Dive Brief:
- Feast American Diners LLC, a Denny's franchisee, has closed 15 restaurants in New York, citing "unforeseeable business circumstances prompted by COVID-19," according to four Worker Adjustment and Retraining Notifications filed in May. The franchisee first closed the locations temporarily on March 20 when it furloughed 683 employees. Those employees have since been laid off, according to the recent filings.
- This news comes on the heels of 49 franchised IHOPs closing in the North Carolina, South Carolina, Tennessee and Virginia. CFRA Holdings LLC and CFRA Tri-Cities LLC filed for bankruptcy on May 7, Nation's Restaurant News reports.
- Both Denny’s and IHOP experienced double-digit same-store sales declines through March and April due to nationwide closures from the COVID-19 pandemic.
Dive Insight:
These closures illustrate just how hard the casual dining sector, largely dependent on dine-in customers, was hit by lockdowns across the country. Darden's same-store sales during the most recent quarter were down nearly 45%, while Olive Garden was down by 38%, according to a BTIG report.
While both IHOP and Denny's have leaned on delivery and off-premise business, which has helped some casual dining chains like Outback Steakhouse weather the storm, they may face another challenge in their focus on breakfast. IHOP president Jay Johns said during a recent call that breakfast is an easy meal to replace, especially with parents working from home who can give their kids cereal or toaster pastries. Peter Saleh, BTIG managing director, told CNN that breakfast is likely the last meal to recover until people's normal routines return.
"If you're only going to order out one time a day, the places that are doing dinner ... look like they're winning more than some of the others," Johns said during the call.
The bigger question now is if these are the last of the closures for these chains. As of mid-May, 82% of Denny's franchised restaurants received funding under the Paycheck Protection Program, while another 7% were approved and awaiting the funds, Denny's CEO John Miller said during a May earnings call with investors. Denny's has also offered financial support for franchisees, including deferrals and abatement of rent, royalties and advertising fees. If businesses can’t be sustained by federal and corporate aid, a road to recovery will be a formidable challenge.
Even as dining rooms start to open up, it's unlikely for recovery to be quick for any sit-down concept. States that are opening up their restaurants have limited seating restrictions, which challenges operating income. Not to mention, diners are not rushing back anyway. According to a study from Washington State University's Carson College of Business emailed to Restaurant Dive, only 21% of respondents feel ready to dine in as soon as dining room restrictions are lifted.
There could be some silver linings down the road for these companies, however. Denny's off-premise is helping the chain inch back to pre-COVID-19 levels, with takeout, delivery and curbside helping the chain's average unit volumes for this segment doubling from February to April. IHOP could find better footing in its smaller, off-premise-focused concept Flip'd, which Dine Brands was planning to expand this year before the pandemic. Still, neither of those solutions are quick fixes to what has happened throughout the past two months, and the industry's future remains uncertain.
