Capital

Why the Restaurant Industry Could See More Large Investments in 2019

Last year was a great year to score an investment in the restaurant industry, and 2019 is on track to be better.

High-profile investments in companies like Zume Pizza, Taim, and True Food Kitchen led the way. But, so far, 2019 is shaping up to be a good year for restaurants to acquire needed cash from investors.

Why? Well, there are a few reasons.

Sales continue to grow

Restaurant industry sales hit $825 billion in 2018, beating projections by nearly $25 billion, according to the National Restaurant Association.

“2018 is the ninth consecutive year of sales growth for the restaurant industry,” Hudson Riehle, senior vice president of the research and knowledge group for the NRA, told Food Service Magazine.

And this growth has been steady, which is a good sign for investors. When a market grows rapidly, it can be a sign of trendiness, something to make a quick buck on. But, the restaurant industry has grown steadily for almost a decade. This shows investors that there is fortitude behind the growth which could yield long-term gains.

Ticket prices increased in 2018

According to Toast.com, restaurants accounted for 48 percent of family food dollars in 2018. That means more people are purchasing meals from restaurants than ever before. With the increased demand for convenience and value, it is reasonable to expect this number to increase as third-party delivery operations continue to grow.

The National Restaurant Association reports that 41 percent of operators expect to see an increase in same-store sales because of the increasing demand for delivery. This could help offset some of the extra expenses operators will face because of wage growth and wholesale food prices.

For investors, the increasing ticket prices are a sign that consumer spending is strong and likely to increase. This added confidence could lead investors to lend money to restaurants who have tightened their operations and incorporated technological solutions to overcome the crowded restaurant space.

The market is crowded, but the cream is rising to the top

According to NPD, there are nearly 650,000 restaurants currently operating in the U.S. This number has declined over the past several years causing many restaurants that don’t adapt to customer’s changing demands to go out of business.

Those that have changed are embracing technological solutions to keep their customers engaged. They use apps, video marketing, collect data from WiFi, and use third-party delivery operations to make their product more widely available.

Alex Monahan, a senior analyst for RSM, an independent financial consulting firm, predicts that “the restaurant concepts that rise to the top will likely have adapted to smaller footprints and technology innovations to accommodate tighter margins; they will capture new customers as the field of competition narrows.”

The industry is already seeing this prediction come to fruition through the interest of Venture Capital firms in fast-casual concepts. In an article on Wired.com, one writer suggests that VCs are generally interested in “food platforms” that use Artificial Intelligence and data-mining apps in their processes.

In turn, it stands to reason that these concepts will lead the industry forward and will yield large-scale investments.

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