Restaurant investment groups have become an increasingly popular way for investors and entrepreneurs to gain exposure to the restaurant industry. With the right strategies and market positioning, restaurant investments can offer attractive returns. This article provides an overview of the key trends, models, and considerations around restaurant investment groups.
There are several major restaurant investment groups and platforms that provide capital and operational expertise to emerging restaurant concepts. These groups look to invest in innovative concepts that can scale through company-owned units or franchising models. Some also acquire existing chains and help revitalize their growth. With their industry knowledge and access to capital, these groups can accelerate a restaurant brand’s expansion in domestic and international markets.
When evaluating potential restaurant investments, investors analyze factors like the strength of the concept, unit economics, and the capability of the management team. The growth potential of the segment and macroeconomic trends also play a key role. For instance, fast casual concepts have been attractive in recent years given changing consumer preferences. Investors also consider a brand’s differentiation, customer loyalty, and technology integration.
In addition to providing growth capital, restaurant investment groups can also help brands enhance their marketing, real estate selection, supply chain, and other capabilities. Their involvement can range from being a minority investor to acquiring a controlling stake. Understanding their strategy and approach is critical for restaurant entrepreneurs looking to partner with investment groups.
While restaurant investments carry risks like any industry, the opportunities today are plentiful for seasoned investors. With careful evaluation and active involvement, restaurant investment groups can generate strong returns by backing innovative concepts and accelerating their expansion.
Major restaurant investment groups focus on scalable emerging concepts with strong unit economics
Some of the most prominent restaurant investment groups include JAB Holdings, Roark Capital, TriSpan, and Lion Capital. JAB has invested in chains like Panera Bread, Krispy Kreme, and Pret A Manger. Roark’s portfolio includes Wingstop, CKE Restaurants, and Miller’s Ale House. These groups look for concepts that have proven their model works but need capital to expand nationwide or globally. They evaluate the restaurant’s unit economics, growth rate, customer loyalty metrics, and potential to differentiate in a competitive market. The management team’s experience and depth are also scrutinized to ensure they can execute on the brand’s expansion plans.
Fast casual, QSR, and specialty coffee are attractive segments given shifting consumer preferences
Many restaurant investment groups have allocated significant capital to fast casual restaurant chains in recent years. Segment leaders like Chipotle, Shake Shack, and Sweetgreen have shown the potential for high volumes, margins, and returns in fast casual. While the bar is high, new innovative concepts in areas like health-focused meals, ethnic cuisine, and technology integration can thrive with the right backing. Coffee chains like Dutch Bros, Starbucks, and Inspire Brands’ Jimmy Johns have also attracted investments given coffee’s resilience and growth. Established quick service restaurants focusing on digital and off-premise capabilities are another area of interest to provide recession resilience.
Active involvement in growth strategy, marketing, supply chain and technology is key
In addition to providing capital, leading restaurant investment groups take an active role in helping brands accelerate growth and enhance operations. This involves devising a comprehensive expansion strategy including franchising, company stores, real estate selection and more. Marketing support and brand building expertise are crucial to drive awareness and trial. Supply chain improvements and leveraging purchasing scale can boost unit margins. And integrating customer-facing technology like mobile ordering and loyalty programs help drive sales and analzye performance data. The level of involvement may vary based on the specific investor-brand relationship, but strategic guidance and resources are major advantages of partnering with established restaurant investment firms.
Thorough due diligence and post-investment performance tracking are critical
Given the risks involved, restaurant investment groups conduct extensive due diligence before committing capital. This includes scrutinizing the concept’s financials, operations, management and growth plans. Site-level data on sales, costs and customer metrics provides insights into performance drivers and optimization opportunities. Once invested, these groups track KPIs like new unit openings, same-store-sales, guest metrics, and margins relative to projections. They may provide additional capital for growth or make operational changes if the brand is underperforming targets. The involvement doesn’t end once the investment is made – active management and support are provided to nurture the brand’s success.
Partnership models range from minority stake to full acquisition
Restaurant investment groups may take a minority stake in emerging brands to provide growth capital while keeping the existing founders involved in day-to-day management. This allows brands to access funding and expertise while retaining control over culture and vision. Some investors may acquire a majority stake and eventually purchase the brand fully once they have confidence in the concept and team. Large platforms like JAB Holdings and Inspire Brands even look to acquire mature chains that may have plateaued to revitalize performance under new leadership. The specific partnership model depends on the brand’s current state, funding needs, and founder’s wishes.
In summary, restaurant investment groups are accelerating the growth of innovative dining concepts through their capital, experience, and active involvement. Their investments have transformed many emerging brands into national and global chains. With careful evaluation of concepts and hands-on operating support, these groups can generate strong returns while helping brands flourish. However, the risks are also high, requiring rigorous analysis and post-investment tracking. The future opportunities are plentiful for restaurant private equity firms pursuing differentiated brands with potential to scale and disrupt the industry.