In 2020, restaurants had their worst year on record by a long shot. Not only did food-service sales decline almost 20%, down $240 billion below their 2020 pre-pandemic forecasts, but it was also the year where a record number of U.S. restaurants closed their doors for good. Small chains and independent restaurants, which, according to Technomic, represent more than two-thirds of the restaurant industry, have borne the brunt of the impact, with roughly 90% of last year’s closures coming from their sector. However, it seems one man’s misery is another man’s fortune.
Closed restaurants across the country are leaving a trail of vacant real estate spaces in their wake. But they won’t be empty for long. Big chains with the financial means are positioning themselves to take advantage, eyeing up strategic opportunities for expansion.
Big chains = Bigger pockets and influence
Even with government aid and subsidies, many small business owners won’t have the capital to reopen or even start again. But big brands that were doing well before the crisis, especially fast-casual and fast-food chains, plan to continue pre-existing expansion plans.
With vacant restaurant spaces becoming available in desirable locations across the country, better-capitalized restaurant companies see the opportunity to expand their footprint. And with landlords lacking the leverage they had prior to the pandemic, chains are in an enviable position when it comes to negotiating rents.
Real Estate Opportunities = Corporate Darwinism on steroids
Some fast-food executives haven’t been shy in openly pointing out the silver lining of the pandemic. David Deno, chief executive officer of Outback Steakhouse parent company Bloomin’ Brands, told Reuters in an interview that “I don’t mean to wish ill on anybody, but there’s going to be real estate opportunities [for new stores or relocations to areas with] better visibility, better access and better parking.”
Last summer it was reported that Chipotle Mexican Grill had been reaching out to restaurants that weren’t even close yet, offering to buy out their remaining lease in the case they were “looking for relief.” In an email, Chipotle stated, “We’re fortunate to be in the position of opening new locations at this time and recognize that others may be looking for relief. To the extent the existing location fits within our real-estate strategy, we are open to lease takeovers and continue looking at new units and developments as well to support our accelerated growth.” Laurie Schalow, Chipotle’s Chief Corporate Affairs and Food Safety Officer added that the chain continues to “open new restaurants and sign new leases to satisfy customer demand for Chipotle restaurants.”
Given that recovery is coming “too little, too late” for many smaller restaurants and independents, many believe the looming domination of chains is inevitable. “We’re in a period of a few years where independents will lose and chains gain as much as 10% to 15% of market share,” says Neuberger Berman Analyst, Kevin McCarthy. He continued “It was a trend going 30 miles an hour, now accelerated to 100 miles an hour. It’s corporate Darwinism on steroids.”
Is all big business bad?
There is no question that independent restaurants across the US that are facing unprecedented challenges. On the other end of the spectrum, it’s a time of great opportunity for well-funded chains and their franchisees to expand and entrench themselves into where they want to be. While large corporations are usually vilified for their actions and are all round bad for the little guy, it also obscures the innovation they spur and the steady jobs they produce. “If there’s opportunities that make sense for us on the real estate side, we will pursue those,” said David Hoffmann, Dunkin’ Brands Group Inc chief executive officer in an April 30 earnings call. “But you also want to balance being a good corporate citizen and sticking to your values, and not being a shark either.”