QSRs Shrug Off Restaurant Industry’s Challenging First Quarter

Originally published by GlobeSt

Despite declines in most Q1 YoY restaurant metrics in 2022, investor demand for net-lease and quick-service restaurants has been generally strong post-pandemic.

Mike McKean, founder of Retailsphere, tells GlobeSt.com that Q1 2022 is the first look at how the restaurant industry may fare in a post-pandemic world.

“With companies going to a more remote model, many office spaces now sit vacant that once helped bolster breakfast and lunch visits. And while in-person dining is increasing, it is likely this will impact the QSR segment, because consumers aren’t looking for new to-go options right now.”

There also has been a shift in driving habits where many people drive less in general, a trend “that has become especially true when you layer in the increasing gas prices,” McKean said. “When you combine all of these factors, dining out overall is likely to take a hit.”

Fast Food, Fast Casual Remain Popular

Tell that to some of the QSRs. There is plenty of evidence that brands are forging ahead despite NPD Group findings that online and physical visits to QSRs fell by 2% in the first quarter compared to a 6% increase in traffic in the same quarter last year.

Lanie Beck, Director of Corporate Research, Marketing & Communications, Northmarq, tells GlobeSt.com that fast food and fast casual concepts have remained popular with consumers, and a number of tenants are actively expanding in the space.

Sonic is one of the fastest growing tenants, Beck said, citing that it plans to open 1,000 new locations over the next 10 years.

Other established brands, including Chipotle, Jack In The Box, Starbucks and Taco Bell, have communicated plans to open new locations by the hundreds, while emerging concepts such as Slim Chickens “has an incredibly robust growth strategy” that could launch another 450 restaurants in the coming decade, she said.

“This volume of development and expansion bodes well for net-lease investors in the short and long term, as the market continues to struggle with an imbalance of supply and demand,” Beck said.

Steve Edwards, owner, The Edwards Company, tells GlobeSt.com that while visits may have declined to the QSRs in Q1 this is still the hottest growth sector in the restaurant and retail industry. “The appetite from the likes of Dutch Bro’s, Raising Cane’s, In & Out Burger and Starbucks continue to be insatiable.”

Headwinds Challenge Operators in Q1 2022

One reason for the fall in QSR visits is that comparing the two quarters is challenging given consumers’ recent unprecedented circumstances. In Q1 2021, the third round of stimulus payments, relaxed pandemic restrictions and the availability of COVID vaccines boosted online and physical visits to US restaurants by 3% compared to the same period a year before, according to The NPD Group.

In Q1 2022, the sector has also faced higher food and energy costs for restaurant consumers and restaurants. NPD Group also notes that consumer restaurant spending, which reflects higher costs opposed to increased visits, was up 4% in the quarter compared to the same quarter year ago when spending rose by 7%.

Also, full-service restaurants’ traffic increased by 2% compared to a year ago when visits declined by 7% and dine-in restaurant visits increased by 38% in the first quarter compared to a 45% decline a year ago.

“With the first quarter behind us, I’m optimistic that seasonal demand and the improving on-premises trends can help get the restaurant industry’s recovery back on track,” David Portalatin, NPD Food Industry Advisor and author of Eating Patterns in America, said in prepared remarks.