Overview of QSR, Fast Casual and Casual Dining

By Rick Ormsby
Managing Director
[email protected]

Franchise businesses, in general, have been growing over the past few years as the market is still not ready for a burrito to be ordered on-line and shipped to your home. This has created a huge inflow of capital into the restaurant space and has resulted in a bevy of new brands and competition for key sites, pushing real estate costs to high levels.

Although there are several other segments in the restaurant business (notably, fine dining and independents), below are some thoughts on QSR, fast casual and casual dining franchise restaurants.


QSR has continued a steady pace of same store sales and traffic growth with certain legacy brands struggling with store closures, relevancy, poor assets and questionable operations. Overall, QSR continues to occupy a stable position in the restaurant industry. Some concepts have performed incredibly well – especially those with little national competition such as Taco Bell, seeing EBITDA multiples at record levels.

Other legacy brands are losing unit count while profitability and buyer interest are dropping. Several of the top 10 brands have lost 5-10% of their units over the past 5-10 years.

For QSR brands, in both M&A and lending, there is a very fluid market of buyers and sellers. There is decent balance right now, and transactions are generally happening at high but fair prices with bank debt typically offered at very competitive rates and substantial competition among banks and investors alike.

Fast Casual

The fast casual segment of the restaurant industry has been growing at the fastest clip, though they have a much smaller base than QSR and casual dining. Fast casual includes many brands you know such as Panera, Jason’s Deli, Qdoba, Moe’s, Jimmy John’s, Zaxby’s, Five Guy’s, Blaze Pizza, MOD and McAlister’s.f

I’ve personally witnessed the millennial generation and their preference for mobile ordering, counter service and a focus on better ingredients, often with spicy offerings.f

Fast casual concepts typically like high-priced, end-cap real estate. They do well out of the gate, but many of the concepts I have seen have limited profitability unless there are high sales volumes to hurdle high real estate and food costs. I am also seeing a significant amount of poor performers in most portfolios.f

So, while they are growing wildly, I caution investors and operators not to overspend for real estate or overdevelop based on limited success. Remember that your QSR peers have much larger marketing and advertising budgets. Their ability to spend on technology, be patient and introduce newer/fresher products will be something to carefully watch over the next few years.f

There aren’t as many fast casual restaurants for sale, largely because many operators and investors are building more units and growing. As such, relative to what a bank will lend, some fast casual transactions are priced at a premium.ff

Casual Dining

I am a casual dining fan; I admit it. Don’t know if I am a dying breed or not, but I love the nostalgia of eating Pizza Hut pizza in a Red Roof in small-town Kentucky. It is a very real part of Americana.

Unfortunately for casual dining, however, sales have been languishing in recent years as customers have other, more customizable options with fresher food and no tips. To many, the idea of paying a 15-20% tip for average food is becoming a thing of the past.

There have been some really bright spots in casual dining. Particularly for breakfast concepts and diners, sales have been increasing – take a look at the past few years at Denny’s for example.

The restaurant business runs in cycles, and I expect that casual dining will rebound once it adjusts to competition. I do expect, over time, that the tipping and server model will have to change. Several concepts like Applebee’s and Olive Garden are attempting to use technology to do just that and improve the customer experience while raising the guest check.

Menu options are getting more attractive, and pricing is gradually getting in-line with what a customer could expect at a fast-casual establishment with similar quality.

If you are a value investor, and you feel like casual dining will rebound, then many deals can be acquired at discounted prices with EBITDA multiples as low as in the mid 4’s for certain brands.

At Unbridled Capital, we have an unmatched pipeline of relationships across most franchise brands. This expertise allows us to offer a variety of services for sellers, buyers, borrowers, investors and operators across all segments of the restaurant industry. Call us anytime, and we would be honored to talk with you.

Rick Ormsby
Managing Director
[email protected]