Keeping the foodservice equipment marketplace up to date with the latest menu and concept trends.


Covid-19 Disaster Strikes

The speed, scope and ramifications of coronavirus-driven societal and industry changes are stunning. Unlike during the economic recession of 2008, when the fast-casual segment rose to prominence and QSRs upped their game as budget-conscious customers traded down, this global health pandemic leaves few seats for winners at the table. 

Operators in every segment — commercial and noncommercial, independent and chain — face harsh new realities in revenue, financing, staffing and operating models. And unlike floods, hurricanes, tornadoes, wild fires and other familiar disasters that temporarily devastate a particular city or region’s foodservice industry, the roadmap to recovery after this massive global event has yet to be drawn.

Almost overnight many basic assumptions and models on which foodservice businesses have long operated were abruptly cast aside. The National Restaurant Association predicts $225 billion in lost sales and more than 7 million in lost industry jobs by the end of June 2020. As the NRA’s data suggests, it’s likely many restaurants won’t reopen. And cursory online research shows many that tried to remain open (by providing delivery and curbside pickup during the early weeks of the crisis) have since closed, finding sales insufficient to justify the effort, quality tough to control, and/or risks to employees too high.

Ben Whitlock, president of Mobile, Ala.-based Mobile Fixture & Equipment Co. Inc., the FE&S 2020 Dealer of the Year, shared reflections on the Nashville, Tenn., market, where the company serves many independent, chef-operated restaurants. Some temporary stabs at providing off-premises solutions were quickly halted by operators. “They stopped after about a week, not just to cut their losses, but it was also hurting their brands,” he says. “Adapting their higher-end menus for curbside pickup or delivery just wasn’t working. By the time the food got home, quality suffered. They didn’t want reputation loss and decided they were better off closing for several weeks and trying to hang on.”

Operators with few cash reserves, existing operational weaknesses and/or limited capacity to shift their business models to off-premises remain at particularly high risk of not being able to hang on long enough. In an oversaturated market, that type of natural selection was likely due to happen anyway. The difference now is that those unable to adapt and endure are being weeded out in days and weeks versus months and years.

“We do think there is oversaturation that was working its way out slowly, but this is pulling the bandage off,” notes David Henkes, senior principal at Chicago-based Technomic Inc. “Those on the edge won’t survive, and the industry will look a lot different by this summer than it does today.”

Technomic research updated on April 3 forecasts real declines in industry revenue, year-over-year, of -14.5% to -29.3%. And 70% of more than 350 operators surveyed by the research firm said they’re concerned that COVID-19 will have a negative impact on their ability to remain in business.

With 97% of U.S. restaurants impacted by mandated dine-in closures, full-service restaurants continue to take the brunt of the impact.

The NPD Group’s April 6 CREST Performance Alert, a weekly view of transactions and share trends for 70 QSR, fast-casual, midscale and casual-dining chains, showed overall restaurant customer transactions dropped by 42% the week ending March 26 compared to the same week a year ago. If looking just at the full-service sector, however, NPD data show transactions declined by 79% in comparison to the same week in 2019.

For those operators who do survive with their aprons still tied, pandemic aftershocks will surely slow recovery. From a public health perspective, we’ve been steeled to expect a “worse-before-better” scenario, but the same can be said for the economy. Even after stimulus dollars and relief funds trickle through to slow the burn rate; even if landlords and suppliers bend payment schedules to help keep businesses afloat, a return to normal consumer behavior once restaurants can resume normal operations may be nowhere in sight.

“We know the industry will go back up, but the million-dollar question on everyone’s minds is ‘When?’” notes David Ellingson, president of Tacoma, Wash.-based Bargreen Ellingson. “As dealers and kitchen designers, we’re in kind of a holding pattern. We’ve had to lay off some employees and take steps to try to right-size our business. Our April revenues were 20% of what they’d normally be. Will May be back to 40%? June, 60%? We just don’t know. We had great momentum going into this, but there’s a lot of uncertainty about how long this could last and what the public’s appetite for restaurants might be when the crisis passes. Part of the answer to that will be psychological, and part will be economic.”

Surging unemployment serves as one indication that the appetite could be low. The 6.65 million jobless claims filed in the week ending March 28 were more than double the previous record of 3.31 million filed the prior week, according to Labor Department figures. The last three weeks of March marked one of the most devastating periods in history for the American job market, and that was early into the crisis. Economists and analysts foresee unemployment ranging from the mid-teens to 30% by later this year. In comparison, peak unemployment during the Great Depression was 24.5% and the jobless rate peaked at 10% during the Great Recession of 2008.

One Lifeline: Off-Premises

As bad as things are, and as bad as they may get, the impact on the industry might have been far more devastating had the pandemic hit 20 years ago. The shift toward significantly more off-premises business, already well underway through much of the industry, now represents not just an additional on-demand sales channel but critical life support. Those who had already made the shift and for whom off-premises represents business as usual, have the technology and operational systems in place to continue to offer drive-thru, curbside pickup and delivery even as their dining rooms were shuttered.

Domino’s Pizza has kept nearly all U.S. stores open and the chain plans to increase hiring, seeking to add 10,000 employees in anticipation of growing demand. Other pizza chains are also reporting hiring surges as they strive to capitalize on their ability to deliver family-friendly, value-priced meals safely and efficiently.

Brands in various segments continue to devise strategies to counter on-premises sales losses and meet “new-normal” consumer demands. That includes chains like Panera Bread and Potbelly and others adding grocery staples to delivery and pickup orders. Additional variations have quickly become part of the off-premises restaurant experience during the COVID-19 crisis, such as cook-at-home meal kits; large family-style meals; and even “sides” of toilet paper.

Max Piet, CEO and president of Palm Beach, Fla.-based TooJay’s Deli, with 30 units throughout Florida, says his company leverages systems already in place to maximize off-premises sales. TooJay’s added curbside pickup as an additional option through its mobile app, as well as grocery-to-go items. “We know our communities are having a hard time finding fresh meats, toilet paper and other supplies. We are offering these items along with our sliced meats, cheeses, salads, breads and more,” Piet says.

Dr. Parker Simon, a practicing neonatologist in Tulsa, Okla., in March became a first-time fast-casual franchisee with business partner Bradley Turney. The pair signed a five-unit development deal with Durham, N.C.-based Rise Southern Biscuits & Righteous Chicken for the Tulsa, Okla., market. “The brand is doing a lot better during this pandemic than many others, so we didn’t hesitate to close the deal,” he says.

Simon anticipates little trouble finding attractive lease opportunities, particularly with the anticipated high number of restaurants being forced to close. He says he’ll seek spaces with smaller footprints and the possibility of adding drive-thru, currently not available at existing Rise units.

“There may be larger failed restaurants that can be divided into two smaller spaces. We’ll be looking at those and other types of conversion possibilities,” Simon says. “The industry has already been trending toward much smaller footprints, and I think we’ll see that pushed even farther now. We’re also working to secure discounted leases, paying less now and waiting it out a bit longer. We may be able to help landlords out in that way, but also positively impact our future profitability.”

Supply Chain Partners Adjust

While operators on the front lines of the crisis shift solidly into survival mode, their suppliers and partners in design, distribution, equipment and supplies continue to adjust as well.

With fewer customers to deliver to, foodservice distributors (including Sysco Corp. and US Foods), have formed partnerships with grocery wholesalers and retailers. They are temporarily contracting hundreds of employees to help them meet soaring demand and selling much of the inventory to retailers that is no longer going to restaurants.

Equipment dealers, too, are striving to help customers and employees weather the storm. “We’ve done quick, overnight kitchen retrofits to help some customers adapt to more off-premises business and curbside delivery,” Whitlock notes. “We’re doing whatever we can to assist. And internally, we’re using this time to clean and update our showrooms, warehouses and test kitchens. We’re improving our product training and paying attention to things that may have been neglected during the past nine years of economic boom times. When this ends, we’re going to be ready to hit the ground running and in better shape than ever.”

With projects already underway being relatively safe — both Whitlock and Ellingson report no outright cancellations as of early April — dealers and designers continue to look ahead trying to project what longer-term impacts to their businesses could be.

“The project thing will carry us for a little while,” Ellingson says “We do anticipate that will fall as capital investment drops off, but then we hope the supply side comes back. It’s just a crazy form of uncertainty right now, and we have a lot of mixed feelings. The circumstances are surreal, having government orders in place that are completely destroying business, and yet agreeing that that’s the right thing to do.”

In the California market, many projects are essentially halted, according to Mark Rossi, president of Costa Mesa-based Avanti Restaurant Solutions. Avanti has long serviced the chain market and more recently diversified to include healthcare, contract and corporate dining business. In regions with less-restrictive shutdowns, the impact on Avanti’s business has been less negative, and the company’s design business remains strong. But, Rossi says, some 30% of projects have “ceased,” and most new builds are on hold.

“People are hoarding cash and preserving capital to stay afloat, and that’s going to impact their ability to expand in the future,” Rossi says. “We see a lot more work ahead in remodeling and resupply versus new builds.”

Projects in progress continue to proceed, for the most part, at Indianapolis-based Reitano Design Group, thanks largely to its heavily noncommercial foodservice client base. Sixty percent of the company’s business is in K-12 educational markets, with the balance in higher education, healthcare, corporate dining and hospitality. Principal Scott Reitano says that, while there’s been some slowdown overall, education and healthcare remain strong segments, and the firm’s consultants and designers are conducting business as usual, albeit remotely.

Committed to overcommunicating and staying closely connected with team members during the shutdown, Reitano Design Group has daily video conference meetings. With face-to-face meetings with team members and clients on hold for now, Reitano also sees an upside to both groups becoming more comfortable with doing business remotely. “We’re gaining some new efficiencies,” he says. “When we come out of this, I think the design industry will be much better versed in using visual technologies, and clients will be much more accepting of them.”

Rossi agrees that forced changes in work habits continue to net new efficiencies that may change how business gets done post-pandemic. “We’ll continue to invest in technology and efficiencies and come out the other side of this stronger and with new best practices.”

Certainly, when the industry does come out of this, it will look different in many ways. Numbers of business and job casualties, already stunningly high by the time this issue went to press, will climb higher. But those companies able to hang on, pivot, innovate and reemerge will be back in business with game-changing lessons learned.

“Our industry will continue to exist,” Ellingson says. “Operators who survive this will come back stronger and smarter. And what we as professionals who understand how to design, build and supply restaurants do is going to be required. We’ll probably have more than the usual number of bankruptcies, and the world is going to be turned on its head, but there will still be restaurants and people will still eat out. Some industries may not be able to count on that, but we can, and we should find some grace and solace in that.”

Quick Shift: 100% Off-Premises

For many restaurant brands, off-premises business prior to the onset of COVID-19 restrictions on on-site dining was a strong and growing revenue stream. It’s now their only revenue stream, at least temporarily. Here, two chain executives explain how they’ve managed the shift.

COVID 19 Larry Rusinko Chief Marketing Officer 1Larry Rusinko

  • Vice President & Chief Marketing Officer
  • Farmer Boys
  • Riverside, Calif.

FE&S: How did you adjust your business to off-premises only?

Rusinko: Prior to the COVID-19 pandemic, our business was 40% dine-in, and 60% off-premises (drive-thru, carryout, delivery). With 100% off-premises, our business has changed in several ways. First, we adjusted labor scheduling and operational rigor to ensure our drive-thru business is properly staffed for fast and efficient service. Second, we adjusted all our customer-facing communications messaging to inform people we are open for business at all off-premises channels. Third, we highlighted the many safety practices in place at our operations, from increased cleaning and sanitation to social distancing enforcement, to safety seals on all off-premises bags and packaging.

FE&S: What are the biggest challenges now, and how are you overcoming them?

Rusinko: Beyond the obvious loss of the dine-in portion of our business, we’ve had to redeploy FOH [front-of-the-house] and BOH [back-of-the-house] labor, adjust product and packaging inventory levels, manage changes to menu mix and daypart sales levels, and adjust operational training and coaching to meet the needs of a 100% off-premises business model.

COVID 19 Carl Howard FazolisCarl Howard

FE&S: How did you adjust your business to off-premises only?

Howard: Prior to coronavirus, off-premises had gone from 40% of sales to 60%. We lived in the on-demand economy and guests looked for brands to accommodate them, so we provided every known way for them to order product. As such, we haven’t had to do anything different, but we are communicating with customers more often and being aggressive with offers.

FE&S: What else have you shifted focus to during the COVID-19 crisis?

Howard: We’re doing more things around safety seals on packaging and reinforcing strict sanitation guidelines in restaurants. We went to egg timers, so every 15 minutes employees wash hands and change gloves. And we’re continuing to look at evolving technologies that can help us to add services, speed or functionality to off-premises ordering to make it more even more convenient.

We established an equipment committee and brought 12 pieces of equipment into our test kitchen. Based on our evaluations, we’ll look to see what we’ll put into our restaurants. But we’ll be making decisions on information we have today and putting capital expenditures on hold. We’re in survival mode, preserving our liquidity and that of our franchisees is our main focus right now. Changes will come, but we estimate 6 to 12 months to be back to where we were.