Cash-strapped restaurants, desperate to lower their costs as mandatory closures spark steep sales declines, are starting to offer less variety on their menus.
It’s a more modest way of creating savings amid the furloughed workers and executive pay reductions that have dominated the headlines. It also keeps drive-thrus and takeout running with fewer workers in the kitchen. It also makes replenishing food inventory simpler and cheaper.
McDonald’s just moved to a limited menu and is temporarily suspending all-day breakfast—which has been a key part of the company’s resurgence of recent years. Romano’s Macaroni Grill, meanwhile, eliminated 30% of its offerings last month, axing pizzas, calzones and certain appetizers like spinach artichoke dip.
“Right now for us, it’s survival mode,” Macaroni Grill Chief Executive Officer Nishant Machado said. “There’s less prep time for the chefs and the cooks. It’s really rationalizing the menu, focusing on products we know our teams can execute on quickly.”
The dining industry has been decimated by the COVID-19 pandemic, which has forced restaurants to limit operations to takeout and delivery—or close entirely. Same-store sales in the last week of March fell 83% at casual-dining chains and 34% at fast-food restaurants, according to MillerPulse data. The declines may persist throughout April, according to Bloomberg Intelligence analyst Mike Halen.
That outlook is spurring Taco John’s, which operates about 400 restaurants in 23 states, to delay the planned introduction of enchiladas to the menu and instead stick to its basics of tacos and burritos, CEO Jim Creel said. This also speeds up drive-thru service.
“People right now want what’s familiar, and what they’re used to,” he said.
This trend will last beyond COVID-19, according to Jana Zschieschang, chief marketing officer at Revenue Management Solutions, a restaurant consulting company.
“Restaurants most likely will continue to work on reduced menus when business resumes, as operators believe it will be a phased return back to normal,” she said.
Jack Li, CEO of restaurant research firm Datassential, said companies are managing uncertainty, since it’s unclear how long it will take for customer traffic to return.
“You’ll see a lot of restaurants shift their menus. And probably shrink their menus too,” he said. “They don’t have to buy as many products that they have to store.”
Menu trimming is just one part of the defensive steps restaurants are taking.
Large chains including Denny’s, Cracker Barrel Old Country Store and Olive Garden-owner Darden Restaurants Inc., have drawn on and expanded credit lines. Some companies, like Chipotle Mexican Grill, are talking to landlords for flexibility on rent payments. Executive pay cuts are starting, too, with Darden and McDonald’s CEOs included.
Restaurants are finding other ways to cut costs as well. Domino’s Pizza, for example, is telling its franchisees that it’s OK to shut down early and open later in the day.
Taco John’s is paying for trash pickup twice a week rather than three or four times—there’s much less waste because the dining rooms are closed. And like Domino’s, its locations are closing early. These small changes add up to about $1,000 of monthly savings per store at Taco John’s mostly franchised restaurants.
“Utilities, labor, it saves all of that,” Creel said.
Carl Howard, CEO of Fazoli’s Restaurants, says his Lexington, Kentucky-based company is “planning for the worst” since consumers may be reluctant to dine out again after economic activity restarts.
“When the stay-at-home orders are removed, we will still see a pretty severe decline,” he said. For that reason, the 216-location chain is scrutinizing every penny and has negotiated deals with its vendors. Trash pickup has been halved, and many stores have switched to smaller garbage containers to save more.
“Every dime adds up,” Howard said.