Mercato Partners Bets on Post-Pandemic Restaurant Rebound With New $100 Million Fund

Armed with a new $100 million fund, Mercato Partners is again looking to back promising restaurant concepts as more cities and towns across the U.S. cautiously set aside coronavirus restrictions.

The Utah-based private-equity firm has raised Savory Fund II to build a portfolio of six or seven small, but fast-growing restaurant brands that it can help expand from just a small number of local stores to larger regional chains.

It is a strategy Mercato pursued successfully with its first fund, which took more than a year to raise, rounding up $90 million by June 2020 before reaching a $100 million close in October, according to the firm. Strong performance during the pandemic among the five restaurant brands the firm backed with that fund helped Mercato raise its second offering in less than six months, according to Managing Partner Andrew Smith.

“ One thing the pandemic didn’t do is it didn’t make everyone into Betty Crocker overnight. ”
— Andrew Smith, Mercato Partners

By June of last year, Mercato had seen a dramatic rebound in same-store sales among the restaurant brands in its portfolio, Mr. Smith said, and collectively those brands ended 2020 with overall growth in same-store sales. The portfolio companies, which include Mo’ Bettahs Hawaiian Style, the Crack Shack and Via 313 Pizzeria, didn’t close any restaurants in the pandemic—instead, 15 new ones opened in 2020, according to Mr. Smith. The portfolio companies have also signed to develop another 55 locations this year.

“We absolutely crushed what market expectations would have been during Covid,” Mr. Smith said. “One thing the pandemic didn’t do is it didn’t make everyone into Betty Crocker overnight.”

Before joining Mercato in 2018, Mr. Smith spent years as chief executive of Four Foods Group Holdings, a restaurant operator he co-founded that has backed brands like the Little Caesars pizza chain and Kneaders Bakery & Cafe.

As commercial real estate has softened somewhat, Mercato also sees more opportunities to snag sites in premium locations across the U.S., though the prime locations still don’t come cheap.

“Before the pandemic, I would look at a site and say it would be great if I could get in there, but it’s never going to be available,” said Mr. Smith.

But in the fallout from the pandemic, prime locations in good areas have become available, as some small independent restaurants close or national chains pull back to shore up their balance sheets, he said.

“It’s great real estate, which has created the opportunity,” Mr. Smith said. “But it has not created less competition.”