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Published in Food/Agribusiness

West Michigan restaurants bend categories to survive tumultuous 2020

BY Sunday, March 14, 2021 04:30pm

Jeff Lobdell’s portfolio of restaurants took a nearly 40-percent hit to its top line revenue during a COVID-19 pandemic-rattled 2020 that took a hefty toll on the hospitality industry.

However, one store under the ownership of his Grand Rapids-based Restaurant Partners Management LLC managed a sharp bounce back.

Bagel Beanery, located at 455 Michigan St. NE in Grand Rapids, took a similar initial nosedive early in the pandemic, but finished off the year down around 3 percent in revenue, Lobdell said. Bagel Beanery is also the only fast food/fast casual restaurant — often referred to as a quick service restaurant (QSR) — in the Restaurant Partners portfolio.

Lobdell’s experience with Bagel Beanery is a microcosm of a trend that has been playing out nationally, where the food industry is seeing a boom in sales for quick service restaurants, a trend that could lead to lasting effects post-pandemic.

Fast Food Rebound

The Bagel Beanery location on the Medical Mile is outfitted with an amenity that proved coveted during the pandemic: a drive-thru window. 

Because of the drive-through capabilities, Bagel Beanery was one of just two restaurants in Lobdell’s portfolio that was able to stay open during the pandemic. The other was The Beltline Bar in Grand Rapids, which traditionally generates 15 percent of its sales from takeout orders.

However, despite the drive-through window, Bagel Beanery generated roughly half of its sales from patrons ordering inside the store.

This could explain why, despite a healthy bounce back, Bagel Beanery was unable to jump back into the black like many of its QSR counterparts across the country.

Fast food franchises were some of the biggest winners of the pandemic and the new dining format of choice.

“When everything was shut down — and all the sit-down restaurants closed — the fast food restaurants stayed open,” Lobdell said. “They initially took a bit of a nosedive and a lot of them got big PPP loans and then they started pulling out of it and excelled through the rest of 2020 while the sit-down restaurants continued to suffer.

“During the second shutdown, the fast food restaurants didn’t skip a beat. They were able to shed some costs of operating dining rooms while still having the efficiencies of the drive-thru going.”

Industry numbers underscore the fact that QSR was just about the only winner in the dining industry emerging from 2020.

Data from restaurant industry analytics company MillerPulse chronicled the journey through COVID-19, which kicked off with a 20-percent drop in same-store sales for QSR restaurants in April when the pandemic started to grip the country. By November, quick service restaurants managed to creep into the black with a 1.1-percent increase in same-store sales for the month. MillerPulse also projected that performance will improve even more in 2021.

Many of the usual suspects saw a fortunate mid to late 2020. McDonald’s Corp. recorded a 4.6-percent increase in same-store sales for the third quarter of last year, while Yum! Brands Inc. reported a 3-percent increase in same-store sales for Taco Bell for the third quarter. Kentucky Fried Chicken, also owned by Yum!, saw same-store sales jump 9 percent in its third quarter.

Grand Rapids-based Meritage Hospitality Group Inc. followed suit. An operator of 340 Wendy’s and other restaurants in 16 states, Meritage’s sales grew 10.4 percent for 2020, totaling $516.2 million compared to $467.5 million in 2019. The improved sales happened after the company only developed or acquired three new restaurants.

Meritage did not respond to requests for comment. 

In an earnings report last month, CEO Robert E. Schermer Jr. said: “We achieved record financial results during an unprecedented and challenging year. This was quite an accomplishment given the negative impact from COVID-19 in the first quarter, resulting from mandated closures associated with the pandemic. 

“Our restaurant operating teams and real estate development group finished the balance of the year strong, supported by a resilient Wendy’s brand. As we continue to build on our sales momentum with double-digit growth during the first quarter of 2021, we are focused on executing our critical priorities including employee and customer safety while delivering speed, convenience and affordable quality food.”

Imitating Qsr

While quick service restaurants faced many challenges in what proved to be a rough 2020, the inherent nature of their business models did lend them some favors.

Daniel Estrada, CEO of Grand Rapids-based 86 Repairs, which provides end-to-end equipment repairs and maintenance processes for restaurant groups, works with many of these types of restaurants. In fact, 90 percent of 86 Repairs’ client base belong to the QSR sector.

“QSR operators, they’re generally very process-oriented,” Estrada said. “The franchise systems in fast food especially, they have systems for everything. They systematized the creation of food, the recipes, how the food is served, all of those things have a lot of process and thought. Full service restaurants tend to be more creative and less structured.”

This is why, since spring of last year, dine-in restaurants have worked to mimic the QSR model, which isn’t an easy shift in some cases.

“A lot of full-service operations have been thinking a lot more about their menu design — how big the menu is, the profitability of the menu — and focusing on that more so than the past,” Estrada said.

Plus, with sanitation now at the front of mind for many patrons more than ever, restaurants have been intentional about emphasizing and showing customers the measures they have taken to maintain clean and healthy spaces, Estrada said. This includes everything from proper social distancing to embracing paper or QR code menus.

Lobdell has made these and other pivots to keep his dine-in restaurants afloat. He is also noticing a pent-up demand for in-house dining, especially now that restrictions on capacity and curfew are easing. While he expects in-house dining demand to eventually return to pre-pandemic levels, he does foresee some long-lasting effects of this new fast food-friendly market.

“I think probably dining rooms will shrink in size; meanwhile, exterior patios and outdoor dining will grow in size,” he said. “I think fast food restaurants, many of them, have even determined they were more profitable without their dining rooms.”

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