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Restaurant Industry's Traffic Woes Deepen on Coronavirus Scare

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The coronavirus outbreak has taken the shape of a global pandemic. Apart from China, the deadly virus has spread to countries including the United States, Italy, South Korea, India, Israel, Saudi Arabia, Sweden, France, Denmark and Japan. In fact, cases of coronavirus have been reported across 75 countries and territories.

The coronavirus outbreak — which originated in the city of Wuhan on the banks of Yangtze River, between Shanghai and Chongqing — has so far claimed lives of 3,000 people worldwide. Moreover, more than 90,000 have been infected by the virus. The infectious nature of the virus has made it a bigger threat. No wonder, the coronavirus has evoked memories of 2002 SARS epidemic, which also spread across the world in a short span of time.

Coronavirus to Hurt Restaurant Traffic

According to Capital Economics, this outbreak is likely to hurt the global economy by $280 billion in the first quarter of this year. In fact, most of the industries are reeling under the impact of the coronavirus. Notably, restaurateurs have seen business all but disappear. The coronavirus outbreak has forced most of the restaurants to remain closed in cities like Shanghai, Macau, Guangzhou and Hong Kong. The pandemic disease has not only impacted China but also prompted lockdowns across the world.

The restaurant industry has been facing declining traffic for quite some time now. According to Black Box Intelligence (formerly TDn2K), restaurant industry’s same-store sales declined 0.1% in fourth-quarter 2019. We believe the the coronavirus outbreak will further hurt traffic and sales in the coming quarter. Many companies have hinted about business disruptions in China and across Asia due to the deadly virus spread. The companies have also warned of soft sales trends on account of increased restaurant closures.

Major restaurant companies like Starbucks Corporation SBUX, Yum China Holdings, Inc. (YUMC - Free Report) , Papa John's International, Inc. PZZA and McDonald's Corporation MCD have shutdown majority of their restaurants in China.

More than half of the Starbucks stores in China have been impacted by the coronavirus outbreak. Yum China has temporary closed more than 30% of restaurants in China. While Papa John's International has closed 50 franchised stores in china, McDonald's has shut nearly 300 restaurants. We believe restaurant industry needs to develop a plan to combat the issues arising from the pandemic.

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