Big Divide in the Restaurant Industry

Mish

Independent restaurants skid towards bankruptcy as large chains recover.

Who's Booming, Who's Not?

  • Well-capitalized large chains like McDonald’s, Chipotle and Domino’s are booming 
  • Your neighborhood independent restaurant isn't

The Covid crisis created a Big Divide in the Restaurant Industry

The coronavirus pandemic is splitting the restaurant industry in two. Big, well capitalized chains like Chipotle Mexican Grill Inc. and Domino’s Pizza Inc. are gaining customers and adding stores while tens of thousands of local eateries go bust.

Larger operators generally have the advantages of more capital, more leverage on lease terms, more physical space, more geographic flexibility and prior expertise with drive-throughs, carryout and delivery.

A similarly uneven recovery is unfolding across the business world as big firms have tended to fare far better during the pandemic than small rivals. In the retail world, bigger chains like Walmart Inc. and Target Corp. are posting strong sales while many small shops struggle to stay open.

Chain Reaction

Smaller chains and independents often use local farms for supplies including organic foods. 

As independents struggle so does the local specialty farm.

The big chains can get a break or extension from creditors. 

Good luck to the locals once Pandemic relief expires (and that happened at the beginning of September).

Mish

Comments (39)
No. 1-16
Casual_Observer2020
Casual_Observer2020

Bankruptcy is healthy. Restaurants can open again once commercial real estate prices crash.

Felix_Mish
Felix_Mish

Didn't the chains get dispensation from Covid by getting themselves deemed to be critical infrastructure?

And, since such categories were created by a large organization (state governments), one would expect the best outcome for large organizations.

Question is: When will restaurants - and food preparation generally - be fully automated?

PecuniaNonOlet
PecuniaNonOlet

I have been ordering food in, small independent restaurants dont have the right business model for pandemics, delivery is key. I spoke to a restaurant owner and asked why he didnt partner with uber eats. He said uber want a huge cut, essentially all the profit, for delivering his food.

Pizza chains have their own delivery drivers and i assume big chains have leverage over uber eats to reduce fees over volume.

Once again, economies of scale win over specialized niches.

davebarnes2
davebarnes2

For us at ages 72/63, dining is a risky experience.
We have never supported chains.
We are slowly starting to eat in restaurants that have safe practices.

Eddie_T
Eddie_T

Same old story. The smaller high quality guys die out and the crummy chains do okay.

If Bartlett's goes bust, I don't know what I'm gonna do. It'll be like losing family.

Tengen
Tengen

It's fitting, we've been heavily favoring large corps over small business for decades. Recent Fed policy has kicked this trend into overdrive.

Look at the bright side, at least we can all get rich selling real estate to each other while the Fed inflates asset prices with cheap money!

Sechel
Sechel

I hardly call chipotle, mcdonalds and dominoes restaurants. seems what's being described is fast food industry is run by corporations where as restaurants are typically not.

Roger_Ramjet
Roger_Ramjet

Just waiting for Trump to commit to forgive all traffic tickets if he is reelected.

Webej
Webej

It's also a matter of scale. McDonalds can scale hours and staffing to demand, and has the familiarity to supply the bike brigade with eat out food when they're not allowed to have anyone dine inside. If you have a small staff and don't have the bike brigade waiting outside, it will be harder to scale your products.

Sechel
Sechel

Takes about 3-5 years for a "restaurant" to turn a profit. 60% fail in the first year and 80% before their fifth anniversary. It's always been a tough business even without Covid

Carl_R
Carl_R

Covid didn't create trends, but it definitely accelerated them. The small restaurants will be hit again when the national $15 minimum wage kicks in. The big chains can automate, and eliminate clerks and perhaps cooks, but the the small guys can do nothing but raise prices and/or close.

numike
numike

Interesting how there is no longer any mention as the small businesses as the "backbone of our country" Even the eateries in the ritzy sections of cities are becoming bland generic establishments. We are witnessing a speeding up of the homogenizing of much of if not all of our culture.

Herkie
Herkie

I feel bad for the restaurantuers and for the country that will lose any gastronomic identity other than a few large chains like Olive Garden and to go /delivery places. Most of the time I will not even consider delivery food, I read an article last year that said 65% of delivery drivers admit to helping themselves to food from orders.

And delivery adds a lot to the cost one way or the other. It is also not good for the environment.

Restaurants will go under, including some big chains because they operate on such a slender margin any disrution will close them, the only way most will be able to reopen is with huge price increases and that will get them by for months, but eventually those increases will do the same thing as Covid in keeping people away.

Bigger chains can go on longer on borrowed money and retained earnings, but eventually they too will have to price themselves out of business. In some locations eventually a restaurant or a few will spring back up like Las Vegas, DC, New York, after Covid, when they are once again operating hotels at good capacity, because where you have hotels you have a captive set of guests that have no cooking ability, but again these hotels may also be pricing themselves out of business as well. Remember that the segment of the population that can afford huge price increases is limited to 10% of us, the other 90% are quite to very price sensitive.

Dodge Demon
Dodge Demon

Easy. Those that are listed in the stock market or owned by private equity vs those that are not. Politicians and insiders can’t front run and inside trade if they aren’t in the market.

I can only do so much for the small businesses if they can’t help themselves. Their enemy is big FAT target.

KidHorn
KidHorn

Much of this is due to school age children being at home instead of school. Parents have to feed them and no school age kid wants food from a fancy restaurant. They want McDonalds and it's an easy and cheap solution for the parents.


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