In recent years, many private equity firms have invested heavily in the restaurant industry. This is mainly due to the huge growth potential and high returns brought by the recovery and development of the catering industry after the COVID-19 epidemic. According to reports, the transaction value and number of mergers and acquisitions in the restaurant industry hit record highs in 2021. Experts predict that private equity investment in restaurants will continue to grow substantially in the next few years.
Private equity firms favor fast food restaurants with high growth
Many private equity firms prefer to invest in fast food restaurant chains that have rapid expansion capabilities. For example, in 2021, Restaurant Brands International, the parent company of Burger King and Tim Hortons, received $1.3 billion in investment from private equity firms. Inspire Brands, the parent company of Arby’s and Buffalo Wild Wings, completed a $2 billion investment led by Blackstone Group. These fast food restaurant chains have strong brand influence and franchising capabilities, which can help them open thousands of stores worldwide every year.
Technology innovation to improve operational efficiency is the key investment logic
In addition, private equity investors also pay attention to restaurant companies that leverage technology and innovation to optimize operations and improve efficiency. For instance, Wendy’s is accelerating kitchen automation and mobile ordering. Jack in the Box is testing autonomous drive-thru order taking. Chipotle Mexican Grill invested in two robotics startups to automate the tortilla chip frying and expand smart kitchen. Improving productivity through technology and innovation will directly enhance unit economics.
ESG initiatives resonate with private equity investors’ core values
Moreover, restaurant companies’ ESG (Environmental, Social and Governance) initiatives also make them appealing investment targets. Many private equity firms have included ESG elements into their investment strategies. Restaurant brands like Starbucks, McDonald’s and Yum China have made commitments to use renewable energy, sustainable packaging, ethical sourcing and give back to local communities. Their ESG efforts enable private equity investors to generate positive social impact alongside financial returns.
In summary, private equity investment in restaurants is gaining strong momentum and the capital invested is expected to increase substantially in the coming years. High-growth quick service restaurants and restaurant chains with technology-driven productivity improvement are the prime targets of private equity investors.