MCD McDonalds Corp

By Heather Haddon 

McDonald's Corp. said it would close dining rooms at company-owned restaurants in the U.S. and asked franchisees to take the same step to confront the coronavirus pandemic.

The Chicago-based burger giant said its stores would continue to serve customers through takeout, drive-throughs and delivery. McDonald's said the bulk of its franchisees would comply with the new operating plan.

"We're going to do whatever is necessary to help every owner-operator and partner survive this crisis. We will not let you fail," Chief Executive Chris Kempczinski said in a video the company released on Monday.

McDonald's said it was complying with the growing number of cities and states that have banned dining-in at restaurants. The company said it also would close children's play spaces at U.S. restaurants and delay the construction projects at restaurants across the country.

Years of declining guest visits and a glut of restaurants already was weighing on sales growth across the U.S. restaurant industry. Now forced closures and efforts to separate workers from customers during the coronavirus pandemic are putting unprecedented financial strain on restaurants from McDonald's down to independent cafes.

President Trump on Monday said that Americans should avoid eating and drinking at bars, restaurants and food courts. Roughly a dozen states, including Illinois, Massachusetts, Washington, New Jersey, Connecticut and New York, have banned eating at restaurants and bars to try to slow the virus's spread. Visits to restaurants nationwide were down by a third at the end of last week compared with last year, according to data by booking site OpenTable.

"There's a quiet, calm sadness underlying it all," said Alex Sirigu, manager of Atwood's Tavern, a Cambridge, Mass., establishment that laid off 25 employees on Monday and passed out food to some of them as well as to musicians who regularly perform at the venue.

Starbucks Corp., Shake Shack Inc. and Chick-fil-A Inc. also are pushing customers to drive-through and delivery as they shut down dining rooms at their thousands of U.S. stores. Shake Shack on Monday withdrew its full-year guidance. Denny's Corp. said the pandemic would materially impact its finances. The company said it would cancel a stock-repurchase program and draw down on its revolving credit line.

McDonald's, which owns around 5% of its 13,850 U.S. restaurants, is among the U.S. chains that have shifted ownership of more of their restaurants to franchisees in recent years. That presents another potential weak spot in the U.S. restaurant sector, if franchisees lack the reserves to withstand a long sales drought. McDonald's and other chains have asked owners to make big investments to upgrade technology at their stores in recent years, obliging some to take on more debt.

Mark Salebra, chair of the National Franchisee Leadership Alliance, a group representing more than 2,000 McDonald's U.S. owners, said operators supported the decision to suspend dining at restaurants.

After the Sept. 11 terrorist attacks, some restaurants drew fewer customers for a time. The 2008 financial crisis was a deeper blow to the industry, as some consumers shift to eating more meals at home.

The coronavirus pandemic is an even bigger threat to all manner of restaurants, analysts said. Many restaurants already were struggling to boost visits to their stores as consumers spread spending across not only more restaurants, but also new dining options including meal kits and takeout from grocery stores.

Declining traffic already pushed some chains to seek chapter 11 bankruptcy protection last year, including Burger company Krystal Co., gastropubs Bar Louie Restaurants and Houlihan's Restaurants Inc., along with casual dining companies Kona Grill Inc., Perkins & Marie Callender's LLC and American Blue Ribbon Holdings LLC.

Independent restaurants are even more vulnerable than chains as more Americans stay home, said Brad Austin, food and beverage lead at McGuireWoods LLP. "They feel the effects first because there are few, if any, reserves to absorb a disruption," Mr. Austin said.

At Beetroot Market and Deli in Portland, Ore., owner and chef Sonya Sanford stopped dine-in service on Friday. She said she has temporarily laid off most of her nine employees. She and her chef de cuisine have tried to keep their spirits up by cracking jokes in the kitchen and making meals for each other.

"What people do in the food-service industry is...bring people together, " she said. "Now the thing we're motivated by, we can't do."

--Jacob Bunge contributed to this article.

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

(END) Dow Jones Newswires

March 16, 2020 19:04 ET (23:04 GMT)

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