Fast-Food Dining Rooms Could Become a Relic of the Past

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It may surprise readers in the northeast to know that Chick-fil-A — the fast food icon of the Bible Belt whose stores are closed on Sundays, with no exceptions — has yet to reopen its dining rooms despite the relatively lax attitude Southern states have towards the pandemic. The lack of dine-in service didn't stop the company from having its best year ever in 2020 as drive-thru lanes backed up with families looking to get their hands on the chain's famous chicken sandwiches and waffle fries.

Given technological innovations, changes in the ways customers order and shifts in the labor market, the best time to reopen dining rooms might be never. While that's not likely to happen, it makes good business sense for fast food companies to move away from dine-in service to focus on other, more profitable channels where they've been investing over the past year.

Think about the difference in costs of providing dine-in service versus a drive-thru lane or pickup window. Dine-in service requires stores with larger footprints to make room for tables, chairs, seating areas and bathrooms. Those spaces need to be furnished. They need to be cleaned by workers who may also be juggling taking orders, preparing food and operating the restaurant. You're going to occasionally have to deal with unruly people, and in general customers linger for longer.

For drive-thru or pickup service, customers place their orders, get their food and leave: in and out in under 350 seconds.

It's easy to understand why a fast-food restaurant operator would prefer the latter, all else equal.

And restaurants have spent the past year innovating on non-dining room service capabilities, since that was the only option they had. They shaved seconds off drive-thru wait times. They pushed more customers to ordering online via their apps, with Chipotle Mexican Grill Inc. reporting this week that digital ordering overtook in-person ordering in their most recent quarter. Curbside and delivery business grew.

Chick-fil-A has been remodeling stores across the country to add a second drive-thru lane, while McDonald's Corp. sees the drive thru as the future of its business. This is arguably yet another change accelerated by the pandemic; I wrote almost three years ago that Starbucks Corp. was saying that its future growth would be more about suburban drive thrus rather than urban stores.

Compounding this dynamic is the labor crunch that various industries are feeling at the moment, with one McDonald's in Florida offering potential workers $50 merely to come in for an interview. An inability to find workers — at least at prevailing wages — is one reason fast food restaurants are keeping their dining rooms closed.

The issue of higher wages for restaurant workers often comes up in the context of raising the minimum wage or hiring in a competitive market. It also encourages the idea of automation, such as letting customers order from iPad's at Applebee's Restaurants, or with kiosks at fast-food restaurants. So the question is whether labor costs might get so high that offering dine-in service just doesn't makes sense for fast food operators who are working with low-dollar average orders, and when customers are comfortable getting their food via drive thru, takeout or delivery.

The early boom in the fast-food industry in the mid-20th century established the concept of drive-in or drive-thru service as a cost-saving initiative during a time of high demand and low unemployment. It allowed restaurants to serve customers with fewer workers than sit-down restaurants required. So to some extent, the innovations and changes in the industry now are just a return to its roots.

As fast-food restaurants continue to innovate in drive-thru and digital ordering, and as labor costs rise, it makes economic sense for dine-in service to become a smaller part of the industry's revenue mix relative to takeout and delivery. Needless to say, it would be an incredibly bad look for a fast-food chain to come out and say, "We're closing our dining rooms permanently because it's more profitable to do so — tough luck if you need to use a bathroom or your kids loved the play area."

But if new stores are drive thru-only in the future, or the chains invest in online-only "ghost kitchens," and meanwhile all the old stores that get shuttered for underperformance happen to be the ones with dining rooms and weak drive-thru business, now you'll know why.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist and the founder of Peachtree Creek Investments. He's been a contributor to the Atlantic and Business Insider and resides in Atlanta.

©2021 Bloomberg L.P.

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