Why Full-Service Restaurant Franchises are Starting to Look More Like QSR’s

While restaurant sales, in general, have been steadily improving since the early days of the pandemic, newly released data from The NPD Group provides some interesting insight into how full-service and QSR chains have been weathering the crisis differently. In April, casual dining chains saw a whopping 70% decline in sales, while QSR concepts only saw a 35% decline. Last month, the full-service category experienced transaction declines of 30%, while the QSR industry saw a decline of 8%. 

Over the past few months, traditionally dine-in focused restaurant chains have taken a page out of the quick-service handbook in an attempt to cut losses. 

The Big Difference Between QSR and Casual

The primary factor for this steady discrepancy between casual dining and QSR is off-premise services. This is an offering that has been a staple of the QSR segment for decades but has become an invaluable lifeline amid dining room closures and consumer anxiety about eating in restaurants. McDonald's U.S. comparable sales were up 4.6% during Q3 2020, for example, marking its highest monthly comps in nearly a decade, McDonald's CFO Kevin Ozan said during the company's October earnings call.

Whether it be introducing drive-thru lanes, implementing curbside pick-up or partnering with third-party delivery providers for the first time, full-service restaurant chains are now realizing that they need new systems if they hope to achieve the same results as their QSR peers.

For example, IHOP is one full-service chain that has pivoted successfully during the pandemic. The chain implemented a brand new curbside pick-up offering within weeks of the pandemic, and has seen a major boost in sales. In Q3 of 2020, off-premise comp sales at IHOP were up by 154%, according to Forbes. The off-premise mix is "a little over 30%, split nearly evenly between delivery (16%) and takeout (18%), with more than 20% of all orders placed digitally," the article states.

Now, to build off of this momentum, IHOP is even considering a brand new real estate strategy. “We are looking at prototypes to think how we handle to-go orders more efficiently. What are better, easier ways to pick up food? Does that include a pickup window?” IHOP President Jay Johns told Forbes. “We’re thinking through a lot of ideas right now and the footprint itself, asking if we need as much space, or if we dedicate more for to-go, less for tables. If we look at real estate that automatically has a patio. We were already thinking about to-go differently, but now we’re thinking about it more and ideating the most optimal ways to pick up food.” 

A Long Time Coming

Although COVID-19 has undoubtedly sped-up the process, the full-service category was already looking to shift towards off-premise to combat mediocre same-store sales. Last year, IHOP announced the roll out of Flip’d, a fast casual concept that was designed to target the to-go and delivery crowd with guests ordering from a digital kiosk or online. In February of 2019, The Cheesecake Factory opened an Asian-themed fast casual concept called Social Monk Asian Kitchen. That same month, Hooters announced its fast casual concept Hoots. 

Now, these concepts may be better positioned than ever to compete against fast food giants, especially since a recent report from Rakuten Ready found that casual dining had faster curbside pickup service than the QSR segment. While this may be surprising at first glance, it actually makes a lot of sense. Full-service restaurant brands benefit from large real estate footprints that can hold more parking spots, which is one of the biggest operational hurdles for curbside pick-up.

Of course, these off-premise channels come at a price, especially if they are integrated with advanced POS technology or third-party delivery providers who charge a hefty commission fee. Still, franchisors may not have much of a choice, as these investments can help curb future closures and can yield a strong ROI if consumers remain dedicated to these channels after the pandemic ends. Digital sales, for example, are now expected to make up more than half of limited-service restaurants’ business by 2025, a 70% increase over pre-pandemic estimates.

How the Franchisee Can Help

For full-service franchisors who are looking to adopt these new revenue streams but are still nervous about the outcome, willing franchisees can be a great way to pilot new initiatives. An Applebee's franchisee is adding the brand’s first drive-thru pickup window to an existing restaurant in Texarkana, Texas, early this year. The franchisee will evaluate feedback from guests and operators to potentially inform future store design. Applebee’s saw off-premise business make up 20% of its sales during Q3 and off-premise YOY sales increased by 144%.

Many franchisees are even taking matters into their own hands. Nearly 40% of franchisees surveyed by TD Bank as part of its 2020 Restaurant Franchise Pulse said they added drive-thru capabilities to overcome pandemic-related restrictions, while 72% rolled out enhanced delivery services or online and mobile ordering platforms.

The Future is Fast Food?

This all begs the question: is the traditional, sit-down-only restaurant franchise a thing of the past? With some experts claiming that full-service restaurants won’t fully recover until 2025, it is likely that many of the casual-dining staples like IHOP and Applebee’s are going to start to look more and more like McDonald’s in an attempt to bounce back quicker. 

Hopefully, once dining rooms do reopen, full-service restaurants will still have some of those traditional dine-in systems in place to keep up with the pent-up consumer demand. Better yet, with all of these new off-premise channels in place, maybe customers won’t have to wait as long to get a table!