What potential investors should look for in a restaurant brand

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The co-founder of a fast-casual restaurant is now helping to expand Mexican restaurants Margaritas.

In the post-COVID landscape, the restaurant industry is beginning to rebound, making it the perfect time for potential investors to showcase restaurant investment opportunities. To court an investor’s attention, restaurant executives can use flashy tactics and gimmicks. Don’t let these distractions sway your thinking. Remember that a restaurant can be a risky and volatile investment, albeit a profitable one, so do your research carefully and consider a brand you know well.

For example, after being a customer for decades, I invested in Margaritas Mexican Restaurants, a popular 35-year-old full-service brand in the Northeast known for its festive atmosphere, cuisine, and the best margaritas outside of Mexico. The fun atmosphere, delicious food, and refreshing margaritas were part of what piqued my initial interest — but I took a closer look at the restaurant’s leadership, branding, and operational efficiencies before deciding to join as an investor. So, when evaluating potential restaurant investments, be sure to delve deeply into these key factors:

Profitability: The number one factor when choosing a restaurant investment is to only consider a business that has a history of making steady profits and isn’t struggling with low sales and tight margins. COVID has certainly complicated this, but we’re taking this opportunity to see who has seen growth and positive changes during the pandemic. The best run companies and the strongest brands have found a way to succeed.

Controlled growth: Investors should keep their eyes peeled for potential red flags when restaurants have grown too quickly. Once the brand has spread too far, especially outside of the area in which it has been successful, service and operational efficiency can suffer. Bad service and bad reviews can be difficult to recover from – once customers have had a bad experience at a restaurant, they probably won’t forget it in a hurry.

Food & Drinks: The product has to be great and something you personally believe in. The competition is so intense right now that restaurants need to have a product that is differentiated and special. Also, you need something that is longing. Something that people avoid each other for. The system-wide food/beverage balance of margaritas is 45 percent beverages, which is attractive and unheard of in the industry. Of that 45 percent, nearly 80 percent are margarita sales. They are amazing and differentiated. The total number of Margarita flights sold in 2021 was 46 percent above pre-pandemic numbers in 2019. With such profitable beverage sales and such an amazing product, I knew Margaritas would thrive in the post-COVID landscape.

Customer experience: Over the next decade, customers will be more likely to be looking for culinary experiences — and the experiences they have will determine the success of restaurants. It’s important to look for restaurants with a distinct, differentiated customer experience, not just a run-of-the-mill, ubiquitous meal.

Internal culture: Look at the restaurant staff and see how they feel treated by the restaurant management and corporate governance. Visit the sites when you can and see if employees feel a sense of community or are frustrated or genuinely unhappy. With the current “great resignation,” people left and right are leaving restaurant jobs to seek better opportunities — and if the brand you’re considering doesn’t treat their employees well, it’s a recipe for disaster. Restaurant brands can be a tricky investment. We’ve seen this especially in the last two years with the pandemic. But once you research the key factors and find a profitable, solid brand to invest in, you’ll find that success will follow quickly.

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