The growing investor appetite for restaurant franchises has never been stronger. In 2023, investors poured millions into food and beverage ventures, with programs like Australia’s Food and Beverage Accelerator (FaBA) allocating $20 million for startups. It’s great news for emerging brands who are turning more and more to institutional investors to help them scale and grow profits.
But this growth is not distributed evenly across the industry. Investment in restaurant franchising is largely driven by consumer preferences for healthier, sustainable, and high-quality dining options. Investors are seeking brands that align with these values. At least 65% of consumers are now prioritising brands that reflect their desire for healthier lifestyles, making this a prime factor in franchise investment decisions.
In this article, we’re exploring investor appetite for restaurant franchising, and what you need to know if you want to sink your teeth into the action.
Are you prepared to evaluate restaurant franchises as an investor?
Conducting due diligence is critical before any financial commitment. The restaurant franchise industry, worth over $200 billion in Australia, requires a close examination of each brand’s vision, management, and operational economics. Investors who understand these fundamentals are well-positioned to capitalise on the growth potential of franchise opportunities. A fourth factor is important to long-term success — social impact. It is crucial that brands have a firm grasp on each of these factors before seeking capital from you.
As consumer trends and habits change, there are plenty of opportunities in the food and beverage industry, if you have the right knowledge and know-how to execute a bold strategy.
Understanding investor opportunities & risk assessment
Franchise investing will always include risks, like any other form of entrepreneurship. Careful and considered risk assessment is essential to mitigate some of the uncertainties and unforeseen challenges, such as economic downturns or natural disasters.
Look for companies with proven track records of success and robust risk management plans. Your job as an investor is to provide capital and help offer ways to streamline restaurant operations, but not to change a company’s fundamental strategy.
Some preparedness measures require significant investments (like building improvements and protective systems), while others don’t (like adopting safety protocol). Include the costs of mitigation activities within your budget plan for financial readiness, and incorporate risk reduction, transference, and avoidance strategies.
Investor due diligence
Due diligence is a process that helps an investor understand the impact, risk, and forecasts for a specific industry. Furthermore, it provides insight into value creation within that particular company.
Due diligence can be broken down into commercial, operational and financial categories. Each focuses on different criteria but ultimately has the same goal: determining whether an investment is worthy while identifying areas within a company where improvements could increase its enterprise value.
This is a vital step for helping buyers, sellers, and other stakeholders fully comprehend an investment – its risks, forecasts, and any factors which do or could impact its performance – before any restaurant investments are finalised.
Strong unit economics & profitability
Strong unit economics and profitability are also key to a franchise’s appeal. You should be looking for restaurants with a scalable model and a clear path to profitability, demonstrated by high-performing units and consistent financial metrics.
Evaluating all functional areas of a restaurant can be challenging, from its menu and store design to marketing strategy and sales targets. As more restaurants open, this challenge only becomes more complicated. Learn about the challenges faced by existing restaurant franchises to make sure you understand the current market fully before becoming involved.
Pay attention to consumer resonance
Product-market fit is essential for franchisee success. Investors usually ask: “Who uses this product, and can they survive without it?” In the food industry, pose similar questions. Ask, ‘Who is the core customer, and does the franchise brand have a loyal, repeatable customer base?’
For restaurant franchises, this often comes down to whether the menu or dining experience resonates deeply with consumers and fosters repeat business. Has the product attracted a strong consumer base? Are organic posts, tweets and videos about its star menu item appearing online? These are all positive indicators that the answer is yes.
Scalability potential: taking a measured growth approach
Be wary of companies pitching rapid, unchecked expansion. The COVID-19 pandemic uncovered the fallacy of “growth at any cost” for many business founders. Investors should now be placing greater importance on data-driven, tactical decision making and disciplined growth strategies within the restaurant industry.
Gone are the days of hypergrowth with no discernible logic for expanding into four cities at once. Businesses that prioritise building loyal relationships with customers and operational excellence tend to come out on top. Even the most popular food and beverage franchises understand that rapid expansion is not necessarily parallel with business growth.
Mutual growth & shared achievement
As a franchise investor, you’re not just providing capital – you’re entering into a partnership. A mutually beneficial relationship is central to any business investment or expansion, as establishing shared missions and values is foundational to successful collaboration. You’ll be working with a company owner with the passion, talent, creativity and magic recipes that made their joint popular in the first place. You’ll be providing the financial and business acumen to help them amp up their operations into a scalable business which enjoys more success.
Franchisors can facilitate networking opportunities such as franchisee forums, conferences or environments that foster an exchange of ideas while encouraging best practices. This encouraging network of franchisees can work together towards common goals, with relationship benefits for all involved. Franchisors refine their brand and system, while franchisees gain increased sales, better brand recognition and greater profits.
Restaurant operations & standards
Successful business investment depends on the ability to consistently deliver on your promise to customers. Franchisors establish stringent standards and guidelines to ensure consistent operations, covering everything from menu selections to the design of the building itself. A customer’s experience walking into and dining at any restaurant which is part of a franchise should be the same, even if they’re on different sides of the country (or in different countries!).
Operational guidelines may seem restrictive at first, but they serve as the cornerstone for maintaining business integrity. This doesn’t have to mean adopting a conservative approach to innovation and development. Rather, the focus should be on rolling out any changes consistently across the franchise, so that each individual restaurant remains the same.
Restaurant franchising: key takeaways
The food and beverage franchise sector is fast-paced, with trends shifting rapidly; within six months, a food item you find on one menu could become ubiquitous. Investors must be proactive in identifying franchise opportunities that can adapt to these changing preferences while maintaining a consistent brand identity. Franchise locations that build on successful menu items and cater to local tastes offer the strongest growth potential.
If there’s a particular dish on the menu that sells like hotcakes (even if it is hotcakes), market research can show you the demographic buying this item the most. Target locations where this demographic is grouped as your prime spots to invest in a secondary restaurant. Capitalise on the most popular items, and what made an establishment unique in the first place.
By doing your research, speaking with business owners, and keeping mind of the points we’ve covered above, investment into restaurant franchising could be next on your plate!