What Potential Investors Should Look for in a Restaurant Brand

In the post-COVID landscape, the restaurant industry is starting to bounce back, making it the perfect time for potential investors to be presented with investing opportunities by restaurants. To vie for an investor’s attention, restaurant executives may bring out flashy tactics and gimmicks. Don’t let these distractions sway your thinking. Remember, a restaurant can be a risky and volatile investment to make, albeit a profitable one, so research carefully and strongly consider a brand that you know well.

For example, I invested in Margaritas Mexican Restaurants, a popular 35-year-old Northeast full-service brand known for its celebratory atmosphere, scratch kitchen and the best margaritas outside of Mexico, after being a customer for decades. The fun atmosphere, delicious food and refreshing margaritas were part of what drove my initial interest—but I took a deeper look into the restaurant’s leadership, brand essence and operational efficiencies before making a decision to join as an investor. So, when evaluating potential restaurant investments, be sure to take a deep dive into these key factors:  

Profitability: As the most important factor in choosing a restaurant investment, only consider a business with a history of making a steady profit that doesn’t struggle with low sales and tight margins. COVID certainly complicated this, but we take this as an opportunity to see who experienced growth and positive changes during the pandemic. The best run businesses and the strongest brands figured out a way to thrive.

Controlled Growth: Investors should keep their eyes peeled for some potential red flags when restaurants have grown too quickly. Once the brand has stretched too far, especially outside of the area where it has found success, service and operational efficiencies can begin to suffer. Poor service and reviews can be hard to bounce back from – once customers have a bad experience at a restaurant, they likely will not forget it quickly.

Food & Beverage: The product has to be awesome, and something that you personally believe in.  Competition is so high right now so restaurants need to have a product that is differentiated and special. Furthermore, you need something that is crave-able. Something that people come out of their way for. Margaritas’ system-wide food/beverage balance is at 45 percent beverage, which is attractive and unheard of in the industry. Of that 45 percent almost 80 percent are margaritas sales. They are amazing and differentiated. Its total number of margarita flights sold in 2021 was 46 percent more than 2019 pre-pandemic numbers. With such profitable beverage sales, and such an amazing product, I knew that Margaritas would be able to succeed in the post-COVID landscape.

Customer Experience: Over the next decade, customers will be more inclined to seek out dining experiences—and the experiences that they have will dictate the restaurants’ success. It is important to look for restaurants with a distinct, differentiated customer experience, not just a run-of-the-mill meal that can be had anywhere.

Internal Culture: Look to the restaurant employees and see how they feel they’re treated by the restaurant management and corporate leadership. Visit the locations if you can, and learn if employees feel a sense of community or are frustrated or genuinely unhappy. With the current “Great Resignation,” people are leaving restaurant jobs left and right to seek out better opportunities—and if the brand you’re considering doesn’t treat its employees well, that is a recipe for disaster. Restaurant brands can be a tricky investment. We have seen this especially manifest in the last two years with the pandemic. But, once you do your research into key factors and find a profitable, solid brand to invest in, you’ll find that success will quickly follow.