It’s been a busy period for growth investors.
This week, the fast-casual chain Pincho received a $20 million infusion from the Savory Fund, according to my colleague Heather Lalley. Before the paint was even dry on that announcement, meanwhile, the sandwich chain Ike’s Love and Sandwiches invested in a concept called “Bangin’ Buns,” or so they tell us.
A couple of weeks ago, we told you about the $20 million investment in the single-unit Dirty Bird Fried Chxx by Wags Capital. And last month the fast-casual concept Playa Bowls received an investment from a pair of private firms.
To be sure, these investment announcements often come at the same time. But they are indicative of a return to growth chain investing following a hiatus that dates back before the pandemic. That return is coming along with a lot more interest in the restaurant space from numerous angles.
Public equity investors have taken a keen interest in restaurants of late, prompting a number of planned IPOs including the upcoming offerings for Dutch Bros and First Watch. They are also taking an interest in restaurant technology companies—fueling the recent offering for Olo and the upcoming IPO for Toast.
Interest from private investors often parallels that of public investors—they make the same calculations, after all—and so not surprisingly we’re seeing a lot of generalized investment interest in the restaurant space of late. These investors have pumped billions into restaurant technology, as my colleague Joe Guszkowski has nicely covered, amid a flurry of technology investments by restaurants of all sizes.
It naturally follows that investment firms would start looking for growth chains, too. Those investments had slowed in recent years following some failed deals and a belief that the industry was saturated and less welcoming to newer concepts.
A lot is different today, after the pandemic. For one thing, there are fewer restaurants. Large-scale closures of independent restaurants, in particular, have created an impression of an industry ready for a new round of growth concepts.
Maybe the bigger reasoning is the improved perception of safety the industry has today than it did 18 months ago.
Restaurant chains survived the pandemic far better than many of us imagined, prompting Technomic to increase its projections for this year. Consumers this year have unleashed their pent-up demand. Total industry sales are now above 2019 levels, something many of us thought would take years to happen rather than months.
Also, the government for the first time devoted money to help restaurants through the Restaurant Revitalization Fund. While the fund certainly has its problems—and advocates push for more funding—it was the first time anyone could remember of a rescue package specifically devoted to eateries. That sort of thing has usually been reserved for automakers and airlines in the past. Not restaurants.
The combination of a quicker recovery, fewer locations, perceived growth opportunities and backstops from consumers and the government provide some faith in the industry’s safety. As investor Aaron Wagner told us when we asked him about Dirty Bird, “the risk profile doesn’t match what the reputation is.”
To be sure, the growth chains that are getting the expansion funds are heading into a market that is full of companies bidding up the price of real estate. Lots of investor interest is great for emerging chains. Too much investor interest can be bad in the long run.
