Restaurant sales could slump 20% in next 12 months, Moody's says

Dive Brief:

U.S. restaurant profits could decline as much as 20% over the next 12 months depending on how long restaurant closures and restrictions remain in place, according to a Moody's report emailed to Restaurant Dive. A decline of at least 10% seems most likely, per the firm. This projection compares to Moody's previous forecast of 2% to 4% growth in the industry.
QSRs are slightly better positioned to weather the storm due to reliance on drive-thru and takeaway business models compared to fast casual restaurants. Roughly 60% to 70% of QSR traffic already comes via drive-thru.
Restaurants with the biggest scale, geographic and brand diversity will have the most options when it comes to navigating the coming months and finding new ways to reach consumers, Moody's reports.

Dive Insight:

This outlook comes after the National Restaurant Association estimated a $225 billion loss for restaurants due to ripple effects from the novel coronavirus. Nearly 40 states have ordered some type of restaurant closures to prevent spreading the disease.

A 20% profit loss could be a death knell for some brands, particularly those with smaller footprints and less ability to absorb the shock. Brands with broad geographic spread can cover losses in heavily-affected areas, whereas restaurants located solely in smaller geographic areas are more susceptible to having their entire revenue stream impacted. McDonald's has closed its U.K. and Ireland stores, for example, expressing concerns that even drive-thru service poses too much potential for spread of coronavirus. Given McDonald's global span, a temporary closure in these markets may only be a speed bump in the grand scheme of its operations.

Fortunately, some good news is on the horizon for restaurant operators. Declines in revenue will soften in the second half of the year as the economy improves and restrictions on dining are lifted, according to Moody's. The return to normal profits will likely be slow as consumers resume their usual activities with some wariness about whether the risk of exposure has reduced. Other obstacles that the restaurant industry may face to getting back on track are staffing inefficiencies, reduced diner income and the potential for fewer store locations if some are forced to shut down due to poor profits.

The restaurant industry has wasted little time coming up with clever contingency plans to keep sales as high as possible. As Moody's notes, brands that have already developed robust digital infrastructure to support delivery and takeaway are largely only suffering when it comes to the loss of on-premise sales. In fact, as many brands face layoffs amid declining sales, delivery-heavy Papa John's is actually looking to hire 20,000 new workers to keep up with its delivery and carryout requests, while Pizza Hut plans to hire 30,000 new drivers that will be trained in under five hours and Domino's plans to add 10,000 employees.

For fast casual and full-service dining, however, options are more limited. Although brands in these category can offer takeaway options, consumers may not immediately think of their favorite fast casual locations as offering this service. Darden's Q3 results suggest that Moody's prediction about casuals suffering the most in the months ahead is on the mark. But some brands are rising to the occasion with creative options. A number of states have temporarily permitted the delivery of alcohol with food purchases, which may help restaurants in these categories stay relevant and appealing to consumers who can’t make a trip to the supermarket.