Commercial Real Estate News / Investing / What COVID-19 Means for Restaurant Investors

What COVID-19 Means for Restaurant Investors

Published: 10-05-21 Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

This article was updated on 9/29/23.

Developing a restaurant concept was already a high-risk venture even before the COVID-19 pandemic; however, the contagious COVID-19 virus led to numerous restaurant closures and increased listings of restaurants for sale as restaurants simply couldn't stay open with severely reduced revenues. Over 110,000 restaurants closed due to the pandemic, creating multiple trends and opportunities in the marketplace.

Despite the closures, multiple opportunities exist for restaurant investors. Indeed, they can count on renewed interest in eating out as consumers have now stepped away from quarantine life. And even if many consumers have lost their appetite for dining in, food delivery services, like DoorDash and Uber Eats, remain popular. High demand for prepared food means that restaurant investors should still consider investing in restaurants for sale.

The dip in the market is a golden opportunity to pick up a restaurant that's already built, in a prime location, with a market that's hungry to check out something new and improved. This is especially true as more employees continue to work from home, keeping them close by to their favorite dining and nightlife spots.

#1 – Lower Costs of Acquisition & Entry

Restaurant owners with distressed properties have realized that, instead of bleeding cash to keep a business afloat, they can simply put their restaurant up for sale. After all, it's better to get some money coming in than continue to watch money flow out.

Buying a restaurant for sale currently means lower costs of acquisition as well as entry. This is a temporary situation as the market is in decline; markets have to climb back up eventually. The government is also watching the restaurant industry carefully, and new financial assistance programs are available. So, while the volume of attendance may still be lower than usual, it won't stay that way forever.

Instead of trying to build a business from scratch, investing in restaurants for sale at reduced prices is a much smarter approach. The freedom of running your own show is still present, but you also get to capitalize on a known concept in the marketplace with a built-in audience.

#2 – Pre-Established Sales & Marketing Procedures

The best restaurants for sale will have not just a built-in audience but established marketing procedures as well. Again, reinventing the wheel is not necessary to become wildly successful as a restaurant inventor. It's much more important to be able to capitalize on trends, take advantage of reduced prices, and get a solid foundation in place that can work for you long-term.

Many restaurants for sale right now have been in business for decades, giving you the ability to take that hard-earned work and use it for your own investment portfolio. While there will be work involved to get more customers and keep them, you aren't starting from scratch.

In the restaurant world, market recognition is absolutely everything. Not every restaurant will come with a large stream of customers already built in, so you will have to do your research to select the best options for your pending investment.

#3 – Experienced Employees Who Want Their Jobs Back

When someone is good at something professionally, they want to return to their skill as soon as possible. Experienced restaurant employees are hungry to get their jobs back, as they enjoy the advantages of working in restaurants. Many restaurant workers are also students, and the nature of a restaurant allows them to go to school during the day and still make a living at night.

Thankfully, you get to step in and become somebody's hero by offering them their jobs back after you purchase and reopen a restaurant. With so many restaurants for sale in virtually every city, restaurant investors have their pick of the proverbial litter. It really is a firesale, and it has advantages if one steps in to take hold of the opportunities available.

When you purchase an established restaurant, the former employees will find out and want to return to work. Naturally, everyone might not return, nor will everyone be a perfect fit for your operation. Yet, it is better to have an existing staff with experience than hire from scratch.

The Makings of a Good Restaurant Investment

Like any other investment, due diligence is the name of the game when buying a restaurant for sale near you. Not all restaurants are created equal, and a market correction is often a way to see that up close and personal. A badly run restaurant in a good market can chug along simply because of demand, but when demand declines, a restaurant that isn't well-run crumbles to pieces quickly.

There are a few points to consider when reviewing restaurants for sale in terms of their investment potential:

The financials. Numbers matter beyond any gut feelings around a restaurant. At first glance, a restaurant concept may seem like a sure-fire winner until the financials come into play. Pursuing financing for the business will require review of all financials anyway, and scarce financials are a big red flag.
Seller's motivation. Every restaurant owner has different reasons to put their business up for sale; you want to know their motivations. What type of operator are they? Did they run out of money and lack the ability to pursue financing? Are they tired of the business given the pandemic?
Location. Every location is going to have its advantages and disadvantages, but you want to look at location at a deeper level. What else is in the area other than the restaurant? A crowded area has demand, but too many restaurants of the same concept can create unseen challenges down the road.
Expansion potential. What can you do to change the restaurant concept? Are you investing in a concept that isn't trendy anymore, or even a concept that is too trendy? Fusion restaurants have their place, but their popularity can wane. A restaurant with standard American fare done well may be a better option, even if it isn't as trendy.

Giving restaurants for sale near you more inspection and research leads to better outcomes for your investment. Take as much time as you need to find the best restaurant for your portfolio.

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