The US restaurant industry is beginning to sizzle, according to the 23rd edition of the Chain Restaurant Industry Review, which was released at the Restaurant Leadership Conference by GE Capital, Franchise Finance (GEFF).
Merger and acquisition activity increased to USD3.9bn from USD3.7bn, and the total volume of syndicated leveraged loans in the restaurant space increased almost 21 per cent last year.
In a sign that the American consumer was feeling more confident about disposable income levels, nominal restaurant sales rose 4.2 per cent to USD425.6bn in 2012. Sales are projected to increase 3.8 per cent to USD441.9bn this year.
The Top 100 restaurant chains’ system-wide sales were nearly USD210bn, representing more than half of all restaurant sales last year, and gaining 0.5 per cent market share from 2011. Their sales grew 4.7 per cent year-over-year, outperforming both the foodservice and the restaurant industries, as well as nominal GDP. Total unit growth for the Top 100 at 1.8 per cent was the highest since 2007. Franchised unit growth jumped 180 basis points to 77.3 per cent of the total — the largest share since the survey’s inception 23 years ago.
Institutional investors were eager to get a piece of the pie. Private equity firms paid premium purchase prices — multiples of eight to 10 times revenues — for growth companies and franchisors. Non-sponsor deals jumped 46.0 per cent to USD11.2bn in 2012, while sponsor deals declined 11.2 per cent. Nearly three-quarters (73 per cent) of the total volume was driven by refinancing activity.
After two years of single initial public offerings, four were successfully completed in 2012. Three companies went private.
“In contrast to the slow but promising recovery in the global financial markets, the US restaurant industry has been very focused on growing and expanding,” says Agustin Carcoba, president and chief executive of GEFF. “The activity has been driven by the improving economy, changing consumer habits and shifting US demographics. People who are investing in the restaurant industry understand the importance of three factors — operational performance, financial metrics and asset strategy — and how they have changed through the latest cycle.”
Full service restaurant (FSR) sales increased 3.1 per cent to USD202.2bn, while quick service restaurant (QSR) sales increased 5.6 per cent to USD179.3bn. The FSR category includes family, casual, high-end casual and fine dining restaurants, typically those that provide table service. The QSR category includes limited service, fast casual or take-out restaurants with limited menus and, typically, no table service.
QSR menu prices increased at a 3.2 per cent annual rate in 2012 compared to 2.2 per cent in 2011. FSR menu prices increased 2.6 per cent in 2012 compared to 2.3 per cent in the prior year.
With the cost of goods sold (COGS) and labour costs comprising more than 60 per cent of operating expenses at both FSRs and QSRs, it’s important for operators to understand how to achieve higher margins. By carefully managing COGS as well as advertising, rent, royalties, etc., operators may be able to achieve substantial savings and, thus, increase profits.
“Restaurants typically have relatively limited profit margins, so operators are always trying to adapt to changing consumer tastes while balancing their other costs,” Carcoba says. “Ultimately, these are successful entrepreneurs who are trying to grow their businesses by enhancing their endangered brand equity and pleasing their customers. When they’re able to reinvest, they can make capital expenditures — for example, investing in new technologies or making equipment purchases — and eventually open new locations and hire more employees. It’s the American dream in action.”
GEFF assembles its proprietary Top 100 Chains and Largest 150 Operators lists annually for publication in the Chain Restaurant Industry Review. Industry sales figures included here are attributable to the National Restaurant Association.
