Smaller restaurants have been reluctant to work with major third-party delivery services. The underlying problem is simple: money. The big delivery players charge as much as 30% for their services in normal times. Restaurant operators claim given their slim margins paying that kind of money for delivery makes no economic sense.
Seemingly with the blink of an eye, though, the government mandated dining rooms go dark thus making delivery and take out the only game in almost any town.
Some third-party delivery providers – DoorDash, Grubhub, PostMates and Uber Eats – have made some accommodations but some operators say they don’t go far enough. Last month Grubhub suspended commissions for all independent restaurants on its platform. Some restaurants thought the service free but found out they would have to pay Grubhub in the future.
Complicating the problem is delivery firms faced their own profitability problems before the pandemic wreaked havoc on the U.S. economy.
Some restaurants chose to sign up with smaller, local delivery companies while others launched social media campaigns and promotions to get customers to order directly from the restaurant.
All of this leaves some restaurants wondering if they can and should try to handle delivery on their own. Only time will tell.
Economic News This Week
- Foodservice leads the way among those filing initial jobless claims. For several years initial jobless claims consistently stayed in the 200,000 to 220,000 weekly range. But when the increase came around the time the coronavirus pandemic hit, there was nothing subtle about it. Claims for the week-ending March 21 were revised up to 3.28 million. The number of initial claims for the week-ending March 28 hit a staggering 6.65 million. The Department of Labor indicated that the largest number of claims filed was by accommodation and foodservice workers.
- ADP’s March National Employment Report appeared to show some curious results. As expected, the report showed a decline in employment but by a modest 27,000 jobs. More curious was the data showed a decline of 90,000 at small firms while jobs at medium size companies and large companies showed an increase. There doesn’t appear to be any simple explanation for these results which run counter what we know is happening.
- People expected bad news when the Bureau of Labor Statistics Reported on March employment and got what they expected. Employment fell by 701,000 and unemployment, which is determined by a different survey than employment, rose 0.9% to a level of 4.4%. This is the largest over the month increase in the unemployment rate since January 1975. Foodservices and drinking places accounted for 417,400 of the lost jobs. Since the private sector lost a total of 713,000 jobs, restaurants and bars accounted for 58% of the lost jobs last month.
- Due to the coronavirus it’s widely thought the U.S. economy will shrink this year, but the question remains by how much? Goldman Sachs Group predicts the U.S. economy will shrink by 34% on an annualized basis in the second quarter and unemployment will rocket up to 15%. Some economists predict a strong recovery in the third quarter with gross domestic product rising sharply and potentially offsetting slightly more than half the decline by the end of the year.
- The Chicago Business Barometer declined 1.1 points in March for a reading of 47.8. This is the ninth straight month the reading was less than 50. (Any reading less than 50 means declining activity.) The Production Index, which had moved into the expansion area in February, fell back to less than 50 in March. Order backlogs increased to its highest level since December 2019. Note the survey was completed in March and may not reflect manufacturers’ current sentiments given developments with the coronavirus situation.
- The Institute for Supply Management’s Manufacturing Index totaled 49.1 in March, contracting 1 point from February. (Any reading greater than 50 indicates expanding activity.) The New Orders Index totaled 42.2, a decline of fell 7.6 points. The Production Index hit 47.7, a decline of 2.6 points. The Employment Index retreated by 3.1 points to a level of 46.9. The Backlog of Orders Index fell by 4.4 points for a reading of 45.0. Interestingly, of the 18 manufacturing industries studied, 10 reported growth in March including Food, Beverage and Tobacco Product manufacturers.
- The Institute for Supply Management’s Non-Manufacturing Index grew in March but with some underlying softness in the service sector, which comes as no surprise considering the coronavirus pandemic. The overall index stayed in positive territory at 52.5, down 4.8 points from February. (Any reading greater than 50 indicates growing activity while any number less than 50 shows declining activity.) The Business Activity Index hit 48.0, a decline of 9.8 points. Despite falling by 10.2 points, the New Orders Index remains in positive territory at 52.9. The Employment Index declined 8.6 points, placing it in negative territory at 47.0. The Order Backlog Index edged up slightly by 1.8 points for a reading of 55.0. The report did not list the Accommodations & Foodservices sectors as growing or decreasing. It’s important to note the survey was completed in March before the impact of the coronavirus pandemic had become apparent.
- Consumer confidence declined sharply in March, falling to 120.0 from 132.6 in February, per The Conference Board. The Present Situation Index decreased to 167.7 from 169.3, reflecting consumers’ belief the economy was in reasonably good shape currently while looking towards the future showed great concern due to the coronavirus. The Expectations Index dropped to 88.2 in March from 108.1. March’s decline in confidence is more in line with a severe contraction-rather than a temporary shock – and further declines are sure to follow, per a Conference Board Spokesperson.
- Private construction spending declined 1.2% in February compared to January, per the U.S. Census Bureau. Residential construction was down 0.6% from January. Both figures are on a seasonally adjusted annual rate basis.
Foodservice News This Week
- Chipotle’s CFO says the company can hang on for a year operating with a reduced sales level. Chipotle has temporarily closed 3.0% of its 2,600 locations including all of them in Germany. The fast-casual Mexican chain is also delaying new store development, halting executive travel and perhaps abandoning the hiring project consultants. Chipotle is also pressing for rent deferrals while stressing that the company is not after “freebies.” Chipotle made 2 extremely gutsy moves by giving hourly employees a 10% raise and cash bonuses.
- Red Robin Gourmet Burgers drew down the rest of its $300 million credit facility. The company suspended its guidance for the rest of this year and the long term. Red Robin’s CE0 said the chain’s off premise sales, which includes take out, doubled in the past two weeks.
- CreaftWorks fired 18,000 employees after furloughing them. The company still wants to reopen 125 restaurants in the future. The chain is the parent of Logan’s Roadhouse and Old Chicago Pizza. At one time Craftworks had 330 restaurants operating under half a dozen names. At the present, CraftWorks says the company has financing in place to keep it afloat for the next 6 weeks.
- Dave & Buster’s is considering selling a stake in the company to private equity firm, according to published reports. The discussion centers on a private investment in a public equity or PIPE. Dave & Buster’s has announced a plan to conserve cash that includes reducing store management and corporate staff by more than 15,000 people, stopping all new store construction and store remodeling, and trying for more favorable terms from landlords and vendors.
- Some restaurants now offer grocery products in short supply as a service to their customers. The reason restaurants can obtain these products is because foodservice operators and grocery stores have separate supply chains. In some areas, restaurants have turned into small markets. Then there’s a restaurant in New York City that gives the customer one free roll of toilet paper and two pair of polyethylene gloves with every order. The restaurant owner says he has gotten a lot positive feedback.
- With restaurants restricted to off-premises business only and consumers ordered to shelter in place, some distributors are left feeling the pinch, too. Some distributors have seen sales declines of 70% or more. Simply cutting costs and hoping for the restaurant business to come back is not a viable strategy. Layoffs are not palatable. Many distributor salespeople have developed strong relationships with their clients over the years resulting in the justified fear that if they leave, they will take their customers with them. Some fear distributors will lose truck drivers, too. In some cities, truckers are in short supply. To keep their doors open, some distributors are trying to broaden their customer base by targeting non-operators. Supermarkets, C-stores and discount retailers represent logical prospects. Some distributors are working with their customers to develop successful take out and/or delivery programs by helping with menu development and packaging.
- Wendy’s raises hourly wages by 10% for the next 5 weeks. While the story did note give a reason for the pay raise, it is probably to ensure Wendy’s can keep stores staffed during the coronavirus crisis. The increase goes to Wendy’s crew members, shift managers and assistant general managers. General managers and district managers will also receive part of their March and April bonuses. Workers will receive free meals and family meals at discount. Wendy’s is fairly well positioned to deal with the crisis in that 70% to 80% of the quick-serve chain’s sales come from the drive-thru window.
- Comparable Store Sales Reports: Arcos Dorados up 10.4%, Bloomin’ Brands (combined up 1.9%, Outback up 2.7%, Carrabba’s up 1.4%, Bonefish Grill up 0.5% and Flemings up 0.9%), BJ’s Restaurants up 0.4%, Cheesecake Factory down 0.6%, Dave & Buster’s down 4.7%, Luby’s (all concepts up 1.7%, Luby’s Cafeteria up 1.7%, Fuddrucker’s up 0.1%, Cheeseburger in Paradise down 1%, and combination units up 6.6%, Red Robin Gourmet Burger’s up 1.3%, YUM (KFC U.S. up 1.0%, Pizza Hut U.S. down 4.0% and Taco Bell systemwide up 4.0%) and YUM -China (KFC up 3.0% and Pizza Hut flat.)
For details and same store sales of other chains, Please Click Here for the most recent Green Sheet.