Restaurant business

How Covid Helped Olive Garden and Chipotle Dominate the Restaurant Industry

Large chains, even the most vulnerable like casual dining establishments, have fared much better than smaller restaurants and independents, largely due to easier access to cash and the ability to lean on corporations. mothers to lead the way in policy change. In 2021, the top 500 restaurant chains accounted for 63% of total restaurant sales in the United States, up from 58% in 2019, according to restaurant consulting firm Technomic.

They are now in a strong position, ready to fill the void left by the restaurants that did not survive.

“The pandemic has caused many small independents to go bankrupt,” said Joe Pawlak, chief executive of Technomic. They “did not have the financial means [or] refinement to get by.”

Access to capital and economies of scale have allowed large chains to dig deeper into pockets and make strategic changes that have set them up for success today. Many smallholders did not have this option.

This upended pre-pandemic trends, in which chains were taking a bit of a cut from independents, but at a snail’s pace. “Year to year, it was a very small exploration,” Pawlak said. “We are talking about tenths of a point per year.”

Now, as consumers decide where to dine, they are more likely to see larger chains than smaller or independent restaurants. The landscape could become a new normal.

“I think it’s a permanent change,” Pawlak said. “It’s more of a chain market now.”

Independent restaurants are often at the forefront of innovation, testing trends and culinary concepts that are then picked up by larger chains. Without them, the restaurant landscape could become duller and lose character.

“Small restaurants like mine are … the heart and soul of local communities,” said New York restaurant owner Jimmy Rizvi.

The triumphant return of Olive Garden

In March 2020, when restaurants were ordered to close to stop the spread of what was then called “the novel coronavirus”, Ricardo Cardenas, then chief financial officer of Darden Restaurants, made a bold prediction.

“We haven’t looked two years into the future. We’re looking hourly and weekly right now,” he said. “But we believe our position helps us become even stronger when we come out of it.”

Darden (DRI) owns brands such as Olive Garden, Longhorn Steakhouse and Eddie V’s: sit-down restaurants that have been hit particularly hard by dining room closures.
At first, it didn’t seem at all certain that Darden would bounce back, let alone emerge from the pandemic in a better position. The stock fell in March and its total sales fell 43% in the three months ended May 31, 2020.

But Cardenas was right. Since then, the company’s shares have rallied, then some, hovering around $135, or about 12%, above the price at the end of February 2020. And the company saw record sales in December 2021.

Darden is now able to pick up restaurant customers who were unable to survive the pandemic.

“There are fewer restaurants today than there were last month, and the month before and the month before. Eventually they will fill up,” said Cardenas, now director of the operating, on a call with analysts in March. “What we want to do is be there to fill some of those restaurants and take that market share.”

It’s not just Olive Garden. Popeyes plans to add more than 200 locations in North America this year, following a year of rapid expansion in 2021. Chipotle (GCM) said in February that its goal was to operate 7,000 North American sites long-term, up from 6,000 previously.

But while those chains thrive, independents struggled — and still have — to stay afloat.

capital is king

When the pandemic hit, companies like Darden and The Cheesecake Factory took measures such as suspending dividends and taking credit to free up cash to stabilize the business.

For smaller independents, of course, these lifelines were not an option.

“The biggest challenge is access to capital,” said Rizvi, owner of New York’s GupShup, a contemporary Indian restaurant, and Chote Miya, a kiosk-like spot that serves Indian street food and has open during the pandemic. He said that without government support like the Payroll Protection Plan, his businesses would not have survived.

Rizvi, like most operators, is struggling to hire staff. This means that he had to wear several hats himself.

“I have to be on the pitch, I have to be the manager,” he said. Filling in at the restaurant means Rizvi has less time for administrative tasks. Because of that, “we’re way behind on our paperwork,” he said.

Popeyes has big expansion plans for this year.

Rizvi has managed to keep her restaurants open, but they haven’t fully rebounded. “At the moment we are not profitable,” he said, adding that he expects it to be a year or two before his restaurants recover.

Large chains are also better able to negotiate lower ingredient prices, leveraging their order volume in ways that independents cannot, Pawlak noted. Starbucks (SBUX), for example, said long contracts helped it secure low coffee prices even as the commodity soared. Small chains are more exposed to fluctuations.

For James Moore, executive chef and partner at Full Belly — a decadent breakfast and lunch spot that opened in San Antonio, Texas, in February 2020 — keeping the business afloat meant leaning on the personal funding. With his business partner, “we really did everything we could to keep him alive.”

Just weeks after Full Belly opened, when many restaurants shifted to takeout and delivery, Moore decided it made more sense to close temporarily.

“We hadn’t been open long enough to stay open for takeout and delivery only,” he said. “It was definitely a success.”

Moore also pointed to government support as a lifeline, saying “every dollar we received in aid absolutely saved us.” Today, Moore considers himself lucky. Although Full Belly isn’t yet profitable, it’s growing — and Moore even plans to open at least one more location this year.

Thinking about restaurants that didn’t survive “breaks my heart,” he said. “I want everyone to succeed.”

Correction: An earlier version of this story misspelled the restaurant name “Full Belly”.