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Is it worth it for restaurants to operate just takeout and delivery?

May 8, 2020

Does it make financial sense for restaurants to shift to takeout and delivery only? And in those parts of the country that are reopening dining areas to the public, such as Georgia and Texas, are the costs and risks of readmitting customers actually worth it?

In response to North Carolina’s COVID-19 lockdown order in March, Christi White, owner of The Box Seat in Greensboro, shifted to only takeout and delivery. The sports-themed restaurant also started working with DoorDash in a bid to field more to-go orders for food like wings, burgers and buttermilk chicken tenders. The Box Seat employed 29 people before COVID-19 but now is down to three. That dramatic reduction aligns with a survey published last month by the National Restaurant Association: It showed that the U.S. restaurant industry has lost two-thirds of its workforce, more than 8 million employees, as a result of the pandemic.

Wearing masks and gloves, The Box Seat’s three remaining employees now whisk orders out to waiting cars and use safety barriers and social distancing to manage customers who come inside to pay. The restaurant’s sales have taken a huge hit, White said. “We’re doing about 30 percent of the order that we used to do, if not lower than that.”

Even for national chains, the costs and risks of limited operations can be difficult to juggle. In a LinkedIn post, First Watch CEO Chris Tomasso announced the national chain nixed its takeout-only trial and instead shuttered all company-owned stores temporarily, in part due to concerns about employee safety.

Phil Colicchio, specialty food-and-beverage consultant for Cushman & Wakefield, says corporate chains that already do a lot of takeout and delivery — especially those that are accustomed to working with the likes of DoorDash, Grubhub and Uber Eats — can use their marketing war chests to raise awareness about the availability of takeout and delivery.

For independent operators, that’s harder. “If more than 25 percent of your pre-pandemic business was delivery and takeout, that means you had some infrastructure in place, and you should continue to do it loudly and proudly,” Colicchio said. “But if you are a restaurant like many independents in which a good part of your check average was beverage and alcohol and you didn’t do much in the pickup and delivery space, don’t start now.” Switching to a takeout-and-delivery model won’t save such operators and “may actually lead to additional losses and endanger staff,” he said.

Where reopening has begun

On April 27, restaurants across Georgia got the green light from Governor Brian Kemp to welcome dine-in guests. Kemp also allowed theaters, hair salons and massage and tattoo parlors to open to in-store customers.

The requirements for dining areas include a distance of six feet between tables, a limit of 10 diners per 500 square feet of dining-room space, and a requirement for servers and other staff to wear face masks. “This is a dress rehearsal for the entire country,” said restaurateur Bo Peabody, who sat on the state’s task force for reopening restaurants. Speaking to WSB-TV Atlanta at the end of April, he continued: “If this goes well, I think most restaurants in Atlanta will be open by the middle of May. If it doesn’t, then I think the whole country will be set back by a month or two. That’s the risk.”

Texas Governor Greg Abbott also reopened restaurant dine-in areas on May 1. Similar restrictions apply, including seating limited to 25 percent of an establishment’s prior capacity.

For many, the decision remains

But due to government lockdowns elsewhere around the U.S., other restaurants still face the choice between a to-go/delivery strategy and simply closing down until the pandemic is over.

For independent restaurants, in particular, the shut-down-and-wait option comes with substantial costs and risks, says Daniel Forlano, who handles the books for The Box Seat and also founded business accounting firm Educating America. “What it comes down to is survival,” he said. “Continuing to offer takeout and delivery keeps a foot in the door. You’re hoping to make enough to cover some of the overhead because overhead doesn’t just go away if you shut down.”

Forlano works with seven independent, sit-down restaurants in North Carolina and Georgia. All are moving forward with takeout-only strategies, he said. “Everybody’s sales are down 75 or 80 percent. I figured pizza would hold better because pizza restaurants already do a lot of delivery, but even my pizza guy’s sales are down 70 percent. Lunch is big in his area, and a lot of the local workplaces are shut down.”

Nationally, same-store sales at full-service restaurants dropped by more than 70 percent year over year in March, according to research firm Black Box Intelligence. For limited-service restaurants, that number was about 30 percent. The National Restaurant Association predicts the pandemic will have caused the industry to lose $100 billion by the end of April and, based on current trends, $240 billion by the end of the year.

As Forlano sees it, payroll is the biggest expense for restaurants and can be managed down as part of a takeout-only strategy. The second-biggest expense, rent, is at the mercy of the landlord. “Some of our landlords came out early and said, ‘Hey, we’re giving you a month or two of free rent; we’ll share the load,’ but others are being really difficult,” he said. “They’re sending out letters saying, ‘Your rent is due on the 1st no matter what.’”

The middle-ground solution: suspending a portion of rent but requiring restaurants to pay it all back down the line. Forlano worries that could leave tenants with burdensome debt, which could in turn hamper their abilities to resume dine-in operations when the economy bounces back. “The restaurant business is hard,” he said. “You work on slim margins. My thing is for landlords to share the load.”

Debt is also an issue for corporate chains, and takeout-only strategies won’t bring in enough money to offset these obligations, Colicchio notes. An April 7 press release from Darden Restaurants said to-go sales had soared at Olive Garden and LongHorn Steakhouse. Darden’s broader same-store sales, though, had plunged by 39 percent so far this quarter. The company — whose 1,700-restaurant portfolio also includes Bahama Breeze, The Capital Grille, Cheddar’s Scratch Kitchen, Eddie V’s, Seasons 52 and Yard House — has reportedly drawn down $750 million on its credit line, and other major restaurant chains also have borrowed hundreds of millions of dollars.

Here and there, though, operators are getting by with takeout-only strategies. Shortly after the lockdowns started, Alan Freeman, Carolinas operating partner for The Shopping Center Group, spoke with a sandwich-shop owner whose business had declined by only about 25 percent. A key variable: Takeout had always comprised anywhere from half to two-thirds of the shop’s total sales. “I told him he was crushing it,” Freeman said.

By Joel Groover

Contributor, Shopping Centers Today

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