Restaurant ownership trends change over time, but the COVID-19 pandemic has accelerated consumer and investor trends. Consumer expectations have been permanently changed, and there are some key characteristics to look for when looking to invest in a franchise that will meet those expectations.
Concepts to invest in
Investors have continued to invest in brands that have seen slower growth or even struggled to expand in recent years. Reigniting growth can be difficult, both for existing franchisees and for consumers who may not be enthusiastic about a struggling brand. Above all, it is essential that the economics of the unit are strong and that the brand is an attractive investment for potential franchisees. Assuming this is the case, it’s important to ask whether the real estate is still suitable – are the restaurants in the right markets for the brand and in the right micro-sites in town? Are there markets for the concept to be developed that have the right consumer targets? Finally, is the concept itself still relevant and has it kept pace with changing customer preferences?
where to focus
We prefer to invest where the consumer tailwinds are favorable in long-term “trending” segments. For example, Tropical Smoothie Café has embraced the “better for you” and healthier trend. The fast-growing Slim Chickens brand is in what we call the ‘premium chicken’ segment, responding to the long-term shift in preference towards chicken. Both brands have grown by leaps and bounds since beginning their franchising initiatives for a variety of reasons, but one of the biggest factors is embracing trends that are popular with consumers across the country, not just specific regions.
Brands that prioritize consumer convenience continue to do well. Drive-thru, always popular with consumers, saw a huge spike in usage during the height of the pandemic, and that demand hasn’t slowed even as the pandemic comes and goes. However, technology plays a critical role in this equation – consumer expectations for convenience and ordering options have increased, and brands that see technology as integral to the consumer offering are succeeding. It could be technology and drive-thru for a brand like Slim Chickens, or pre-order and curbside pickup for a brand like Walk-On’s or Tropical Smoothie Café.
It’s also important to note that when it comes to technology that streamlines the customer experience, early adapters are generally the most successful. Brands that already had some type of curbside or contactless collection system — and remember, this wasn’t the norm before the pandemic — had a significant leg up on the competition when collections minimal contact became the expectation. While other brands had to close their dining rooms and searched for a solution, these early adapters were reaping revenue as customers flocked to their restaurants.
Another trend that we expect to see intensify in the months and years to come is the continued conversion of traditional brands to newer and trendier concepts. Many legacy brands are updated to have a more modern appeal; However, given the cost of refreshing an older location to bring it up to current brand standards, some franchisees may decide it makes more sense to convert to a different brand entirely.
At 10 Point Capital, we have seen this with some of our own brands. Slim Chickens, for example, has been a popular choice for franchisees looking to diversify their brand portfolio and add a chicken concept. Slim Chickens is also elevating as a brand by being part of the best chicken segment and offering over a dozen homemade sauces – Slims does chicken well and offers the consumer a plethora of ways to meet their flavor preferences. thanks to its condiments.
Similarly, Walk-Ons Sports Bistreaux has succeeded in the casual dining segment thanks to its elevated, chef-led menu and its mission to provide a memorable game day experience for everyone who walks through its doors.
The restaurant industry is changing, but by monitoring consumer habits, investors can keep the pulse of the industry when planning their next investments. Our bet is on brands based on convenience, technology and meeting the food preferences of today’s diners.