Should You Invest in a Restaurant During COVID?
There’s no denying how badly the COVID-19 pandemic has impacted the restaurant industry. The last two years have left restaurant owners struggling to cope with full lockdowns, reduced capacity limits, and takeout-only models.
According to Stats Can, the entire industry has seen significant drops of nearly 50% in employment, sales, and GDP.
This has left many asking whether it’s worth investing in a restaurant during the pandemic.
The good news is there seems to be light at the end of the tunnel. COVID-19 restrictions are slowly lifting, and most people are more eager than ever to get back to enjoying life again. This could lead to a boom in the restaurant industry very soon.
And even now, there is still a gap in the market that’s perfect for the right investor. Franchises, in particular, might be an attractive investment even during the pandemic compared to independent locations.
This article will cover why the restaurant industry is likely to rise again, why franchises may be a safe bet, and other critical insights into the restaurant industry.
Why Restaurants Are Set To Rise Again
What factors specific to the pandemic era lead to the strength of certain restaurants as an investment these days?
- Technology drives process efficiency and savings: There’s been a massive uptick in online ordering through third-party delivery services and mobile apps. Naturally, most customers would prefer a contactless option for both payment and pickup, and the types of restaurants quick to add these new technologies into their operations are the ones that benefit the most.
- The restaurant experience has evolved: Although restaurants were required to suspend in-person dining, takeout and delivery models quickly became the norm. Restaurants will continue to play an essential role in the communities they exist within and are still likely to retain demand over the long-term as customers enjoy the flexibility offered through on-demand delivery services, contactless takeout, and the “just-in-time” economy.
- A gap in the market exists: Many of our favorite restaurants failed to survive the initial lockdowns.
What you learn as an investor today will likely still be relevant in the future when the pandemic subsides. Many consumer behaviors are likely to stick, such as working from home or online digital ordering for convenience.
Why Franchises Specifically Are Resilient
There are many reasons why franchised restaurants are, on average, doing better than their independent counterparts over the past few years.
- Pre-existing infrastructure: Franchises already have a time-tested infrastructure in place in supply shipments and communication with other locations. Because they can rely on a network of restaurants, they are more resilient during challenging times.
- Technologies: Franchises can adopt new technologies more efficiently. They can adopt online ordering and takeout services to push delivery as an alternative whenever indoor dining is closed off. A touchless payment option is another feature in high demand these days in the face of a public health crisis.
- Real estate changes: The pandemic has been a difficult time for landlords, including those whose tenants are businesses. The result is that franchise restaurants have more negotiating power over their leases and rates.
- Less competition: Many independent restaurants comparatively have trouble shifting business channels to takeout or delivery thanks to their reduced financial capabilities. With smaller restaurants shutting down during COVID-19, franchises have less competition to work against.
- Brand recognition: Don’t underestimate the brand power of a franchise. Consumers are brand-driven by nature, which means they enjoy the familiarity and consistency associated with an established franchise.
These trends show that restaurant investors should look to franchises to get the most out of their money. If that sounds like you, your next decision is to purchase a new location or work with an existing one.
In both cases, you will need to go through some legal documentation. The Franchise Disclosure Document (“FDD”) and Franchise Agreement are necessary to communicate with the franchisor regarding relevant fees and restrictions.
Negotiations are not uncommon nowadays, given the conditions of the pandemic. It’s critical to surround yourself with experienced professionals to support you in the process.
Specific Examples To Consider
Examine these specific examples of franchises likely to thrive despite pandemic restrictions. These businesses typically have the financial stability and staying power to stay resilient.
Chipotle Mexican Grill Chipotle managed to thrive during the pandemic months thanks to its fast push for
- Online orders
- Partnerships with third-party delivery services
- Chipotlanes, the brand’s drive-thru service
- The development of its mobile app
The impact of these initiatives has resulted in a stock price that’s managed to bounce back significantly despite initial drops.
Domino’s Pizza – Like other examples, Domino’s had the infrastructure for digital ordering and delivery ready in hand when COVID hit. However, the chain’s unique competitive advantage was an in-house delivery service. Domino’s had a price advantage compared to third-party delivery apps since it didn’t have to cover the middleman fees.
And it shouldn’t be a surprise that pizza continues to be popular. Thanks to the brand’s focus on convenience, Domino’s will undoubtedly keep its business going and continue to be a favored candidate for restaurant investors.
McDonald’s – There’s hardly anything wrong with sticking with the classics. The McDonald’s franchise is deeply rooted in its brand recognition and adoption rate of new technologies. Just like the drive-thru in the past, modern McDonald’s branches are more than willing to adopt digital sales and online delivery.
There’s even a mobile phone app and a loyalty program known as MyMcDonald’s Rewards to drive sales throughout the pandemic further. Just looking at the stock price over the past few months, it should be clear that investing now certainly isn’t a bad option.
There are still plenty of opportunities for investors when they look in the right places.
Discover Restaurant Investment Opportunities Near You
Whether you’re looking to open a new restaurant or purchase an existing franchise, there’s no shortage of opportunities in Toronto and the GTA.
CHI Real Estate is here to help you find the best restaurant investment opportunity based on your investment goals, risk appetite, and the current market conditions.
Book a call with our team today, and we’ll show you why the restaurant industry should be on your radar.