February 17, 2021 5 min read
Opinions expressed by Entrepreneur contributors are their own.
Covid-19 has been a stress-test for every facet of restaurant operations. Nearly four in 10 U.S. restaurants are currently closed, and many will close permanently as a result of the pandemic.
However, the industry’s setbacks over the past year should serve not as a warning, but as a guiding light. The restaurant franchises that have weathered the storm — those with the strongest customer bases, the best food and the most effective technology — are here to stay.
Although it is disheartening to watch restaurants shut their doors permanently, I am encouraged by the industry’s resilience and innovation over the past year. Market demand is another source of optimism. The reality of the current situation is, we have the same amount of people evaluating food options every day as we did before the pandemic hit. It is no surprise that we are seeing fast casual and QSR brands reporting an increase in sales at a time when the industry overall is struggling.
Pent-up demand for dining at restaurants is very high, with 83 percent of respondents in a new National Restaurant Association survey reporting that they are not eating out as often as they would like.
In a post-pandemic world, restaurants will have an incredible opportunity to meet this increased demand and fill the void left by recently closed restaurants. For savvy investors and eager entrepreneurs willing to see opportunity where others see uncertainty, 2021 will be the “Year of the Franchise.”
If you have ever considered making a career change, or simply want to diversify your business portfolio, here are three key reasons to act on buying a restaurant franchise:
1. Franchising is misunderstood — but not mysterious
There are many misconceptions about owning a restaurant franchise. Some investors think they need a background in the restaurant industry to be successful, or that purchasing an early-stage restaurant concept is too risky.
In reality, franchising is a mature business of processes and systems designed to minimize risk and generate consistent profits. The best restaurant franchisors equip franchisees with a clear roadmap for success and the tools to operate their business —helping them hire an experienced operations team, secure loans, establish an accounting system and select sites. Most brands also have an enthusiastic network of franchisees who share best practices with one another.
Successful franchisee Rick Fisher was an IT sales executive with no restaurant experience, but he was drawn to the possibility of earning passive income and generating wealth through franchising. He invested in Five Guys Burgers & Fries when it was still a small, emerging brand, and today he owns 10 locations. As Fisher says, “knowing what I know now, I wouldn’t hesitate to take on an early-stage brand.”
Related: Focus on These KPIs for Franchise Success
2. It is an ideal time to perfect the art of “blitzscaling”
After a potential franchisee completes their due diligence and identifies a concept with great unit economics, replicable systems and strong franchisee references, they can take a small investment and scale up rapidly. This is achieved through the snowball effect of blitzscaling — when a franchisee reinvests free cash from their first location to open a second location, and so on, to compound their returns.
Using this strategy, investors not only generate a much larger revenue stream, but can also sell their business down the road for a profit once it reaches peak value.
3. Good real estate pays for itself
A new survey from Deloitte suggests that demand for hotel, retail and office spaces could see a double-digit decline in leasing activity over the next 18 months. Developers are highly motivated to fill vacant storefronts, and they are willing to offer flexible lease terms to attract unique restaurant concepts.
There are also compelling opportunities for franchisees to purchase and convert recently closed restaurants. Because these locations already have commercial kitchen equipment in place, franchisees can lower their upfront costs, open their restaurant more quickly and see a rapid return on their investment.
Finding the right location is arguably the most important step of the franchising process, and in 2021, franchisees will have their pick of highly desirable locations.
Related: Why the Franchise Industry will Boom in 2021
The bottom line
Covid-19 has revealed an elite class of “future-proof” restaurant chains that are leading the industry with their resiliency, innovation and leadership. Entrepreneurs should feel confident about an investment in these successful brands and take full advantage of current market forces to fund and accelerate their growth in 2021.
Although it is easy to find reasons to say “no” — particularly in today’s complex business environment — entrepreneurs willing to seize the opportunity will find incredible success with restaurant franchising this year.