QSR May 2022

SHORT ORDER

It remains to be seen just howmany locations will close during the pandemic era. Estimates in the 100,000 range feel like a good benchmark, but the dust continues to settle. However, the industry has progressed far enough to ask another question—who is ready to scale again? Bank of America’s global research division released a report looking into the subject. Here were some highlights. U.S. Restaurants After COVID: A Growth Market?

The overall reality: While the pandemic wreaked havoc with the profitability of smaller restaurant operators, it proved beneficiary for large restaurant chains, particularly tradi tional fast-food restaurants. For many quick-serves, average volumes are higher than pre-COVID, 10 percent across the board per BofA’s index. Along with lean labor models, many brands drove unit-level cash flows to all-time highs.

may have lacked the capacity to accommodate the [double] drive-thru lanes or curbside pickup areas that became so integral to restaurant operations during the pandemic.” Some historic concerns: “While many large restaurant systems have emerged healthier from the pandemic accelerating growth is not without risk,” the company added. “Historically there has been an inverse relationship between unit growth and same-store sales for mature concepts as they risk cannibalizing their own existing operations. And in some cases, excess growth has precipitated the sharp declines in performance that necessitate turnarounds [which invariably include slowing or stopping unit growth].”

Examples:

“I’m excited to share that over the long-term we now believe we can operate at least 7,000 Chipotle restaurants in North America, up from our prior goal of 6,000 based on the success of small-town opportunities that are delivering unit economics at or better than our traditional locations.” CHIPOTLE CEO BRIAN NICCOL

“We now believe that our domestic footprint can scale to 4,000 restaurants [from 3,000 previously], and maintain our position for 3,000 international restaurants. That’s a potential of 7,000-plus total restaurants.” FORMER WINGSTOP CEO CHARLIE MORRISON

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Brands to Watch: BofA added while excess growth can stir setbacks for mature concepts, brands far from saturation are insulated from cannibalization and new stores propel not only top-line growth, but also the ability to scale up and leverage costs. Restaurants with significant whitespace and exceptional unit economics (Dutch Bros, First Watch, Krispy Kreme, Portillo’s and even Starbucks), have earned the “right to grow,” the company said. Dutch Bros has the added advantage of small boxes/plots of lands that can thrive in lower cost locations. Indeed, In the first year of being a public brand, Dutch Bros opened a record-breaking 98 stores systemwide, surpassing previous guidance of 92 units. This year, it expects at least 125 openings, or growth of roughly 23 percent.

“In 2021, we opened 3,057 net new units, driven by 4,180 gross unit openings, with meaningful contributions from each of our brands, marking the strongest growth year in our history and setting an industry record for unit development. To put that into context, as the world’s largest restaurant company, we opened a new restaurant on average every two hours.” YUM! BRANDS CEO DAVID GIBBS Competition Abounds: “Despite the exit of independents and smaller restaurant concepts, demand for the best real estate sites remains fierce,” BofA said. “In general, the concepts that closed during the pandemic had occupied subpar locations [a contributing factor to closures] and or pads that were too small for large chains. They also

DUTCH BROS EXPECTS TO 0PEN AT LEAST 125 STORES THIS YEAR UP, ROUGHLY 23 %

GROWING MONEY TREE: ADOBE STOCK / ADAM121. DUTCH BROS

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MAY 2022 | QSR | www.qsrmagazine.com