Invest in Restaurant Industry- 5 Things to Know Before You Buy

Invest In Restaurant Industry January 11, 2023

Priyanka Bhadani

Writer

5 Things to Know Before You Invest in the Restaurant Industry

Recent years have demonstrated the financial volatility of restaurant business operations. The coronavirus pandemic resulted in 2020 United States restaurant industry store sales plummeting by $240 billion. 2020 restaurant industry store sales were projected for $899 billion. The pandemic influenced every United States industry from restaurant stocks to real estate value. Unfortunately, the restaurant industry was hit the hardest by the coronavirus pandemic.

While restaurant business statistics and restaurant stocks may feel bleak there is a larger picture. The National Restaurant Association asserted in recent years that 60,000 restaurants open annually. National Restaurant Association studies have also stated that 50,000 restaurants close annually.

Context is absolutely required when evaluating restaurant industry findings. For example, a closed restaurant business could be the result of a change in location. As such, restaurant business information must be comprehensively evaluated. 5 items to consider prior to restaurant industry investing include-

1. Plan

Whether investing in restaurant stocks or a restaurant business directly, careful analysis is necessary. If a restaurant business is already established, evaluation of store sales in recent years and market share projections are essential. However, if a restaurant business has not yet opened, data from recent years will obviously not be available. In that case, store sales and market share projections outlined in the business plan must be evaluated.

Occupancy and operating costs are important areas for restaurant industry investors to review. Depending on what area of the United States that a restaurant business is in costs vary. Additionally, restaurant business type influences occupancy and operating costs. For instance, a casual dining and fast food restaurant will reasonably have different operating and occupancy costs.

2. Community

An investment in the restaurant industry can create a unique opportunity for connection. While investing in restaurant stocks is more detached, a direct restaurant business investment is tactical. A restaurant business is a space that both investors and people from the community can embrace. Whether a fast food drive thru or casual dining establishment, investors should consider the intended community.

3. Position

Taking a position before investing in a restaurant business or restaurant stocks is crucial. Deciding whether to be a passive or active investor will inform important restaurant business decisions. The majority of single restaurant business investors are lifestyle investors. Over idealization regarding either restaurant stocks or restaurant business investments is dangerous. Establishing a firm position regarding restaurant industry investments limits fiscal irresponsibility.

4. Tolerance

Every investment is a financial risk despite projected market share and store sales data from recent years. Unpredictable events, ranging from a pandemic to a natural weather disaster, can influence store sales virtually overnight. Recent years have demonstrated the vulnerability of United States industries ranging from real estate to restaurant businesses. Importantly, these external influences can have negative or positive impacts on restaurant sales or market share presence. Although financial advisors and restaurant industry professionals can supply advice investors must measure their own risk tolerance.

5. Scalability

Many restaurant industry investors warn against making individual restaurant business investments. However, it is important to remember that investing in a franchise or well established location still carries risk. Notably, an important consideration is the scalability of a restaurant business.

A scalable restaurant business that has demonstrated value over recent years can be a worthwhile investment. Alternatively, a restaurant business that is willing to sell its brand can also supply high return on investment. Without the ability to scale or sell the brand, a restaurant business investment may not be worth the risk.

Key Takeaways for Investing in Restaurant Industry Businesses

Deciding to invest in a restaurant industry business is not a simple decision.
Crucial considerations before investing in a restaurant business range from risk tolerance to growth potential.