It’s no secret that thousands of restaurants shuttered their doors in 2020 due to the COVID-19 pandemic. According to the National Restaurant Association, as many as 110,000 restaurants shut down operations through the course of the last year. Traditional sit-down restaurants that survived had to introduce delivery, takeout and other alternatives to make up for the lack of business.
However, quick-service restaurants (QSRs), or fast-food restaurants as they are often called, inherently embodied the business model characteristics that served customers’ pandemic-induced dining needs:
- Offer affordable and convenient food.
- Serve comfort food that people often turn to in uncertain times.
- Provide online ordering and drive-thru lanes that align with social distancing protocols.
- Popular examples include Chick-fil-A, McDonald’s and Taco Bell.
Fast-food was a favorite
Given that QSRs catered to these suddenly pervasive consumer needs, their businesses flourished. Many chains experienced sales growth despite having to navigate a “new normal” in their business operations. According to The NPD Group, for the 12-month period ended March 31, 2021, fast food restaurants accounted for:
- 70.2% of money spent eating out
- A total of $281.6 billion spent
- 82.9% of all restaurant traffic
What’s ahead for fast-food chains
With the onset of the pandemic and its continued effects on daily life, many chains have already or plan to alter their designs to include faster and more efficient drive-thrus with double and even triple lanes, digital-order-only concepts and new locations with smaller square footage focusing on takeout and delivery.
Effect on real estate
Riding the wave of the success they’ve seen, some chains are planning on expanding their footprint and opening new locations that better cater to consumer preferences. Even though a number of QSRs are downsizing their locations by reducing the size of or completely removing dining rooms, the need for more drive-thru space may offset those differences. QSR expansion may be beneficial for REITs and commercial real estate funds that invest in this property type if demand for leasable locations could grow should these trends continue. There are factors that could impact QSR growth including increased competition, increasing costs for employment and supplies, and other inflationary pressures.
Single-tenant, net-leased quick-service restaurants is one of the property types Modiv seeks as we look to grow our portfolio. In 2021, we added popular and quickly growing Raising Cane’s to our tenant list.
To Wrap It Up
Compared to other dining establishments, quick-service restaurants were in a favorable position when the pandemic hit. The consumer dining trends that emerged were already a part of the fast-food business model, and restaurants only had to ramp up operations as opposed to reinventing themselves from scratch. As customers head back to full-service restaurants, QSRs may need to continue to make adjustments including expanding drive-thrus, evaluating their indoor dining space and reducing service times to maintain or enhance the consumer experience. These types of efforts may help QSRs maintain the gains driven by the pandemic.
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The views and opinions expressed in this commentary reflect Modiv Inc.’s (together with its affiliates, “Modiv”) beliefs and observations in commercial real estate as of the date of publication from sources believed by Modiv to be reliable and are subject to change. Modiv undertakes no responsibility to advise you of any changes in the views expressed herein. No representations are made as to the accuracy of such observations and assumptions and there can be no assurances that actual events will not differ materially from those assumed. The forward-looking statements in this paper are based on Modiv’s current expectations, estimates, forecasts and projections, and are not guarantees of future performance. Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any Modiv program or offering. Alternative investments, such as investments in real estate, can be highly illiquid, are speculative, may not be suitable for all investors, and there is no guarantee that distributions will be paid.