Today, more and more American’s care about their health and the ingredients within their food. In a technical age, where information is at our fingertips, where society is juggling work, school, children, they are demanding good, healthy food fast and is now available thanks to phone apps. As investors, we understand that people need to eat, but the question is how do you invest in the restaurant sector that is expected to lose $240 billion by the end of 2020? It is so shattered that leaders in the industry are pleading for government intervention because intervention never came. Bloomberg analysts expect one-third of restaurants will be permanently closed by the end of this year which represents 231,000 of the 660,000 eateries in the United States. In this abyss, there is opportunity within the food sector that are catering to this health trend. There are a few shining stars that stand out from the crowd and defy convention. 

Trending Market: Restaurants Now Catering to Healthy Options

With the help of the internet and everyday guru’s with their own channels on YouTube, consumers are quickly educating themselves on being more health-conscious. We all want to feel and look better, and that starts with our diet, as the old cliche goes, “We are what we eat”.

Americans today have more meal options than ever that fit their particular diet whether that be vegetarian, paleo, carnivore, or low carb “keto” which has grown very popular in recent years.

The popular chain restaurant, Panera Bread (Nasdaq: PNRA), which offers soups, salads, sandwiches, pasta, and pastries has even adapted to keto dieters, where bread is taboo due to high carbs, now offers several customizable dishes that contain around 12 grams of net carbs.

Even Burger King and Dunkin Donuts (Nasdaq: DNKN) added Beyond meats (Nasdaq: BYND) with BK’s “Impossible Burger” and DD’s beyond sausage used for breakfast sandwiches has given vegetarians a trendy and healthy meat alternative option.

While chains try and offer some healthy choices, a niche sector is emerging that only offers healthy fast food. This basket of companies is led by Chipotle Mexican Grill (NYSE: CMG), Muscle Maker Grill (Nasdaq: GRIL), and Freshii (OTC: FRHHF) as well as dual concept Clean Eatz who are growing in the South Atlantic region.

Clean Eatz started in 2013 in Wilmington, North Carolina by Don and Evonne Varady. They started the original establishment with the primary goal to help fitness and gym junkies have an eatery to call their home. They quickly realized that healthy eating and meal plan services could help many types of people including moms, busy professionals, and many others in the community. Not only are they a restaurant but consumers can order a week's worth of meals for lunch and dinner and have it delivered to their doorstep.

Muscle Maker Grill is also adopting a dual concept in order to separate themselves from their competition by offering healthy options from both REEF and GHOST kitchens. This concept is perfect, especially during lockdowns, shelter-in-place, and limited dine in restrictions due to the COVID-19 pandemic.

Adapting to COVID-19 Restrictions and Ghost Kitchens

Restaurants have had to be creative to salvage their businesses during the pandemic. Many eateries were closed during the early stages of the COVID-19 lockdown. Some stayed open or eventually opened just doing “curbside pick-up” orders.

Eventually, restrictions were lifted to where business owners invested in outdoor seating where parties were socially distanced. For many, this wasn’t an option due to lack of space, while others with this dilemma simply utilized their parking lot. This strategy has definitely helped lessen the financial blowback by salvaging some business, but what will happen when the colder fall and winter months come?

In Connecticut, the state allows gatherings of up to 25 people indoors and up to 100 people outdoors, while restaurants may allow indoor dining at only 50% capacity. Many local restaurants worry over whether they will be able to expand indoor dining when cold weather arrives this fall, Gov. Ned Lamont said that Connecticut’s next phase of reopening could come sometime next month.

In Chicago, one CEO, Mike Roper of Muscle Maker Grill has announced his company will be expanding during this chaotic pandemic time with their “ghost kitchen” concept. The new Meal Plan concept will allow guests to place their orders through third-party delivery platforms providing ease of ordering and the option for contactless delivery. Ordering platforms include DoorDash, GrubHub (NYSE: GRUB), UberEats (NYSE: UBER), Postmates, ChowNow, and Caviar. As the demand for delivery increases due to social distancing, many restaurant concepts are looking toward ghost kitchens to expand quickly while meeting the growing need for fast options.

“Low build out costs, reduced overhead and waste, and the ability to expand quickly are what make delivery-only ghost kitchens attractive to restaurant brands.” - Mike Roper, MMG CEO

With less overhead due to reduced staff (no need for waiters, waitresses, hostesses, and busboys) and the additional square footage costs for a dining area, not only can one control costs but also implement up to 6 business concepts out of 1 kitchen. Muscle Maker Grill will use 3, Meals to Go, Healthy Joe’s, and Muscle Maker Grill as 80-90% of the ingredients used overlap allowing for even more concept efficiency.
 

The Rise of Food Delivery Options to Your Doorstep

The food delivery sector saw a giant boost thanks to the pandemic lockdowns. Ridesharing, such as Lyft (Nasdaq: LYFT) and Uber had already grown to a norm among the younger generation with Uber expanding its business model and launching UberEats a year or so ago. The rideshare economy has created many income opportunities for unemployed or underemployed individuals and for Uber to expand into food delivery only solidified the ability for a driver to have more delivery options.

DoorDash surpassed Grubhub as the top food delivery platform in the U.S. last year. It controlled 38% of the market in January, according to Second Measure, while GrubHub and UberEats held 31% and 20% shares, respectively.

DoorDash, who claimed 46% of July’s consumer food deliveries, hit a valuation of nearly $13 billion after its last funding round, and it recently filed confidential paperwork for its long-awaited IPO. DoorDash's financials won't be fully revealed until they're made public prior to its IPO, but The Information previously predicted that it could post a net income loss of $450 million on revenue of $900 million to $1 billion in 2019.

Muscle Maker Grill CEO, Mike Roper, knew his new ghost kitchen concept would rely heavily on food delivery services like DoorDash, so he actually signed up and became a driver. With over 400 deliveries under his belt, understanding every facet of his new concept was critical in order to lead and position his company for success.

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These thriving businesses are in the spotlight during the COVID-19 era—and with the recent news that Grubhub is to be acquired by Just Eat Takeaway for $7.3 billion—while Uber plans to acquire Postmates in an attempt to consolidate market share and boost profitability. The company is also seeking ways to diversify its existing business strategy and recently announced plans to launch a U.S. grocery delivery service in July. Meanwhile, DoorDash’s partnership with CVS marks the company’s first foray into grocery delivery.
 

Conclusion

Regardless of what type of business you are investing in, a winning formula is finding the best-run company in an expanding sector. Muscle Maker Grill checks all the boxes with regards to a well-run company. The CEO, Mike Roper was willing to get his hands dirty finding out how the delivery business worked so that he could improve on it. He is following the same time tested strategy he implemented as Quizno’s COO. This isn’t his first hyper-growth restaurant business and his pedigree has been able to attract top talent. With his leadership style he will be able to nurture leaders within the organization. Another thing that sets Muscle Maker Grill apart is their strategy which is recording growth and earnings in a sector devoid of profitability. Restaurants are closing and struggling to find the winning edge. Muscle Maker Grill is poised to expand the Ghost and Reef kitchens should the pandemic continue and if the virus dies out and people go back to eating out they will capture the expanding base of customers interested in healthy choices. This flexibility de-risks investment in this restaurant sector which is sure to bounce back and will have the added tailwind of the healthy living lifestyle movement. GRIL is that guiding light that investors can follow in a sea of impending restaurant closures.  

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