The trends around restaurant ownership change with time, but the COVID-19 pandemic has accelerated consumer and investor trends alike. Consumer expectations have been permanently altered, and there are some key features to look for when seeking to invest in a franchise that will keep up with those expectations.
Concepts to Invest in
Investors have continued to invest in brands that have experienced slower growth or even struggled to grow in recent years. Reenergizing growth can be challenging, both with existing franchisees and consumers who may be unenthused about a struggling brand. First and foremost, it’s critical that the unit economics are solid and the brand is an attractive investment for potential franchisees. Assuming that is the case, it’s important to ask if the real estate is still a fit — are the restaurants in the right markets for the brand and in the right micro-locations within the town? Are there markets for the concept to grow into that have the right consumer targets? Finally, is the concept itself still relevant and has it kept pace with evolving guest preferences?
Where to Focus
We prefer to invest where the consumer tailwinds are favorable in long-term “on-trend” segments. For example, Tropical Smoothie Café embraced the “better-for-you” and healthier lifestyle trend. Fast-growing brand Slim Chickens sits in what we call the “premium chicken” segment, addressing the long-term preference shift towards chicken. Both brands have seen drastic growth since they began their franchising initiatives for a variety of reasons, but one of the big factors is embracing trends that are popular with consumers throughout the country, not just in specific regions.
Brands that prioritize convenience for the consumer continue to do well. Drive-thrus, ever-popular with the consumer, saw a huge spike in use during the height of the pandemic, and that demand hasn’t slowed down even as the pandemic ebbs and flows. However, technology plays a critical role in this equation — consumer expectations for convenience and ordering options have grown, and brands that view technology as integral to the consumer offering are succeeding. This can be technology and the drive-thru for a brand like Slim Chickens, or ordering ahead 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 client experience, early adapters typically find the most success. Brands that already had some type of curbside or contactless pickup system in place — and remember, this was not the norm pre-pandemic — had a significant leg up on the competition when minimal contact pickups became the expectation. While other brands had to close their dining rooms and were scrambling for a solution, these early adapters were raking in revenue as customers flocked to their restaurants.
Another trend we expect to see ramp up in the coming months and years is the continued conversions of legacy brands to newer, hotter concepts. Many legacy brands are updating to have more modern appeal; however, given the cost of refreshing an older location to bring it up to current brand standards, some franchisees may decide that it makes more sense to convert to a different brand entirely.
At 10 Point Capital, we have seen this first-hand 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 also elevates itself as a brand by being a part of the better chicken segment and offering more than a dozen house-made sauces — Slims does chicken well, and offers the consumer a plethora of ways to meet their flavor preferences through their condiments.
Likewise, Walk-Ons Sports Bistreaux has succeeded in the casual dining segment due to its elevated, chef-driven menu and a mission to deliver a memorable game day experience for everyone who walks through their doors.
The restaurant industry is changing, but by monitoring the habits of consumers, investors can keep their finger on the pulse of the industry as they plan their next investments. Our bet is on brands built on convenience, technology and meeting the food preferences of diners today.