DRI Darden Restaurants Inc

By Heather Haddon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 30, 2020).

The drive-through, a nearly 90-year-old American invention, may be fast-food restaurants' best shot at surviving the coronavirus lockdown.

Even those companies that have the drive-through option say they will still likely endure hundreds of millions of dollars in sales losses in the coming months after officials across the country have banned dine-in eating to try to curb the spread of the new coronavirus.

Yet drive-through is one of the few ways to reach customers in nearly every U.S. state, along with carryout and delivery. Big chains such as McDonald's Corp., Restaurant Brands International Inc.'s Burger King and Yum Brands Inc.'s KFC that already make up to 70% of sales at the drive-through are better positioned to weather the crisis.

Customers can order food in a drive-through without coming into close contact with a server or entering a dining room, minimizing exposure to the virus.

Matt Harris, a 33-year-old assistant professor from Kansas City, Mo., said drive-through seems like one of the safest options to get food right now. He has noticed the lines of cars pulling up to drive-through chains in his area has lightened, but they are far busier than the local Olive Garden and Red Lobster.

"The lack of traffic feels almost post-apocalyptic," Mr. Harris said.

Some companies with drive-throughs are retooling their operations as they shift nearly all of their business there.

Drive-throughs now account for around 90% of U.S. sales at Wendy's Co., compared with about two-thirds before the pandemic. The Dublin, Ohio-based chain is redirecting the cash it had planned to use for a new national breakfast offering to franchisees and promotions for drive-through and delivery instead.

Some franchisees of restaurant chains with drive-throughs are slapping up signs, and companies are sending out tweets to let skittish customers know they are open for business and safe to patronize. They are trying to maintain drive-through-service times while having crews practice social distancing. Yum's Taco Bell is featuring its drive-through workers in promotional campaigns.

The basics of the drive-through are largely unchanged from their early 20th-century origins in the U.S. But some of the bigger chains, including McDonald's and Burger King, have each spent tens of millions of dollars in recent years to equip their drive-throughs with digital menu boards because many consumers still prefer ordering from their cars to dining in or the newer phenomenon of delivery.

McDonald's, in a television ad that made its debut last week, said: "We'll be taking your order in the drive-through.... Just like we have for the last 65 years, we can still be here to take your order."

Fast-food-delivery sales are growing but are still small compared with the amount customers spend on carryout and drive-through, which are more familiar to many diners and don't come with added fees. Consumers spent $83 billion in drive-throughs in the year through February, compared to less than $20 billion for restaurant delivery, according to industry firm the NPD Group.

McDonald's, which introduced its first drive-through in Arizona in 1975, was already making around 70% of its sales in the U.S. to customers ordering from their cars before the coronavirus crisis erupted. In the past year it has tried to cut drive-through times via investments such as speed-of-service timers and by paring down its menu. Now, the company is temporarily removing items from its menus and suspending all-day breakfast to further simplify operations.

Even at the drive-through, business is weaker as consumers stay home. Franchisees for McDonald's, Burger King, KFC, Taco Bell and Restaurant Brands International's Popeyes Louisiana Kitchen, said their customer traffic was 10% to 30% lower in the past week. Many owners said they were closing stores early and reducing staff hours because of sales declines.

McDonald's increased its cash balance to $4.5 billion after borrowing another $1 billion earlier this week, and Yum, also the parent company of Pizza Hut, drew down $525 million from its credit line. Yum said it expects the virus to depress its same-store sales by the mid- toGo high-single digits in its current quarter, and more so in the next period.

"No one is going to make money at this time," said David Barr, owner of 30 KFC and Taco Bell locations across three southeastern states.

Restaurants without drive-throughs, particularly casual-dining chains, face the most serious threat to their existence.

Some dine-in chains, such as Texas Roadhouse Inc., are setting up improvised drive-throughs to try to keep up some business. Others, including Olive Garden-owner Darden Restaurants Inc. and Applebee's parent-company Dine Brands Global Inc., are drawing down on credit lines, while casual-dining chains Cheesecake Factory Inc. and J. Alexander's Holdings Inc. have furloughed thousands of workers because of plunging dine-in traffic since the virus hit.

Ed Doherty, owner of 150 restaurants that include Applebee's and Panera locations, said his total sales plummeted at his New Jersey and New York restaurants by around 85% after the dine-in bans rolled out. Little of his sales before the coronavirus came from takeout.

"There was absolutely no sales," said Mr. Doherty, who said he has laid off 7,000 of his 8,000 employees.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

March 30, 2020 02:47 ET (06:47 GMT)

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