Despite the fact that national QSR chains are reporting an average dip in sales of about 25% in the coronavirus, their NOIs have not changed significantly.
Quick service restaurants continue to remain resilient during the COVID-19 pandemic. While overall sales are down across all dining sectors, QSRs have been the most popular restaurant choice for consumers looking to feed their families at a reasonable price during this challenging time.
Investors are taking note of how well QSRs have been performing in this unprecedented crisis, and I have seen a notable uptick in interest from those targeting the STNL category. It is hard not to argue that QSRs have historically performed well over past economic downturns and many are poised to come out of this crisis virtually unscathed, supplying investors with a stable, cash-flowing, and tangible investment—an asset that is increasingly difficult to pinpoint.
Despite the fact that national QSR chains are reporting an average dip in sales of about 25% according to the National Franchisee Association—the industry average for primary, secondary, and tertiary markets—their NOI has seen no significant change. Below are a few of the key reasons why the NOI remains consistent during the pandemic:
- Drive-thrus are a safe, COVID-compliant option for diners and, therefore, are experiencing strong consumer patronage.
- Pick-up orders are gaining in popularity. If a customer doesn’t want to wait in the drive-thru, they can order online and park in a designated spot to have an employee deliver to their vehicle.
- With dining rooms closed, less staff is needed; therefore, payroll has been cut dramatically.
- Numerous franchise networks are suspending royalty fees, advertising costs, and other typical expenses in order to help their franchisees with their bottom line.
- Online delivery services such as GrubHub, Postmates, and UberEats have seen increased demand. It is important to note that QSRs were ahead of the curve with delivery services technology, as compared to other restaurant categories in general, which made them better prepared once the crisis hit.
- The price point for QSRs is typically less than other restaurant category options, which is particularly important as unemployment numbers rise.
Unfortunately, while QSRs are doing well, we can understand why many sit-down restaurants are close to ceasing operations. Many don’t lend themselves well to take-out concepts. There are also a significant number of sit-down concepts that rely heavily on in-restaurant alcohol sales. They can’t survive without that income stream, even with a decent amount of curbside or delivery services. (Note that their liquor license doesn’t allow them to sell alcohol except within their dining room capacity). From a profit and loss standpoint, it is oftentimes cheaper to shut down altogether as opposed to attempting to participate in curbside and delivery options.
Navigating past this pandemic, restaurants that wish to survive the “New Normal” will need to rethink their models and apply lessons learned. For example, QSRs will likely evolve to offer significantly less dining room area, more drive-thru capacity, and walk-up windows.
Ultimately, the convenience, economical price point, and adaptation to technology are all keys to success for the STNL QSR sector. This sector has once again proven to be a resilient investment asset class that not only does well in normal or robust economic cycles but has also outperformed competing categories in recessionary, down cycles, and unprecedented events like this pandemic.