The Dunkin’ shop on Bragg Boulevard in Fayetteville, N.C. is a microcosm of the impact COVID-19 has had on the chain restaurant business. The newly remodeled next-generation shop is near a cluster of quick serve and fast casual restaurants like Krispy Kreme, McDonalds, Pizza Hut and Dominos, along with local barbeque, Chinese and Mexican take-out places; two miles away is a Starbucks. Franchisee Ken Baer owns Dunkin’ shop and seven others around Fayetteville, and nearby Fort Bragg. When the pandemic struck in mid-March, Baer remembers quick service establishments sitting empty. He says he was nervous and afraid.
“Business went down about 30 percent,” says Baer. “No one knew where the bottom was.” With dramatic drops in sales volume, chains like Steak and Shake, Le Pain Quotidien and Sweet Tomatoes have declared bankruptcy or permanently closed many of their locations. Others, like McDonald’s, Dunkin’, and Starbucks, moved to shutter underperforming stores. Even with dining rooms reopening, many operators found it nearly impossible to generate a profit at reduced dine-in capacity.
But there have been bright spots in the QSR industry during this dark time. According to Black Box Intelligence, a restaurant analytics firm, quick serve restaurants achieved positive comp sales during the first week of May—making it the only restaurant segment to move into positive sales territory since the pandemic began. “QSRs were better positioned to weather the pandemic, thanks to their set-up and investments in convenience,” says Atif Siddiqi, CEO of Branch, a bank that partners with employers to help workers grow financially. “Most QSRs have been better able to handle measures to socially distance and minimize in person contact including drive-thrus, mobile ordering, contactless payments, and delivery.”
At Baer’s Dunkin’ shops, business started growing rapidly as consumers began emerging from their homes last spring. By May, his revenue equaled the previous year and continued to climb. In July, his numbers were up 20 percent over last year. The differentiator was that “it’s all going through the drive thru,” says Baer, estimating as much as 90 percent of his customers are driving thru.
Jonathan Maze, a longtime industry journalist and the editor-in-chief of Restaurant Business magazine, says the COVID crisis supercharged the trajectories for eating and drinking establishments. “The pandemic sped a lot of things along and put restaurant trends into overdrive,” he says.
According to Robin B. DiPietro, director of the University of South Carolina School of Hotel, Restaurant and Tourism Management, QSR companies that were in an already precarious financial position became more unstable than ever; these had a big dependence on brick-and-mortar locations, weak digital and delivery channels, undifferentiated menus and limited loyalty programs. Conversely, successful QSRs increased their reliance and innovation with delivery, drive thru and take-out as well as usage of mobile apps and partnerships with Uber Eats and Grub Hub and others.
Brands such as Popeyes — that have leveraged technology, mobile ordering, drive-thru, and contactless ordering — fared well during the pandemic. Popeyes saw same-store sales increase by 26.2 percent in Q1 despite pandemic restrictions beginning in March. Popeyes CEO, Jose Cil credited the jump, in part, to “mobile order and payment, and curbside and delivery options,” in an earnings statement release.
At Wingstop, the nostalgic, aviation-themed restaurant specializing in chicken wings, sales soared more than 33 percent in April despite closing all of its 1,413 dining rooms in March. The company transitioned the brand to digital sales which requires less labor and carries a $5 higher check average.
Finally, Domino’s retail sales improved 4.4 percent year over year in Q1 2020 as it shifted to contactless delivery. The company spent approximately six weeks rewriting its operating procedures to move to a 100 percent contactless delivery model nationwide.
Experts say for brands to survive the pandemic, they need to make customers feel safe by emphasizing cleanliness and limited person-to-person contact. That means adapting their operations strategy to create a different customer experience. “Not just in terms of masks and sanitizer, but offering contactless delivery, and even in some cases, like El Pollo Loco, implementing tamper proof delivery bags,” according to Elizabeth Lockwood, a QSR expert at The Sound, a Vancouver-based branding agency.
In Maze’s view, the QSR sector has come out of the pandemic looking better than any other in the industry and has a tremendous advantage going forward, given its focus on value in this economy.
Back in Fayetteville, Baer wonders how long the changes prompted by COVID-19 will continue to impact sales and operations. When coronavirus first struck, he ramped up to meet the demands. He secured few hundred face masks from the online crafts marketplace Etsy as well as from the mother of one of his managers, who made them herself. He installed plastic covers in drive-thru and cashier areas. In May, he was able to reopen his lobbies for take-out service to ease the pressure on the drive-thru. Like many other Dunkin’ franchisees, Baer is seeing a continued decrease in breakfast demand, but an increased demand for coffee and espresso drinks. As more commuters work from home, there is a shift in traffic from early morning to midday, and Baer is “certainly seeing a decrease in donuts.” But he was lucky enough to install a second espresso machine last year in most of his locations, which is now helping his stores maintain and increase speed in the drive-thru. “Now there are different pressure points but we have adjusted,” says Baer, pointing to his purchase of additional ice machines to meet the summertime demand for iced drinks. Finding workers continues to be a challenge, but Baer is paying a COVID bonus to hourly workers and managers to encourage them to stay on the job and to offset those who have not returned to work because of health or family concerns.
“We feel like we have done some good things. We want to make sure we continue down that road,” says Baer, sharing some optimism for the future. “We were certainly very worried in the beginning, but it looks like we are up and back in business.”