in Restaurant Business:

As states ease restrictions on dine-in services at restaurants, fast-food chains are in no hurry to take them up on it. Many chains have seen their sales recover to nearly full status. Fast-food chains have recovered because they were built with takeout in mind. Before the pandemic, three-quarters of their sales were for takeout. They don’t know whether customers will be in a hurry to eat inside of restaurants (so) the cost of reopening might not be worth it. Reopening their dining rooms would add complexity, increase risk for employees and increase the labor required to run the restaurants. 
As states begin easing their restrictions on dine-in services at restaurants, fast-food chains are in no hurry to take them up on it. 

And why would they be? Many chains have seen their sales recover to nearly full status. Reopening their dining rooms would only add complexity, increase risk for employees and increase the labor required to run the restaurants. 

“We’re in no rush to reopen our dining rooms,” Wendy’s CEO Todd Penegor said on the company’s first quarter earnings call Wednesday. 

His chain’s same-store sales, buoyed by a surprisingly successful breakfast daypart, were down just 2.1% over the past week, a far more normalized level than the 30%-plus declines many quick-service chains were hit with in late March. 

On Friday, chicken sandwich chain Chick-fil-A—headquartered in Georgia, where restaurants were allowed to reopen last month—said it would start reopening some of its restaurants for carryout. 

The company said it is not yet reopening its seating areas and noted that customers will notice changes inside its restaurants, such as plexiglass partitions and hand sanitizer stations.

Customers will be asked to keep their distance while waiting in line, and the restaurants will provide contactless ordering.

Fast-food chains have broadly demonstrated a remarkable recovery in recent weeks, largely because they were built with the takeout consumer in mind. Before the pandemic, three-quarters or more of their sales were for takeout.

Their drive-thru windows in particular have been viewed as something of a safer alternative, without the fees associated with delivery—though nearly every company has increased their use of delivery services.

Quick-service chains typically get a boost in sales during periods of economic weakness as consumers shift dining toward value offerings. “We know that value will be a necessary element to reengage our customers,” McDonald’s CEO Chris Kempczinski said on that company’s earnings call last week.

Many executives are cautious about reopening, in part because they don’t know whether customers will be in a hurry themselves to eat inside of restaurants—and certainly at fast-food chains. As their sales recover without seating, they can afford to be cautious even as states reopen.

In addition, the cost of reopening for many might not be worth it, because it would require staff to focus on those dine-in customers.  

Strong early May sales at Taco John’s could keep that chain’s dining rooms closed longer than the company would have expected. 

Operators are beginning to “question how quickly they want to open the dining room with the added labor, and with the uncertainty of whether or not customers will come into the dining room,” CEO Jim Creel said in an interview.

“I don’t think it’ll be permanent,” he said, “but I think dining rooms will be slower to open than people think.”

Some franchisees in other chains have begun to speculate that their brands may be forced to require them to reopen their dining rooms because of the lower cost and improved efficiency of just running the drive-thru. One Wendy’s operator said privately that his EBITDA, or earnings before interest, taxes, depreciation and amortization, had actually improved last month even with sales down.

At Del Taco, same-store sales improved by 15 percentage points from the first half of April to the second half. Same-store sales were down 27.4% in the three weeks ended April 14. In the next two weeks, they improved to minus 12.6%.

John Cappasola, the Lake Forest, Calif.-based Mexican chain’s CEO, said the company would reopen its dining rooms on its own time. “Our dining rooms are not open across the brand right now, even these markets that have announced reopening,” he said, according to a transcript on financial services site Sentieo.

“Our general approach is to make sure that we open on a timeline that’s going to make sense for the brand, our employees and our guests,” he added. “We want to make sure that we’re watching that consumer dine-in demand, if you will, and opening safely for our guests and our employees and being profitable as well, based on that demand.”

Penegor said Wendy’s would likely reopen in phases, starting with bringing back later hours. The chain, like many restaurants, shrunk its hours as late-night business plummeted in the aftermath of the shutdown.

Wendy’s could then reopen its restaurants for carryout as a “phase two.” “We can do that very efficiently to take some pressure off the drive-thru window,” Penegor said. “And then, ultimately, get those restaurant dining rooms open with the appropriate social distancing set up in those restaurants.”

“But we’ll be smart about it,” he added. “We’ll be safe about it. We’ll look at the competitive l