McDonald's suspends dine-in operations at corporate stores

Dive Brief:

McDonald's USA company-owned restaurants will close seating areas, including self-service beverage bars and kiosks, and shift business to drive-thru, walk-in takeout and delivery, according to a company announcement. Staff with scheduled shifts are expected to be moved to support drive-thru carryout and delivery orders. The company owns about 700 restaurants in the U.S, according to Nation's Restaurant News.
The company has strongly encouraged its franchisees, which operate over 13,000 locations in the U.S., to take similar measures. Franchisee leadership supports this guidance and it is expected to be adopted by a majority of franchisees, the company said.
McDonald's is already working with franchisees around the world to evaluate operational feasibility and support financial liquidity, which could mean rent deferrals, and is working closely with suppliers on contingency planning, according to an SEC filing.

Dive Insight:

In addition to offering corporate-owned restaurant workers 14 days of pay if they are quarantined, the company, much like other restaurant chains, has limited operations as the novel coronavirus continues to spread around the world. McDonald's cut service to drive-thru, delivery and takeout in France and Canada and closed all restaurants in several markets, including Italy and Spain, according to an SEC filing. After closing restaurants in five cities in China in January, the chain is now operating about 95% of restaurants in the country, the company said in the SEC filing. The disruption in China will have a minimal impact since this market represents about 5% of systemwide sales, the company said in its 10-K.

The impact from the spread of COVID-19 throughout the U.S. will have a significant impact to the company's systemwide sales. The U.S. market generated $7.8 billion in sales in 2019, according to the company's 10-K. While international operated markets generated $11.4 billion in sales, the U.S. is the company’s largest single market and was already experiencing traffic declines. The chain has invested heavily on technology over the last year to improve operations, which could pay off during the pandemic.

The fast food chain had been working on improving drive-thru times, shaving off 20 seconds last year by installing timers, adding kitchen tools to help crews prepare food faster and reducing menu complexity. Its Dynamic Yield drive-thru technology, which offers customized menu suggestions depending on weather, time of day and popular items, is already in 9,500 restaurants. Its McDelivery also generated over $4 billion in global sales in 2019, and the chain now works with DoorDash and Grubhub in the U.S. after ending its exclusive agreement with Uber Eats in 2019.

Rent deferrals for franchisees, especially in the U.S. could also help keep its system healthy by allowing franchisees to maintain operations without going out of business. Many franchisees in the U.S. have already put a significant investment, up to $700,000, toward remodels so having to shutter dine-in operations soon after will certainly make things difficult. Making sure its franchisee system is strong will be key to McDonald's success, especially since over 13,000 locations in the U.S. are franchised.