Nearly all restaurants will see declines during the novel coronavirus pandemic, as state and local governments around the U.S. restrict dine-in services. But the more business a restaurant normally gets from takeout or delivery, the better-equipped it will be to keep up its sales.
Domino's Pizza (DPZ -0.67%) and Papa John's International (PZZA 0.93%) are two such chains, helping them cater to hungry consumers during the downturn.
As of March 26, 32 states in the U.S. had ordered restaurants to stop dine-in services and to offer takeout and delivery only. That includes such big markets as California, New York, and Pennsylvania. The suspension of dine-in services will continue for an unknown period of time, hurting sales at practically all restaurants.
Pizza is the second-largest category in the U.S. quick-service restaurant (QSR) sector, with a value of $37.8 billion in 2019. It's also a highly popular comfort food, which will continue to be in demand during these tense times. According to Yelp's Local Economy Coronavirus Impact Report, pizzerias were gaining consumer interest, up 53% week over week as of March 24. Fast food was also up 64%.
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Why Domino's will ride out the storm
Domino's is the dollar market share leader for delivery and the second-largest player by dollar market share in the carryout segment. The pizza chain has announced that it will be hiring 10,000 additional employees to meet higher demand. Most of the fast food pizza chain's orders -- 55% -- are delivery. Given the health concerns around coronavirus contagion, Domino's is offering contact-free delivery services.
Beyond providing food during a challenging time, Domino's hiring spree will also help restaurant employees who lost their jobs due to the ban on dine-in services and declines in foot traffic. The new hires will be a combination of part-time and full-time workers.
On Feb. 20, Domino's reported fourth-quarter results that beat analyst expectations. It also reaffirmed its two-to-three-year guidance for global retail sales growth of 7% to 10% and U.S. same-store sales growth of 2% to 5%.
Why Papa John's is well-positioned
Papa John's U.S. restaurants offer only takeout and delivery services, with a few exceptions. This makes the restaurant company well-positioned as dine-in bans roll out across the country. It's also one of the top four pizza companies in the U.S. based on gross sales.
The chain's recent fourth-quarter results came in ahead of analyst expectations. U.S. same-store sales were up 4.1%, above the consensus expectations of an increase of 2.3%. Its comparable-store sales in the quarter marked the second consecutive quarter of positive comparable-store sales. The company projects 2020 North American same-store sales to increase by 2.5% to 5%, and international same-store sales to increase by 1.5% to 4%.
The coronavirus pandemic will eventually resolve and people will likely return to normal consumption habits. While the restaurant industry will experience a short-term slowdown, many companies will recover. However, given the unknowns about how long dine-in restrictions will last, it's smart to favor restaurant companies with dominant market shares that are doing robust takeout and delivery sales at this time.
