Christopher E.Maling

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Quick service restaurants continue to remain resilient duringthe COVID-19 pandemic. While overall sales are down across alldining sectors, QSRs have been the most popular restaurant choicefor consumers looking to feed their families at a reasonable priceduring this challenging time.

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Investors are taking note of how well QSRs have been performingin this unprecedented crisis, and I have seen a notable uptick ininterest from those targeting the STNL category. It is hard not toargue that QSRs have historically performed well over past economicdownturns and many are poised to come out of this crisis virtuallyunscathed, supplying investors with a stable, cash-flowing, andtangible investment—an asset that is increasingly difficult topinpoint.

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Despite the fact that national QSR chains are reporting anaverage dip in sales of about 25% according to the NationalFranchisee Association—the industry average for primary, secondary,and tertiary markets—their NOI has seen no significant change.Below are a few of the key reasons why the NOI remains consistentduring the pandemic:

  • Drive-thrus are a safe, COVID-compliant option for diners and,therefore, are experiencing strong consumer patronage.
  • Pick-up orders are gaining in popularity. If a customer doesn'twant to wait in the drive-thru, they can order online and park in adesignated spot to have an employee deliver to their vehicle.
  • With dining rooms closed, less staff is needed; therefore,payroll has been cut dramatically.
  • Numerous franchise networks are suspending royalty fees,advertising costs, and other typical expenses in order to helptheir franchisees with their bottom line.
  • Online delivery services such as GrubHub, Postmates, andUberEats have seen increased demand. It is important to note thatQSRs were ahead of the curve with delivery services technology, ascompared to other restaurant categories in general, which made thembetter prepared once the crisis hit.
  • The price point for QSRs is typically less that otherrestaurant category options, which is particularly important asunemployment numbers rise.

Unfortunately, while QSRs are doing well, we can understand whymany sit-down restaurants are close to ceasing operations. Manydon't lend themselves well to take-out concepts. There are also asignificant number of sit-down concepts that rely heavily onin-restaurant alcohol sales. They can't survive without that incomestream, even with a decent amount of curbside or delivery services.(Note that their liquor license doesn't allow them to sell alcoholexcept within their dining room capacity). From a profit and lossstandpoint, it is oftentimes cheaper to shut down altogether asopposed to attempting to participate in curbside and deliveryoptions.

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Navigating past this pandemic, restaurants that wish to survivethe "New Normal" will need to rethink their models and applylessons learned. For example, QSRs will likely evolve to offersignificantly less dining room area, more drive-thru capacity, andwalk-up windows.

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Ultimately, the convenience, economical price point, andadaptation to technology are all keys to success for the STNL QSRsector. This sector has once again proven to be a resilientinvestment asset class that not only does well in normal or robusteconomic cycles, but has also outperformed competing categories inrecessionary, down cycles, and unprecedented events like thispandemic.

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Christopher E. Maling is principal-retail of capitalmarkets for Avison Young

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