How Covid helped Olive Garden and Chipotle take over the restaurant business 2022-04-30 07:23:22


Big chains, even Weak like casual restaurantsIt fared far better than smaller restaurants and independents, thanks in large part to easy access to cash and the ability to rely on parent companies to lead the way in strategic shifts. In 2021, the top 500 restaurant chains accounted for 63% of all US restaurant sales, up from 58% in 2019, according to restaurant consultancy Technomic.

They are now in a position of strength, ready to fill the void left by restaurants that have not survived.

“The pandemic has put a lot of young freelancers out of business,” said Joe Pollack, principal at Technomic. They didn’t have enough money [or] Evolution to achieve this.

Access to capital and economies of scale have allowed large chains to sink deeper into the pockets and make the strategic shifts that lay them for success today. Many smaller operators did not have this option.

This upended pre-pandemic trends, where chains were taking a bit of a pick-me-up, but at a slower pace. “On an annual basis, it was a very small creep,” Pollack said. “We’re talking about tenths of a point a year.”

Now, when consumers decide where to dine outside, they are more likely to see larger chains of smaller eateries or independent restaurants. The landscape can become a new normal.

“I think it’s a permanent shift,” Pollack said. “It’s more of a market chain now.”

Independent restaurants are often at the forefront of innovation, testing culinary trends and concepts later picked up by larger chains. Without it, the restaurant landscape can become more boring – and lose its character.

“Small restaurants like mine are … the heart and soul of local communities,” said Jamie Rizvi, a New York City restaurateur.

The triumphant return of Olive Garden

Back in March 2020, when restaurants He told them to close their doors To stem the spread of what was then called the “new coronavirus,” former Darden Restaurants CFO, Ricardo Cardenas, made a bold prediction.

“We have not yet looked two years into the future. We are looking hourly and weekly at the moment,” he said. “But we think our situation helps us get stronger when we come out of this.”

Darden (DRI) He is the owner of brands including Olive Garden, Longhorn Steakhouse, and Eddie V’s: sit-down restaurants that have been particularly affected by the closing of dining rooms.
Olive Garden has made a big comeback since spring 2020.
At first, he It doesn’t look sure at all That Darden would recover, let alone emerge from the pandemic in a stronger position. The stock fell in March, and its total sales fell 43% in the three months ended May 31, 2020.

But Cardenas was right. Since then, the company’s stock has recovered, and then some, hovering around $135, or about 12%, above the price in late February 2020. The company announced record sales in December 2021.

Darden is now in a position to pick customers for restaurants that haven’t been able to survive the pandemic.

“There are fewer restaurants today than there were last month, the month before and the month before,” Cardenas, now COO, said during a call with an analyst in March. “These restaurants will eventually fill up.” “What we want to do is be there to fill some of these restaurants and get that market share.”

It is not just an olive garden. Popeyes is Planning to add more than 200 sites in North America this year, after a year of rapid expansion in 2021. Chipotle (CMG) He said in February that his The goal is to operate 7,000 locations in North America In the longer term, up from the previous target of 6000.

But as these chains thrive, freelancers have been – and still are – struggling just to stay afloat.

Capital is king

When the pandemic hit, companies like Darden and The Cheesecake Factory took measures like suspending dividends and withdrawing credit to free up money to stabilize business.

For smaller freelancers, of course, these lifelines weren’t an option.

“The biggest challenge is access to capital,” said Rizvi, owner of New York City’s GupShup, a contemporary Indian restaurant, and Chote Miya, a kiosk-like place serving Indian street food that opens during the pandemic. He said that without government support such as the Payroll Protection Scheme, his business would not have survived.

Rizvi, like most operators, has struggled to hire staff. This means that he had to wear many hats himself.

“I have to be on the floor, I have to be the manager,” he said. Restaurant fills mean Rizvi has less time for administrative tasks. Because of that, he said, “we’re way behind on our paperwork.”

Popeyes has big expansion plans for this year.

Rizvi has managed to keep his restaurants open, but they haven’t quite worn out. “At the moment we are not making a profit,” he said, adding that he expects a year or two to pass before his restaurants recover.

Pollack noted that larger chains are also better able to negotiate lower component prices, and take advantage of their order volume in a way that independents can’t afford. Starbucks (SBUX)For example, he said decades long Helps secure lower coffee prices Even as the commodity rises. smaller chains More prone to fluctuations.

For James Moore, executive chef and partner at Fully Belly — the delicious breakfast and brunch venue that opened in San Antonio, Texas, in February 2020 — keeping the business means relying on personal finance. Along with his business partner, “We did everything we could to keep him alive.”

Just weeks after Fully Belly opened, when there were many restaurants Pivotal for take out and deliveryMoore decided it made more sense for a temporary shutdown.

“We haven’t been open long enough to stay open only for takeaway and delivery,” he said. “It was definitely a hit.”

Moore also referred to government support as a lifeline, saying, “Every dollar we received in aid we totally saved.” Today, Moore considers himself lucky. Although Fully Belly isn’t profitable yet, it’s growing — and Moore even plans to open at least one more location this year.

The thought of restaurants that did not survive “hurts me,” he said. “I want everyone to succeed.”