The coronavirus pandemic has been affecting many businesses all over the world, and some of America’s most iconic and popular food chains are also suffering. Chains such as Pizza Hut, IHOP, and Subway are experiencing massive financial struggles as they try to keep sales afloat. While these chains are usually better off than independent restaurants, they are still struggling just like any other business right now.
Experts are now saying that not every franchisee will be able to stay in business regardless of any support that has been given to them. Owner-operators who are struggling will be forced to sell their business, back to the corporate office or other franchisees, or file for bankruptcy.
All food chains are struggling in some way
A Pizza Hut franchisee based out of Kansas recently was forced to file bankruptcy in early May. The same goes for a franchisee with 49 IHOP locations, which are now all set to close. One Subway franchisee in Nevada has also filed for bankruptcy back in late April. Restaurant industry investor Roger Lipton talks to Business Insider about what’s going on.
“Every franchisee is a small business, and they had to close up, and they’re sucking wind,” he says. “They’re hemorrhaging.” Even those chains that are managing to stay afloat and continue business are concerned.
While some chains are managing to stay afloat, sales have still dropped alarmingly
McDonald’s is a large chain that recently warned that while it had earmarked $40 million in aid for franchisees, some may need to downsize or sell off locations. Despite this, McDonald’s National Franchisee Leadership Alliance pushed back on downsizing demands. They say in an email to Business Insider that “if you weren’t considering downsizing pre-COVID-19, it shouldn’t be a consideration as a result of COVID-19 today.”
Although dining in has been strictly banned from restaurants across the globe, many have stayed open via their drive-thru. Fast-food chains such as McDonald’s, Taco Bell, and Burger King have been utilizing this option. However, their sales have still dropped 20-35% in the last two weeks of March. Despite this not-so-great news, there are some restaurants that have recovered significantly in recent weeks.
For now, there are other options for big food chains with drive-thru services
Many franchisees across the U.S. have received financial support from the chain’s corporate offices. Franchisors such as McDonald’s, Denny’s, and Pizza Hut have cut back on franchisees’ costs by deferring payments related to rent, royalty, and marketing. However, it’s important to note that there has been an ongoing trend in the industry of fewer franchisees owning more locations. “Having fewer, larger franchisees can make it easier to operate with thin profit margins, as well as cut corporate costs,” MSN notes in an article.
John Gordon, the principal of Pacific Management Consulting Group, says that the impact from the coronavirus pandemic will continue the downward drop of having fewer franchisees. But, despite which restaurant decides to do what, all of them will be affected in some way. “Small chain, large chain, it’s still a restaurant,” says Lipton. “Same economics.”