Among the continuing supply chain delays, staffing shortages, and elevated food costs, many QSRs and restaurant chains are struggling with real estate inflation. As chains look for the best locations to open new franchises, rising real estate costs are making it difficult for some franchises to expand.
According to Peter Saleh, managing director and restaurant analyst for BTIG, many restaurateurs have lost their initial enthusiasm for expansion. However, there is still a demand for prime real estate with drive-thru opportunities, as operators search for the best location at the best price.
From more expensive materials to higher labour costs to more lead time necessary for construction, almost half of the operators have put their expansion plans on hold. “We expect 2023 to be a reset, with franchisees of most concepts opting to slow development, reprioritizing their focus on existing units and recovering some of the margin lost last year,” Saleh confirms. Rather than opening new locations, many QSRs have opted to focus on growing their margins by raising menu prices, reducing hours, and relocating to food halls as a way to save on rent.
As diner habits continue to shift, some restaurateurs are looking for properties with smaller dining areas, less parking, more space for drive-thru lanes, and more efficient kitchen space. This approach may be a way for franchisees to get smarter about real estate as costs continue to rise.
According to studies, the QSR industry is expected to grow at an annual rate of about six per cent between 2023 and 2030. Rather than looking at expansion to make these numbers, QSRs should be focusing on value (offering more for less), breakfast (rapidly becoming vital to sales), and technology (as a way to increase efficiency and cut costs).
Despite the struggle, franchising has proven to be a resilient endeavour over the years, with experts recommending that operators take this time to restructure, streamline operations, and develop a solid business model that will take the restaurant into the future and help secure finances when necessary. As well, as independent restaurants may operate as silos, franchisees can often turn to their brands for buying power, advertising boosts, support, and more.
As franchisees continue to face higher real estate costs, focusing on strengthening their business and cutting costs wherever possible will get them into a better position for recovery and expansion when the market rebounds.
