McDonald’s Plunging Sales Don’t Bode Well for the Restaurant Industry

April 8, 2020 5:54 PM UTC
McDonald's global same-store sales plunged 22% in March as the COVID-19 pandemic forced the fast-food chain to close its dining rooms.
  • McDonald’s sales plunged 22% in March as the COVID-19 forced it to close its dining rooms.
  • Smaller restaurants are hit harder than the world’s largest fast-food chain. Many could close for good.
  • The pandemic could change the restaurant industry permanently.

COVID-19 is ravaging large pans of the economy. The restaurant industry is one of the most impacted. Governments forced restaurants to shut down their dining rooms as they were declared non-essential. The crisis hasn’t spared McDonald’s (NYSE:MCD).

McDonald’s Sales Plunged Sharply In March

About three weeks ago, McDonald’s announced it would close the seating areas in all of its company-owned restaurants and encouraged its franchisees to do the same. Customers can still use drive-thru, take-out, and McDelivery in restaurants offering those services.

While McDonald’s closed dining rooms in the U.S., some countries have limited their operations. Countries like Italy and Spain have closed all of their restaurants. McDonald’s said that almost all of its restaurants in Japan and 95% of its restaurants in China were open.

The coronavirus pandemic has hurt McDonald’s sales. The fast-food chain said that its global same-store sales fell 22% in March. In the U.S., same-store sales were down 13%. We can explain this smaller drop by the fact that 70% of U.S. sales are made through the drive-thru window.

McDonald’s withdrew its outlook for 2020 and its long-term forecast released in February due to uncertainty about the pandemic and its impact on the economy. The chain previously forecaste earnings per share growth in the high-single digits and system-wide sales growth in the 3% to 5% range.

McDonald’s stock price is up slightly despite the bad news. | Source: Yahoo Finance

CEO Chris Kempczinski said that he would cut his salary in half, at least until September 30. The company will give an update when it reports earnings on April 30.

Small Restaurants Might Not Survive

McDonald’s sales numbers are worrisome. The fast-food chain is one of the most popular in the world. If McDonald’s sales are plunging this hard, imagine what’s going to happen to local diners.

Restaurants that have completely closed will be hurt the most. The ones that offer take-out, delivery or drive-thru will be hit too, though in smaller proportions.

Some people might prefer to avoid food coming from restaurants, as there is a risk of contamination. The spike in unemployment means people have less money to spend at restaurants.

If the shutdown order isn’t lifted soon, many restaurants could be forced to close permanently. Bigger players like McDonald’s will survive as they have resources to pass through the storm, but smaller restaurants will die.

About 30,000 restaurants have already closed permanently across the U.S. More than 110,000 are expected to close next month, according to estimates by the National Restaurant Association. The restaurant industry lost about $25 billion in sales and more than three million jobs in the first 22 days of March.

The economic consequences of the COVID-19 will likely be disastrous long after the pandemic is over. Things will probably not go back to how they were before.

Even when restaurants are authorized to reopen, consumers might be hesitant to go back because they don’t want to be too close to other people. Governments might reduce seating capacity to keep diners at a certain distance from each other. The take-out and delivery trend is likely to continue after the crisis. Restaurants will have to adapt or they won’t survive.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

@SBChateauneuf

Stephanie has been writing about stocks and financial markets for several years. Based in Canada, she has written for The Motley Fool and Seeking Alpha. She received an MBA in finance and worked for National Bank of Canada. Check out more of her experience on LinkedIn + and follow her on Twitter. Reach her at stephanie.chateauneuf (at) gmail.com or visit her profile on Muck Rack here. Stephanie is a Trusted Journalist.