2020 was not a good year for restaurants, and in the course of the pandemic, many dining establishments wound up biting the dust. Fast food chains, on the other hand, have fared pretty well over the past 12 months, and for a few reasons.
First, customers don't visit places like McDonald's (NYSE: MCD) for the ambiance. They go there to grab a quick meal in the absence of having the time or desire to cook, and the pandemic didn't take that away. Secondly, many people saw their income take a hit during the pandemic and were forced to cut back on nonessential expenses, like restaurant purchases. But fast food is so competitively priced that it's comparable to home-cooked meals.
Finally, fast food plays well with social distancing. Most fast food establishments have a drive-thru where customers can order meals without having to set foot indoors or come into contact with anyone else.
And now, a number of fast food chains are sinking money into new technology so they can operate more cost-effectively while improving the customer experience. The question is, how will that impact real estate investors?
Technology hits the restaurant scene
A number of notable fast food chains are pumping resources into tech services. Chipotle (NYSE: CMG) recently bought a stake in Nuro, a start-up self-driving delivery service. Food delivery is a costly thing for restaurants to pull off, which is why services like DoorDash (NYSE: DASH) are a mixed bag for them. Chipotle may manage to boost its revenue and cut delivery costs by seeking alternate options.
Meanwhile, in 2019, McDonald's bought Dynamic Yield, a tech company it hopes will help it improve its drive-thru experience by customizing digital menus to account for factors like weather and time of day. The fast food giant is also in the process of replacing some humans with machines at the drive-thru.
Finally, Yum! Brands (NYSE: YUM), which owns chains such as KFC, Pizza Hut, and Taco Bell, bought a pair of digital ordering and marketing companies -- Tictuk Technologies and Kvantum. Tictuk will allow customers to order food through social media and chat channels. Kvantum, meanwhile, is a marketing analysis tool that could help Yum! Brands better maximize revenue.
What does all of this mean for real estate investors?
All of this technology has the potential to help fast food chains improve their bottom line, which could lead to additional locations -- and added revenue for shopping centers, which often rely on restaurants to not only pay rent as tenants, but draw in customers.
Now McDonald's may be the exception here, as it owns its own real estate, but if its tech investments prove successful, it could lead to more franchises. And any time an area sees an uptick in businesses, it tends to lend to property value growth.
As such, there's good reason for commercial real estate investors to be excited about the fact fast food restaurants are putting money into different types of technology -- and gear up for the possibility that some of these chains might seek to expand if their investments prove successful.