Posted by Franchise Restaurants on Thu, 07 May 2020 06:54 | #

What Happens When the Only Restaurants Left Are Chains?

By Cathy Erway, New York Grubstreet 5 May 2020:

The COVID-19 pandemic has upended every aspect of life. For the restaurant industry, which has been decimated, it means head chefs now make home deliveries, while other operators transition to meal kits and pantry items. It used to be that customer preferences were the driving force behind these kinds of sweeping changes, and that will, one day, be the case once again. As the long shadow of COVID-19 looms over the industry, we might step back to consider what kinds of businesses we wish to support. To ask ourselves, Who should be the real winners and losers?

It appears for now that large, publicly traded chain-restaurant companies are better poised for survival. For all the awards and accolades independent restaurants earn, their profits are notoriously small (and sometimes nonexistent). These rugged, individualistic, and funky independent restaurants are the heart of the industry, but chain restaurants, on the other hand, can rely on their deep resources, which include large profits (unless it was all used to buy back their own stock), exorbitant executive pay (recently tapped by Darden, the mother company of the Olive Garden, among other full-service restaurant brands), and the manpower to apply for (and fast-track) various forms of government assistance, such as the Main Street Lending Program, the Qualified Improvement Provision, and up until recently, the Paycheck Protection Program. Meanwhile, even the most successful independent operators are wondering if their restaurants will even exist when this is all over.

Independent, neighborhood restaurants are a bit like small, local farms: They don’t rake in millions in profit; they don’t have the advantage of big lawyers or lobbyists working on their behalf, seeing to it that even government assistance is working on their behalf, yet they’re often the only outfits that offer good products of any real value to people. That’s proven especially true now, as restaurants hang on to the life support of their adoring communities.

But look at the restaurants whose PPP loans we know about: Shake Shack made net profits of $21.9 million last year on $570 million in revenue; Ruth’s Chris made $42 million last year on $468 million in revenue; Potbelly made $409.7 million in revenue last year. These are just a few of the large restaurant brands to receive the small-business loans. Thankfully, many recipients of PPP loans were successfully shamed into announcing they were giving it back. Chain-restaurant groups like Darden could not have avoided feeling its chill, even as it reopens restaurants in some states.

The bellyaching over most of these chain restaurants is and always was warranted…