We might be seeing the biggest threat to the restaurant industry in history. In-person dining is now shut down for most of the U.S. population as COVID-19 forces state and local governments to take action to control the virus' spread.
In response, many restaurants are scrambling to offer pickup or delivery options, sometimes on their own and sometimes through delivery apps like DoorDash, Uber Eats, Postmates, and others. These are Band-Aid solutions for a huge wound, but they are the best options available.
The problem is, not every restaurant is set up for takeout and delivery, so they'll struggle to make the transition. But there are a few companies that are set to not just survive, but thrive through COVID-19 and beyond.
1. Chipotle: A business already in transition
Chipotle (NYSE:CMG) has been transitioning from a quick casual-dining restaurant to a pickup and delivery model for years. Many of its locations are set up with a dedicated food production station for pickup, and that's now running full steam.
The off-premise services Chipotle offers may not have been core to operations a few months ago; delivery and pickup made up just 18% of sales in 2019. But now it's all the company does in most of the country. Chipotle is even offering free delivery on orders of $10 or more, making ordering even easier.
I wouldn't expect Chipotle to grow its business with the dining-in option shut down, but if it can stay afloat as competitors are struggling, that would be enough to come out of this crisis ahead.
2. Domino's and 3. Papa John's: Pizza is built for delivery
Domino's Pizza (NYSE:DPZ) and Papa John's International (NASDAQ:PZZA) are built for a world of food delivery. Carryout and delivery pizza is their core business, so the COVID-19 pandemic will hardly change operations at all.
In 2019, Domino's was the market-share leader in delivery with $11 billion in sales in the U.S. and was second in carryout with $18.8 billion in sales, which includes franchise sales. Unlike the situation at most restaurants, 2020 may actually be a growth year as pizza becomes something of a consumer staple with takeout and delivery.
Papa John's has lost ground of late with comparable-store sales worldwide falling 7.3% in 2018 and 2.2% in 2019. But the company saw a 3.5% growth in the fourth quarter of 2019, and an increase in takeout and delivery orders in 2020 could help the business even more.
The pizza business could be a big winner as diners look for more ways to get prepared food delivered to their homes. And pizza stocks should do well as a result.
Survive and thrive
The first goal of restaurants over the next few months is to survive. The companies that do will likely face less competition, as small operators that can't transition to delivery and takeout go out of business. And when the economy returns to a more-normal footing, the survivors will be able to take a bigger slice of the pie.