QSR Chains Must Rethink Distribution and Channel Mix Plans Post COVID-19

The COVID-19 pandemic has created quite a jolt to the restaurant industry with over 4,400 permanent closings representing 1.5 % of approximately 294,000 QSR chain locations¹ that were open before the onset of the COVID-19 pandemic in March.  Based on a recent consumer survey published in the May 2020 issue of QSR magazine What Customers Want from Restaurants as They Reopen, over 45% of restaurant consumers are expected to dine less frequently than before COVID-19.

The following are recent trends that will influence the future trajectory of QSR sales, followed by several thoughts to consider when estimating site potential and market planning. Having a firm understanding of these and other trends is essential to making adjustments necessary to make a more well-informed site and market planning decision.

The following are recent trends that will influence the future trajectory of QSR sales, followed by several thoughts to consider when estimating site potential and market planning. Having a firm understanding of these and other trends is essential to making adjustments necessary to make a more well-informed site and market planning decision.

Consumer trends affecting the QSR industry

• The transition to work-from-home. This workplace transformation will affect QSR sales in more densely populated urbanized areas that rely heavily on local area business employment to support their daypart sales, particularly for breakfast and lunch patronage.

   

• Grocery store activity. Grocery stores continue to experience an increase in online orders, curbside pick-up and delivery as an alternative to in-store shopping, resulting in less reliance on the frequent grocery store consumer activity.

   

• Changes in channel usage behavior from on-premise dining to drive-thru.When compared to March-May in 2019, QSR’s experienced a 7.9% decline in sales for the same timeframe in 2020. This is a stark contrast to those QSR’s without drive-thru that experienced a 32.3% drop in sales for the same period last year.²

   

• Retail store closings. JCPenney, Victoria's Secret, Tuesday Morning, Bath & Body Works, Nordstrom, Sears, Forever 21and Walgreens are among the leading brick and mortar retailers that have confirmed at least 3,900 store closings 2020. These closings will weigh heavily on QSR restaurant sales that rely on local retail traffic as these and other chains shutter their doors.

   

• Airport foot traffic on the decline. Since the onset of COVID-19, airport foot traffic has declined by as much as 50% in many major airports across the US, having a severe impact on restaurants and specialty retailers that rely exclusively on airport foot traffic for sales.

How data used to evaluate sites and plan markets are influenced by consumer trends

The marketplace lacks sufficient data sources and without a provision to adjust existing data sources to reflect the new trends, makes future site sales projections highly questionable.

What is required is the use of advanced research combined with spatial analytics and sound data science principles to identify and weigh those factors that are relevant and help to predict future sales performance. What is also required is direct access to a wide array of current data sources on-demand (segmentation, employment, activity, mobile movement, businesses, etc.) with the ability to apply research techniques and insights to adjust these data to reflect current trends.

For example, since the emergence of COVID-19 and the changes in local business employment with more people now working from home, applying currently available daytime workforce population estimates as input for sales forecasting model development are no longer valid. Using local workforce employment data without adjustments would result in a less stable model, particularly where the workforce population is introduced as a significant driver in a model. 

Research includes using historical and current GIS mobile analytics to understand changes in consumer movement and behavior over time. Mobile analytics uses GIS technology to track a consumer’s mobile phone by time and location. Having access to these anonymous data points enables the analyst to evaluate changes in consumer behavior and purchase patterns from pre-COVID-19 to the present and make adjustments to available databases. This in turn provides a more realistic view on the current and future effects of COVID-19 on consumer shopping and dining patterns and behaviors. Mobile analytics also enable the analyst to measure each trade area by distance or time traveled, identify key customer segments by channel, evaluate competitor impacts, and more.

Does your data reflect changes in consumer usage behavior from COVID-19? 

The following are several items we like to consider when evaluating prospective sites and planning markets, and worth further consideration to understand and adjust your data to reflect new consumer behavior trends.

Customer data availability

While consumer research does show an expected change in restaurant usage behavior, what is also important is to understand the demographic composition and usage frequency of the consumer, preferably by channel.

Armed with these insights at a microgeographic level (e.g., block group or census tract) enables the analyst to apply these insights to estimate customer potential. While the idea is to utilize loyalty data pre and post COVID-19, these transactional databases are generally not available for most QSR restaurants.

Alternatively, given that these data are date and time stamped, Environics Analytics’ privacy-compliant mobile movement data does provide the ability to compare changes in consumer behavior across different periods of time.

Customer segmentation

A reliable segmentation system built at either household or ZIP+ 4 level allows analysts to determine the changes in the customer composition and usage frequency pre-COVID-19 and post-COVID-19 and project these insights to any census or postal defined area to determine actual customer potential.

Once the segmentation profile is built, the analyst can apply the results to any trade, census and postal area within a trade area to determine the number of potential customer households. The profiles can then be used to develop and apply a customer profile as input for measuring potential.

Redefine the consumer demand surface for QSR patronage

A growing trend includes using multiple current data sources on consumer demand, demographics, and employment to develop a demand surface model for QSR patronage. Applied at the block group and higher geographic level enables analysts to provide a more realistic estimate of QSR demand potential.  A demand surface model allows our analysts to estimate how much of that demand can be drawn from each geographic area in the form of a capture rate with consideration given to proximity of location, distance decay, competitor location, etc.

Determining restaurant placement: Reassess your channel mix

Consider how your restaurant location will reflect a change in consumer dining behaviors and purchase preferences.

For example, with the growing trend for drive-thru usage relative to other channel options, it is just as essential to evaluate the key drivers of brick-and-mortar locations in addition to the drive-thru channel on sales and use these insights to estimate sales potential for each channel.

These insights serve as an important input for site layout and design, including seating capacity, where high potential drive-thru may result in multiple drive-thru ordering stations while downsizing the physical brick-and-mortar location.

For those that plan to use associated delivery services such Grubhub, Uber Eats and DoorDash, the relationship between customer location, delivery time and food portability should be assessed to ensure convenience and timeliness of delivery and food freshness. The contribution of this channel on total location sales should also be evaluated when defining a channel mix strategy for a prospective or existing location.

Re-examine your approach, data and resource requirements

Developing a reliable method to estimate sales for a new location requires a careful blending of statistics, measurement, logic and practical industry experience. This is even more important today when adjusting for the effects of COVID-19 that requires a redefinition of those factors that influence sales potential. All the key components such as activity, demographics, demand, competition, employment, site and situational factors should be evaluated in terms of their impact on sales.

At Environics Analytics, we use a phased building blocks approach and apply expertise, sound research principles and available data sources to ensure the required adjustments and assumptions are made before developing a forward-thinking predictive sales model.

Closing Thoughts

• When evaluating a site placement opportunity, it is important to consider the trends in where people work, shop and dine following the effects of COVID-19 on QSR dining behavior.

   

• Re-evaluate your channel mix to reflect current trends on consumer usage behaviors for on-premise dining, carryout, delivery and drive-thru.

   

• Where appropriate, lack of historical data to support the new norm will require certain data adjustments to support current and future trends stemming from COVID-19.

• Site Model development should be limited to a skilled and experienced analyst using research insights, practical experience and advanced analytics.

For additional information about available tools and methods that can be used to select sites and plan your markets, get in touch. We can help. 

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^{1, 2} IBIS World April 2020/Peter DeBiase CEO Restaurant Trends

Other articles by Joe Whitley:

Key Considerations for Retailers Developing a New Store Prototype

How US Credit Unions and Lenders Can Improve Branch Distribution Planning