Fast food is proving one of the most consistent and resilient of all commercial asset classes as the industry experiences unprecedented growth.
Profits throughout the quick service restaurant (QSR) industry are soaring largely driven by the lifestyle changes forced on consumers nationwide. Queues at drive-thrus have rarely been longer with patrons choosing the option as they seek quick, easy and most importantly safe ways to pick up their next meal. Food delivery drivers have likewise never been so prevalent thanks to a shift in the perception of ordering from a lazy treat to an accepted seven-day-a-week option.
Last year, this shift helped the home delivery service industry grow by $2 billion. In March the annual earnings report of food delivery app Menulog was especially telling when it revealed delivery orders in Australia had surpassed the previous year’s by 104%. Similarly, the grocery delivery service Instacart achieved its 2022 goals in the third week of lockdown.
Home delivery was already picking up pace well before COVID-19 propelled its fortunes to such a degree. Market researchers Cowen forecast the food delivery business to grow more than three times the rate of on-premises sales between 2018 and 2023. Nowadays, more than 70 % of millennials place their food orders via food delivery apps.
Quick service restaurants have been among the strongest performers of those assets deemed pandemic proof, a group which also includes medical, childcare, government and convenience outlets.
Fast food businesses are counter-cyclical in that they trade more successfully during economic slowdowns, said Burgess Rawson Director of Sales Michael Gilbert. The agency’s iconic portfolio auctions held so far this year have seen record prices and low yields paid for premises tenanted by well-established operators as well as relative newcomers in the market.
“The results lately have been fantastic,” Mr Gilbert said. “In slow downs and recessions fast food always becomes the affordable go-to treat for the family.
“Properties tenanted by McDonalds, KFC and Hungry Jacks are the ones that investors have really chased this year. Guzman y Gomez are also very big these days as are a couple of the other Mexican chains like Zambrero, and there is a lot of interest surrounding Frangos and Oportos.
“A lot of them are thriving because they offer drive-thrus as well as alliances with delivery providers like Uber Eats and Deliveroo which provide the niche where they can come to you. These assets also tend to be well-located and on large blocks of land.”
Properties tenanted by Kentucky Fried Chicken (KFC) have been in particularly high demand and with good reason: the Collins Foods’ owned network reported record sales growth of 12.4% in its half yearly results for the FY21.
One such asset set a record low yield for fast food at a recent Burgess Rawson auction. The KFC in the NSW north coast town of Forster sold under the hammer for $2.83 million on an extremely low yield of 2.93% after attracting more than 350 enquiries during the campaign. Around 100 requests were made for contracts and bidding during auction was fast and fierce.
Another KFC located in Berrinbar, an outer suburb of Brisbane popular with young families, was snapped up for $5.16 million to deliver a 3.35% yield, while the same tenant drew an investor to pay $2.63 million for a property in Tumut near the NSW Snowy Mountains.
Another standout result at a recent Burgess Rawson auction was recorded by a Hungry Jacks which came with the attraction of a prime highly visible location on the Hume Highway at Campbellfield leading out of Melbourne to the north. The asset was snapped up for $6.415 million on a 3.37% yield - a record low yield for the Australian arm of the hamburger chain.
Melbourne leasing director David Mark said drive-thru’s at fast food restaurants had experienced sales increases of around 30%. “By trading through lockdowns and moving quickly to adapt fast food tenants continued to meet their rental obligations,” Mr Mark said. “Consequently we have happy landlords and huge growing demand for fast food investments.
“We will definitely see more drive-thru facilities moving forward.”
In good news for investors, Mr Mark said indications are strong that fast food operators will continue to build on their success by investing in and upgrading their restaurants, moves which go hand-in-hand with long-term lease commitments. “For investors this often means lease terms and options spanning 20 to 30 years,” Mr Mark said.