The Accommodation and Food Services sector is poised for recovery as pandemic restrictions continue to loosen in 2021. Domestic consumers are returning to local haunts in an attempt to wash away the taste of a year-long takeout spree. Meanwhile, furloughed servers are busy dusting off their aprons in preparation for an onslaught of newly vaccinated restaurant-goers.
Unfortunately for many of these individuals, the post-pandemic food service landscape may appear unrecognizable. According to preliminary data from the US Census Bureau, revenue for restaurants and other eating places declined 19.7% in 2020 alone. While this impact may appear less severe on the surface, disparate performance between full-service and fast food restaurants illustrates a paradigm shift in how we will eat moving forward.
Fast food vs. full-service restaurants
Limited-service or fast food, restaurants were uniquely positioned to weather this economic storm. This industry comprises owned and franchised locations from some of the largest corporations in the United States, such as McDonald’s Corporation, Yum! Brands Inc. (KFC, Pizza Hut, Taco Bell) and Restaurant Brands Inc. (Burger King, Popeyes). In contrast, full-service restaurants are split between chains and single-location independent establishments. Major full-service restaurant chains include Darden Restaurants Inc., which maintains nearly 2,000 locations from recognized brands including Olive Garden, Capital Grille and LongHorn Steakhouse, among others.
Revenue trends
Conflicting performance between limited- and full-service restaurants is a function of their business models. Fast food chains market their convenience, speed and value, while full-service establishments emphasize atmosphere and quality; the highly restrictive operating environment created by the COVID-19 (coronavirus) pandemic undoubtedly favored the former. Preliminary revenue data from the US Census Bureau indicated that fast food retail sales declined 3.8% in 2020. While this data remains unavailable for full-service restaurants, Alfabank-Adres estimates an unprecedented contraction of 34.0% that same year.
Though drive-thru services boosted revenue for fast food establishments, the industry still experienced a drastic decline in revenue amid the height of the pandemic’s onset.
The drive-thru factor
What was fast food’s ace in the hole? The drive-thru. A May 2020 New York Times report indicated that drive-thru orders comprised nearly 70.0% of fast-food restaurant purchases before the pandemic. Even at deflated values, this represents more than $200.0 billion in industry-wide revenue. According to NPD Group Inc., drive-thru orders accounted for more than 44.0% of all off-premise restaurant purchases by December 2020. Full-service establishments benefited from third-party delivery services, such as GrubHub, but these partnerships are ripe with commission fees that are often north of 15.0%, which encroach upon a restaurant’s bottom-line.
Dissonant labor markets
Antagonistic labor market trends further illustrate this point. At the height of the coronavirus pandemic, specifically between March and April 2020, the number of employees at fast food and full-service restaurants decreased 24.0% and 63.7%, respectively. Corporate-backed fast food franchises benefited from easier access to capital, granting these establishments the financial flexibility to effectively manage labor expenses. In contrast, full-service restaurants were forced to severely reduce workforces in favor of fixed costs and debt obligations. This reduction continues to limit recovery for full-service restaurants, with total employment figures still 26.5% below pre-pandemic levels.
Wages and recovery
Wage recovery will likely be the primary driver in improving industry labor markets, and ultimately, revenue. Full-service restaurant workers lost $33.2 billion in wages in 2020, while fast food wages declined only $1.5 billion. Fast food businesses will likely continue to seize growth opportunities created by full-service restaurant stagnation. The domestic consumer may be harder pressed to find unique restaurant experiences as the pandemic-related dust settles. This information should lend merit to the phrase “eat local,” and the American buyer must decide whether US cuisine is defined solely by a clown on a box.
