The Wave of COVID-19 Restaurant Closures Has A Silver Lining for Franchise Brands

An effort to track the COVID-19’s toll on restaurants has picked up a clear trend favoring large-scale chain and franchise operations as independent shops close down in far greater numbers.

The studies, carried out by New Jersey-based Kalinowski Equity Research, and BTIG Research, were first reported on by Nation’s Restaurant News and validate the conventional wisdom that the franchise industry is more resilient to economic downturns.

“Definitely, independents have been hit harder by everything that has gone on this year,” Mark Kalinowski, founder of Kalinowski Equity Research, told NRN. “By definition, they are very small businesses, so they lack the resources of a larger corporation.”

Kalinowski estimated that the top 38 restaurant concepts by sales would close around 4,500 units, but that those would be the weakest units in the system. For independents, Kalinowski estimated that figure ranged from between 11,160 and 54,196.

But at BTIG, researchers found some positives for even small restaurant concepts.

“We believe that restaurants, both chain and independents, can achieve roughly breakeven profit and cash flow with about 75% of pre-COVID sales volumes,” he said in a report seen by NRN. “After falling (55%) in April, same-store sales as measured by Black Box [Intelligence] have improved every month since and were down only (8.1%) in September and (7.5%) in October.”

While the outlook may be “less dire” than previously thought, according to BTIG, the restaurant industry has still been battered by the persistent pandemic.