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COVID-19 impacting economic outlook, ability of restaurants to remain open: Technomic

Restaurant sales drop 45 percent from February

According to Technomic, a Chicago-based foodservice consultancy, 70 percent of restaurant operators are concerned that COVID-19 will have a negative impact on their ability to remain in business. A new, updated COVID-19 impact report as of March 27, prepared by Managing Principal Joe Pawlak, summarizes some key findings.

First, the economic outlook is grim, given projections for GDP this quarter compared to 2Q 2009, which immediately followed the Great Recession. Second, restaurant sales continue to drop and consumer spending is down 45 percent from the typical week in February. Restaurant operators are concerned, to say the least.

For the second quarter of 2020, projections from financial services firms, cited by Technomic and provided by Bloomberg, range from a 30.1-percent drop to a best-case 8.5-percent decrease. Not surprisingly, the simple average of 11 GDP projections is a 15.3-percent dive. By comparison, in 2Q 2009, GDP dropped 3.9 percent.

The new environment of social distancing and dining room closures creates a “new normal,” according to Technomic. Much of the restaurant occasions surrounding the workplace, including breakfast and lunch, have resulted in much fewer opportunities for restaurant sales. Although fast-food and fast-casual segments have been more resilient, these segments are also taking a hit.

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Restaurants want to increase demand for takeout/delivery while fewer and fewer people are out and about. State-mandated dining room closures and stay-at-home orders are creating a vacuum for new opportunities. Restaurants that continue to operate are forging ahead with specials to lure back customers for off-premises business. “Promotions include free or discounted delivery, curbside pickup, digital payment options, daily deals or specials and adult beverage options,” wrote Pawlak.

Related video: Consumer spending drops 45 pct as restaurant operators struggle for survival

Within a 50-percent subset of operators, dining-room closures have resulted in reducing staff and operating hours. There’s a heightened interest in safety and that has led to retaining sanitation staff. He added “51 percent have retrained staff on food safety and cleaning practices, 44 percent have introduced new food safety measures and 40 percent have started cleaning kiosks more often.”

Technomic had already projected total foodservice industry sales to drop between 11 percent and 27 percent during 2020 And now, there’s more granural detail to understand these dire projections. In addition, Technomic reported these additional developments it has observed, which are also helpful for restaurant operators to consider amid the health crisis:

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  • Royalty relief with franchisors extending deadlines
  • Rent deferments
  • Crowdfunding to assist struggling restaurants
  • Government relaxation of alcohol delivery restrictions
  • Waiving of delivery subscription fees
  • Delays for remodeling and other reinvestments
  • Shifting menus to focus on the most important and operationally effective menu items
  • Chains tapping into credit
  • As part of the federal stimulus package, restaurants with more than one location and fewer than 500 employees can borrow up to 2.5 times their monthly payroll or $10 million, whichever is lower. Chain affiliations are not a factor in determining eligibility, which is a major win for franchisees

To view the full report and analysis, navigate here.

Photo credit: Pez Gonazalez

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