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Most fast-food franchises have bounced back in short order

Mitchell Hartman Aug 5, 2020
Heard on: Marketplace Morning Report
An employee directs drive-thru traffic at a crowded McDonald's in Scotland. Jeff J. Mitchell/Getty Images

Most fast-food franchises have bounced back in short order

Mitchell Hartman Aug 5, 2020
An employee directs drive-thru traffic at a crowded McDonald's in Scotland. Jeff J. Mitchell/Getty Images

You might not be able to tell from their earnings reports, but franchise restaurant chains have actually been recovering pretty well.

McDonald’s profits last quarter were the chain’s lowest in 13 years. Yet the company reported that now revenue is almost back to pre-pandemic levels. We’ll get another glimpse into the industry Wednesday, when Wendy’s reports its results.

How franchise restaurants are doing depends on what they’re cooking — and how they’re connecting with customers.

David Blevins knows a lot of people are hurting economically, so he’s feeling pretty lucky.

“My business is actually excellent right now,” he said. “I wish I could say that about everyone.”

Blevins owns a Chick-fil-A franchise in Clarksville, Tennessee, about an hour outside Nashville. He’s closed his dining room to keep customers and staff safe. But he’s more than made up for the lost sit-down business. 

“We’re dependent on our drive-thru window, and also mobile ordering,” he said. “Customers who never downloaded the Chick-fil-A app or never used DoorDash or Grubhub are actually ordering now. And that’s a significant part of our business.”

With COVID-19 surging, consumers are fearful of going into stores and restaurants

So fast-food chains are doubling down on virtually contactless service, according to Jim Hertel, an analyst at Inmar Intelligence.

“It’s all about the drive-thru now [and] how can I minimize contact with other consumers, with store personnel?” Hertel said. “What better way to do it than have the food slid out underneath the window?”

The pandemic’s creating winners and losers in fast food, said R.J. Hottovy, consumer strategist for Morningstar. Ordering a pizza has gotten really popular.

“The quick-service pizza chains — I mean, they’re continuing to do very well in this environment,” Hottovy said. “Quarantine and shelter-in-place mandates really work to their favor.”

But, with so many Americans working from home — or not working at all — Starbucks and other chains that focus heavily on breakfast are struggling. 

“The specialty coffee companies — the ones that are really dependent on that morning commuter traffic — and McDonald’s, because they also have heavy exposure to that morning commuter, they’re hurting as well,” Hottovy said.

And the industry faces uncertainty. 

Restaurant sales stalled in July as COVID-19 cases started rising again, according to the NPD Group, a market research company. And millions of people just lost their extra $600 a week in federal jobless payments, which have propped up consumer spending during the pandemic.

COVID-19 Economy FAQs

What does the unemployment picture look like?

It depends on where you live. The national unemployment rate has fallen from nearly 15% in April down to 8.4% percent last month. That number, however, masks some big differences in how states are recovering from the huge job losses resulting from the pandemic. Nevada, Hawaii, California and New York have unemployment rates ranging from 11% to more than 13%. Unemployment rates in Idaho, Nebraska, South Dakota and Vermont have now fallen below 5%.

Will it work to fine people who refuse to wear a mask?

Travelers in the New York City transit system are subject to $50 fines for not wearing masks. It’s one of many jurisdictions imposing financial penalties: It’s $220 in Singapore, $130 in the United Kingdom and a whopping $400 in Glendale, California. And losses loom larger than gains, behavioral scientists say. So that principle suggests that for policymakers trying to nudge people’s public behavior, it may be better to take away than to give.

How are restaurants recovering?

Nearly 100,000 restaurants are closed either permanently or for the long term — nearly 1 in 6, according to a new survey by the National Restaurant Association. Almost 4.5 million jobs still haven’t come back. Some restaurants have been able to get by on innovation, focusing on delivery, selling meal or cocktail kits, dining outside — though that option that will disappear in northern states as temperatures fall. But however you slice it, one analyst said, the United States will end the year with fewer restaurants than it began with. And it’s the larger chains that are more likely to survive.

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