Concepts no longer have to achieve $200 million in sales to attract investors. Private-equity firms are increasingly seeking to invest in smaller emerging concepts featuring winning menus, service formats and footprints. For example, several emerging fast-casual chains received multi-million dollar investments in 2015 despite operating fewer than 10 units, including Melt Shop, Honeygrow and MAKE OUT. So, what specifically does it take for a burgeoning brand to attract an investor?
Of course, brands must perform well financially. They should be opening units, not closing them. They should be successfully driving traffic and experiencing sales gains as a result. Once a store’s overhead is met, a 5–7% increase in same-store sales is ideal. Beyond the dollars and cents, here are other meaningful ways brands are attracting investors:
- Single-focused menus. Specialized menus continue to inspire concept development, growth and investment. The driving idea is here is to do one thing and do it well. These menus tend to be much smaller than varied menus, but they vacillate between chef-curated menus and customizable options. From Wow Bao’s Asian buns to CREAM’s build-your-own ice cream sandwiches, customers expect that they’re getting the best product from a concept that specializes in just one food or beverage item. Even among FSRs, concepts focusing on just pizza or just burgers are surpassing their Italian and varied-menu counterparts in sales.
- Scalability and adaptability. A flexible concept allows for maximum growth capability. If a concept can successfully operate out of 400 square feet, it will significantly reduce its overhead, including food and equipment costs. It will also be able to expand in nontraditional spaces, from shopping centers to corporate centers, and in dense urban markets. If it can operate out of a mobile cart or vehicle, it can service pop-up, catering and delivery occasions. Can its products be frozen and reheated and still taste great? If so, that’s a viable opportunity for retail channels.
- Contemporary service and design. A brand’s signage and décor should help tell its story. If it’s a fried-chicken brand, the décor may reflect a rustic Southern or farm-inspired theme; if it’s a meat-heavy concept, such as a burger or hot dog joint, then a modern industrial or factory-inspired look may help sell the food. Contemporary service means approachable, casual and knowledgeable staff, as well as a variety of technological capabilities, from ordering to payment—especially for LSRs. Brands will need to implement strong leadership to guarantee an overall sophisticated restaurant experience.
AS I SEE IT, more private-equity investors will seek contemporary, differentiated concepts that are demonstrating the beginning of a growth pattern—as opposed to high-volume, multi-unit chains—in the coming years. However, a verified, sophisticated business system that helps propel rapid expansion and scalability will garner attention from investors who don’t wish to set up or manage the process themselves. Firms will also increasingly look for concepts representing underpenetrated menu categories, such as a unique snack, dessert or beverage item. The most successful emerging chains will be able to align themselves with younger consumers via their brand values, including a commitment to community, transparency, craftsmanship and technology.
Note: This content originally appeared in the March 2016 issue of Technomic’s Foodservice Digest newsletter