The Time Is Now to Become A Franchisee Under Historically Good Terms
It is finally a tenant's market, and prospective franchisees are making unusually good deals this year -- but it won't last forever.
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With uncertainty surrounding the restaurant industry, some entrepreneurs may feel tempted to take a "wait and see" approach before investing in a franchise. However, the current real estate market – which favors tenants for the first time in a decade — is creating unprecedented opportunities for restaurant franchisees to buy low and sell high.
An abundance of prime retail space, low interest rates, readily available financing, and opportunities for low-cost conversions mean that franchisees can expect an immediate return on their investment. This window of opportunity won't last forever, so entrepreneurs should plant the seed now to plan for future growth.
There are several market trends potential franchisees should be aware of as they consider an investment.
Fast casuals are here to stay
In 2020, fast casual and QSR brands reported increases in sales at a time when the restaurant industry overall was struggling. The ability of these chains to make quick, strategic pivots and invest in technology, drive-thru and delivery was instrumental to their success. Point-of-sale (POS) technology was a key differentiator for fast casual concepts, with the use of contactless payments increasing 150% between March 2019 and March 2020.
This year, investors should seek out the restaurant concepts that not only survived, but thrived, in 2020. These battle-tested concepts are truly "future-proof" from an investment perspective.
Landlords are ready to make a deal
For the past decade, landlords have held all the cards. Today, they have a strong financial incentive to cooperate with tenants, open new lines of communication and accept more flexible lease terms.
Landlords are feeling pressure from all sides. As a result of the pandemic, some of their prime real estate is likely sitting vacant, while current tenants may be behind on rent because they are operating at a lower volume than they were before the pandemic. The industry is experiencing a seismic power shift in favor of tenants, with landlords actively recruiting unique restaurant and retail concepts to fill vacancies and draw in new customers.
Armed with this knowledge, franchisees can gain a significant advantage at the negotiating table and secure a location they could never afford under normal circumstances.
Deals locked in for a prime location today will pay dividends in the long run when diners start flocking back to restaurants.
New concepts are finding success
Like many new concepts, tech-forward Brooklyn Dumpling Shop1 kept a watchful eye on industry shifts in 2020. They realized early on that trends like contactless technology, food lockers and third-party delivery platforms were here stay — and that making these elements a core part of their business model would set them apart.
The 24-hour quick-service restaurant concept is bringing back the Automat, which thrived from the 1920s to 1960s, to create an experience that is Zero Human Interaction (ZHI) from start to finish. Guests place an order on their phone or via one of the restaurant's POS kiosks, then pick their order up from a marked, temperature-controlled locker (hot, chilled or room temperature depending on the order). The locker opens automatically once the customer scans their barcode, making the process touch-free.
Lowering upfront costs is another way that Brooklyn Dumpling Shop is reducing risk for its new franchisees. Eliminating the need for cashiers and chefs shaves 10% off payroll, and operating in a smaller, condensed footprint means that rent is also considerably lower. Brooklyn Dumpling Shop expects to bring in $1.5 to $2 million in a 500-square-foot space with its first location in New York City.
The bottom line
We all know the restaurant industry will bounce back, and many states are already lifting indoor dining restrictions. Combined with the ever-increasing vaccination rate, the industry should see a significant lift in sales this year.
Keeping in mind that it typically takes four to six months to open a new franchise, entrepreneurs looking to capitalize on current market conditions should start the discovery process now. Locking in favorable lease terms on a prime location today will set investors up for success in the long run.
1Financial Disclosure: Dan Rowe is the CEO of Fransmart, the franchising group partnered with Brooklyn Dumpling Shop