Think it’s the Wrong Time to Buy a Food Franchise? Think Again!
Nov 14, 2020
You’re probably tired of reading this in every single article on the internet, but 2020 has been one crazy year. The COVID-19 pandemic required a number of restaurants, bars, and other public gathering spaces to shut down back in March, with a number of businesses being forced to close their doors permanently.
Eight months later, we still have yet to get back to normal life as we knew it in the “Before Times,” and business has slowed way down for restaurants, who are operating on a limited basis with takeout, delivery, and minimal dine-in service, though this has been significantly reduced as a result of social distancing guidelines.
Sounds like a pretty terrible time for an investor to add a restaurant franchise to their portfolio, right? Actually, for franchise investors who are looking at the bigger picture, there may never have been a better time in history to start a food service business than right now!
It’s true, according to franchise industry expert and Raintree CEO Brent Dowling. In a recent LinkedIn piece, Dowling explained why savvy franchise investors should strike now while the iron is hot, and how this dumpster fire of a year may have actually created the perfect storm for an entrepreneur to get a new business off the ground.
One Restaurant’s Failure is Another Food Franchise Owner’s Fortune
Matteo Rachocki, co-Founder of Raintree partner brand Voodoo Brewery, is optimistic about the future of his beer and food franchise.
Though it sounds depressing to say so, the rash of restaurants and retail businesses that have been forced to close permanently may actually be good news for budding entrepreneurs, in that prime real estate is now more affordable than it has been in over a decade, a phenomenon Dowling has witnessed firsthand through the eyes of Raintree’s restaurant partner brands’ newest Franchise Owners.
“For the folks we’ve placed into a restaurant franchise in the last couple months, the feedback has been excellent. The common sentiment is ‘We’re getting ‘A’ real estate sites for ’B’ or even ‘C’ pricing,’” he reports. “Throw on top of that the fact the we are seeing historically low interest rates on small business loans, and you have the perfect storm for business owners over the next 10 years.”
Additionally, all signs are already beginning to point to the fact that we may be in for a wave of post-pandemic consumer spending once we’re able to get down to business as usual. Food franchises such as McDonald’s (MCD) have already seen an uptick in sales, with 3.5 out of 5 McDonald’s Franchise Owners reporting higher sales and overall optimism about their 6-month business outlook, which is nearing an all-time high from February 2004.
Similarly, Jill Nelson, Dunkin Brands’ VP of Marketing Strategy reported to CNBC that the beloved donut-and-coffee franchise is seeing the impact of people “treating themselves” to food and beverages they can’t replicate at home.
And, as Dowling pointed out in his LinkedIn piece, “that’s just the opportunity we see from a consumer standpoint to see the bigger picture. As a business owner, the opportunity is perhaps even greater.”
Dowling listed what he perceived to be the top four factors indicating a roaring post-COVID comeback for franchise sales, particularly in the food service, retail, or experiential sectors. These factors include:
Pent-up consumer demand
Access to prime real estate
Lack of competition due to closures of mom-and-pop businesses
Playing the Food Franchise Long Game
By thinking long-term, Dowling asserts, business owners who invest now can capitalize on future franchise success.
“You buy a franchise agreement as a 10 year-plus investment (that can be renewed for decades after that if successful),” he says, adding that “(m)ost franchises take at least 2-3 years to mature to desired profitability levels.”
For a franchise investor looking to play the long game, this translates to historically-cheap commercial real estate prices now, due to restaurants and retail shops that have unfortunately gone out of business in recent months, with a higher potential for ROI once the world gets back to normal and people start spending like they did pre-pandemic.
“By many accounts, we will likely see a ‘return to normal,’ whether that means an effective vaccine or not, in 1-2 years,” Dowling points out. “Some say a heck of a lot sooner.”
It’s true- with this week’s reports of Pfizer’s highly-encouraging vaccine breakthrough dominating the news, it looks like we may finally be seeing some light at the end of this long, dark tunnel, and top scientists indicate that we may be anticipating a return to pre-pandemic life within a year.
Which brings us to our next point- after a year of sitting at home, doing nothing, seeing nobody, and going nowhere, it seems likely that people will be turning out in droves to get out and spend money on sorely-missed activities like dining out as soon as the vaccine makes it possible to do so. Dowling agrees, noting that the recent surge in home services businesses may level off as soon as staying home is no longer the only available option.
He asks, “When the world opens up, do we think people are going to want to continue to invest in their homes at the rate they are now? Or do you think any disposable income might be redirected to other options that were not really options during a pandemic?”
For Food Franchise Owners, the Future is Bright!
So, what’s the bottom line? While service franchises, such as painting, flooring, and other skills-based businesses, may look tempting now- particularly since they’ve been largely untouched by the pandemic and are in fact seeing a surge in business- food and retail franchises may be a savvy investor’s best bet in the long run.
It’s difficult to remember this at times, but the COVID-19 pandemic won’t last forever. Things will someday be back to normal, and it’s beginning to look like that is going to happen sooner rather than later. By taking a look at the bigger picture and seeing the overwhelming, unmet need there will be for restaurants and retail stores post-pandemic, a franchise investor can easily score a business deal of a lifetime now and look forward to amazing profitability potential when we are once again able to resume life as we know it.