Americans are in love with fast food. In fact, there are 247,191 fast food restaurants across the U.S. serving 50 million customers a day.
At the moment, 55% of people eat out at least once a week, and 25% eat fast food once a day. Clearly, it’s a trend that isn’t slowing down. And while it doesn’t bode well for the overall health of the nation, it does present numerous opportunities for commercial real estate investors.
This astounding increase in fast food restaurants has led to the Quick Service Restaurant sector being responsible for the largest percentage of net lease sales almost every quarter. The QSR sector is unique in that unlike other retail sectors, it appears to be fairly impervious to online competition, even with online ordering and next day delivery.
Whether it’s because an essential part of eating fast food is eating out, or because Amazon hasn’t figured out a way to co-opt this section of the market, the fact remains that the Quick Service Restaurant sector is a highly competitive sector full of options for investors.
Common Features Of QSR’s
Nearly all QSR’s are located on sites clearly visible from the street, with easy entry and exit points and heavy traffic. These factors are essential to the success of a Quick Service Restaurant, which relies partly on convenience to attract customers. It also means, however, that if a tenant goes bankrupt, the property would still be highly marketable to other investment-grade tenants.
Triple Net Or Ground Leases
Another factor that makes QSR’s attractive to investors is their status as triple net or ground leases, which make these properties perfect as turnkey properties or 1031 replacement properties.
Franchise Or Corporate Entities
Quick Service Restaurants can be either franchise or corporate entities. Corporate restaurants are rated by Moody’s and S&P; financials can be easily checked through reliable third-party services.
Franchise-backed restaurants, on the other hand, range from one company who runs dozens (or more) of restaurants, to individually owned franchises. Surprisingly, even though with other retail properties this difference in creditworthiness would be reflected by lower purchase prices, competition is so intense that investors will still pay a hefty sum for these multi-billion dollar companies.
QSR’s Favor A Smaller Footprint
Typical properties range from 1,500 to 2,500 square feet. QSR owners prefer a space with a smaller footprint since it allows them to serve plenty of customers yet save on rent. At the same time, owners can still make plenty of profit, especially since that size is the sweet spot for most QSR’s.
Fostering Food Halls
The intense demand for prime space has prompted some investors to break up larger spaces and rent out smaller parts to more than one tenant. This trend, which benefits both landlords and tenants, is also partly responsible for the resurgence in food halls.
Trends In The Quick Service Restaurant Industry
As 2018 progresses, it’s become clear that full-service restaurants, in a bid to regain back some of the market shares, are slowly starting to offer services once offered only at QSRs. For example, some are adding a takeout component, adding mobile ordering and home delivery in order to emphasize speed and convenience.
As a result, Quick Service Restaurants are adapting new methods aimed at increasing the perceived value of their restaurants, encouraging brand loyalty, improving onsite experiences, and focusing on quality ingredients instead of healthy ones.
Better Onsite Experiences
Quick service restaurants are now re-thinking the customer experience in an effort to compete with full-service restaurants.
Chick-fil-A is one of the first fast-food restaurants to experiment with this concept, placing fresh flowers on tables, ensuring a waiter is present at all times to serve seated customers and showing exceptional courtesy towards customers.
The effort seems to have paid off: between 10-15% of customers are brand ambassadors for the company.
Offering Quality Ingredients
Studies show that although customers say they want healthier food options, in reality, they choose quality ingredients over healthier ones. In fact, one study even showed that brands who use higher quality ingredients grow 10 times faster than restaurants who offered healthy food.
In fact, when McDonald’s increased the number of quality ingredients used in their products, they saw 2% increase in in-store purchases when the change was announced.
Integrating Tech With Mobile
25% of consumers say that the availability of tech impacts on their decision as to whether or not to visit a Quick Service Restaurant. In order to keep up with consumers reliance on digital technology, QSR retailers are adapting technology like mobile ordering, digital payments, onsite browsing, and shopping apps.
As QSRs adapt to the changing marketplace and increasing competition,
there will be more opportunities for brands to improve the customer experience, increase profits, and win customer loyalty.
QSR’s have all the makings of a lasting trend. Not only are properties located in excellent areas, but demand for fast food restaurants continues to be extremely strong. All of these point to continued success for the QSR sector.Tags: 1031 property, fast food franchises, franchise, QSR, Quick Service Restaurant, triple net