UPDATE: TravelCenters of America has posted a COVID-19 response update that includes a list of open dining rooms by state.
WESTLAKE, Ohio — TravelCenters of America Inc. (TA) is going through changes—some planned and some unexpected.
The Westlake, Ohio-based company is navigating how to reopen its full-service restaurants in the midst of the COVID-19 pandemic while also moving forward with its scheduled company reorganization, which resulted in a layoff affecting about 130 corporate employees and the hiring of new senior leaders.
The consolidation cost about $4.2 million, which the company expects to result in about $13.1 million in net annual savings in selling, general and administrative expense, it said.
“I’m incredibly empathetic for those affected by our reductions in force,” said Jon Pertchik, CEO of TA, during a May 5 first-quarter update call. “I’m excited to begin this historical event in TA’s 47-year history.”
- TravelCenters of America is No. 27 on the Top 40 update to CSP’s 2019 Top 202 ranking of U.S. c-store chains by number of retail outlets. CSP will release the complete 2020 list in June.
Pertchik highlighted TA’s latest initiatives on the call with Barry Richards, president and chief operating officer; and Peter Crage, executive vice president, chief financial officer and treasurer, who was hired in March.
As part of the reorganization, the company hired new senior leaders, including Kevin Kelly, senior vice president of hospitality; Dennis King, senior vice president of corporate development; and Sandy Rapp, chief information officer and senior vice president of information technology.
TA will hire an additional senior vice president to focus on driving the reorganization initiatives, Pertchik said.
“Key among these initiatives is the creation of a central procurement department to consolidate purchasing, to drive economies of scale pricing, [to] improve standardization and to apply professional negotiating skills to the company’s procurement activities,” Pertchik said. “Our search for [a senior vice president] of procurement is underway.”
When deciding who would be laid off, Pertchik said TA looked throughout the organization and attempted to find places where the company could be reorganized to support its core functions.
“I’m not sure there was one department that was unaffected,” he said. The process of consolidating roles and moving people around the company is ongoing, he said, but he expects no further layoffs.
Gasoline, restaurant sales affected
TA’s fuel sales volume during the first quarter increased 3.6%, which was driven by diesel fuel sales volume. Gasoline sales volume declined significantly in mid-March as consumers responded to stay-at-home orders as a result of the COVID-19 pandemic, Pertchik said.
Despite the decrease in gasoline sales volume, total fuel gross margin was strong in March, which resulted in a 9.6% increase in TA’s fuel gross margin for the first quarter, he said.
Overall, restaurant revenues decreased by 5.1%, or $5 million, vs. the first quarter in 2019.
“Reasonable performance from our [quick-service restaurants] was more than offset by the underperformance of our full-service restaurants, which were impacted by government-mandated temporary closures, and as a result experienced sharp revenue decline during the second half of March,” Pertchik said.
These hits are what led TA to furlough about 2,900 field employees and 122 corporate employees in April, he said.
Capital investments delayed
In October, TA announced it would open 94 IHOP restaurants in TA and Petro-branded travel centers within the next five years through a partnership with the Glendale, Calif.-based restaurant chain. That deal has been delayed, Pertchik said.
“Given the lack of clarity on the depth and duration of this crisis, we have also agreed with IHOP to delay for a year our plan to convert some of our full-service restaurants at our travel centers to IHOPs,” he said.
The significant amount of capital expenditure needed for conversion, as well as IHOP facing its own challenges because of COVID-19, led to this decision, he said.
In addition to suspending IHOP conversion, all nonessential projects are being deferred to 2021, Crage said.
TA originally budgeted about $118 million for 2020 capital expenditures, which has now been reduced to about $62 million, he said.
As social distancing measures start to lift in some states, TA has begun reopening some of its full-service restaurants; however, TA is going about this in a prudent and self-disciplined way, Pertchik said.
In Georgia, for example, TA has reopened restaurants with more limited hours and disciplined menu offerings. Menus may have 25 options instead of the more than 60 usual options, he said.
“In some unexpected ways, this pandemic does give us an opportunity to look really hard at how our full-service restaurants operate,” Pertchik said.
Because of state regulations in place, none of the restaurants has been able to open at 100% occupancy, Richards said, and some have restrictions allowing only 25% occupancy. This makes it hard to be effective, so that is something TA is monitoring when deciding whether to reopen a restaurant, he said.
Salad bar and buffet features will not be coming back, at least with initial openings, he said, and that landscape could be changed forever depending on public reaction.
Richards said TA is keeping track day by day of what governors and local municipalities allow. “It’s very complex, and we monitor it hour by hour and try to stay ahead of it and be ready to reopen as the market warrants,” he said.
Founded in 1972, publicly traded TA has more than 260 travel centers in 44 states and Canada, principally under the TA, Petro Stopping Centers and TA Express brands. It operates nearly 650 full-service and quick-service restaurants and 10 proprietary restaurant brands, including Quaker Steak & Lube, Iron Skillet and Country Pride.