Why It Makes Sense To Invest In Fast Casual Restaurants—Even During These Challenging Times
It’s no secret that the pandemic has decimated the restaurant industry.
By mid-April, approximately 30,000 American restaurants had folded for good, and over 110,000 were forecast to close by the end of that month, according to GOBankingRates. Dine-in restaurants have taken the biggest beating because they’re not well-positioned to pivot to curbside pick-up, third-party delivery, or drive-thru.
Sadly, the market value of so many dine-in restaurants has foundered.
For example, the steakhouse chain Ruth’s Hospitality Group, Dine Brands Global, which owns Applebee’s, IHOP, Dave & Buster’s Entertainment, and the Cheesecake Factory, were all down more than 60% last March. And the parent company behind Outback Steakhouse—Bloomin’ Brands—reported being down by more than 70%.
But that’s not the case for all areas of the industry.
Many brands in the fast casual segment appear to be rockin’ it.
In fact,
Chipotle plans to add 10,000 new hires to its ranks, while Panera Bread is holding strong with contactless, curbside pick-up for online orders.
Domino’s Pizza started showing strong returns—up 15% between mid-February and late March—and according to
Morgan Stanley Research: as of late April and early May, “Casual dining-to-go volumes
tripled or
quadrupled in many cases.”
So if you’re yearning to invest in restaurants, but think this topsy-turvy time isn’t right for that sort of thing, think again. A little contrarian investing may be one of the smartest games around town right now.
While many fast casual brands are reporting strong pick-up and delivery sales, they’re experiencing another phenomenon that’s hiking up their tickets: selling to families, not solos. In fact, when consumers started reliably ordering more curbside delivery and drive-thru—
they ordered more food.
Small ticket orders fell precipitously—but that loss was offset by more people ordering more food. For many brands, ticket orders have actually increased during these challenging times.
When
Fresh Brothers, a fast casual pizza chain in California, introduced their Jumanji Movie Bundle (a big pizza, 6 knots, and a digital copy of the movie), they sold 10% of their movie supply on the first day.
“[We wanted to] package something for families to make the time people are at home quality time versus forced,”
- Geoff Goodman, CEO of Fresh Brothers
Fresh Brothers, and other fast casual chains, might be onto something with their family bundles and meal deals.
Datassential recently polled 4,000 U.S. consumers, and found the 45% said they’ve indulged in family meal bundles at least once in the course of COVID-19, and 38% said they’ll probably keep doing it when things settle down.
But there’s something else that makes fast casual a potentially good investment strategy—especially now. With so many restaurant closures—vacant, or soon-to-be-vacant, real estate locations that can facilitate brand expansion, are now, or soon will be, in abundance.
“… brands that can persevere will face a landscape primed for growth,” according to
QSR magazine. “Coming out of the pandemic, we anticipate… (1) significantly reduced commercial rent; (2) an abundance of available spaces with key mechanical, electrical, and plumbing (MEP) infrastructure, plus furniture, fixtures, and equipment (FF&E) already in place; and (3) significant tenant improvement (TI) packages…”
So astute fast casual brands who are looking to grow, are in an excellent position to snap up prime real estate locations that might not have been available in better times.
And, finally, with so many deep lay-offs in the industry, there are plenty of talented, trained workers out there looking for jobs.
Kate Jackson, Vice President of Executive Search for
i4cp, sees a route for forward-thinking businesses to leverage this crisis into an opportunity.
“There is a lot of uncertainty and disruption, which creates pockets of opportunity. …this creates a window for companies… to strategically upgrade talent.”
- Kate Jackson, VP Executive Search, i4cp
Since a number of fast casual brands have stepped up by satisfying consumer needs with curbside pickup, third-party delivery, and drive-thru—and have increased ticket sales by catering to whole families—they’re in a position to expand to prime locations that are newly available, and hire top-shelf restaurant staff.
So, if you’ve got a few extra dollars lining your wallet: sinking them into the restaurant industry’s fast casual segment—where some brands are truly flying high—might be worth looking into.
