Valbridge executives recently attended the must-see Restaurant Finance & Development Conference in Las Vegas, Nevada (November 12-14, 2018). Throughout the week, Valbridge experts Michelle Vazquez, Melissa Lantz, Chris Lantz and Karl Finkelstein, and other conference attendees spent three days networking, listening to panels focused on critical industry developments, and getting macro-economic updates from keynote speakers such as Arthur Laffer (Ronald Reagan’s economic guru) and Guy Adami (daily CNBC stock market commentator).
The Restaurant Finance & Development Conference of 2018
Economic Updates for the Restaurant Industry
While at the conference in Las Vegas, we were assured there is still a huge amount of capital available to finance within the restaurant industry – in growth as well as renovation. Valuations are high on a historical basis, but interest rates are still low. Investors of all shapes and sizes are “reaching for yield” so that institutions have money to invest in pizza, burgers, and tacos, among the like.
All of this is cyclical. Those of us who have been around for a while, have lived through several similar periods, and we know that this too shall pass. From a macro standpoint, very low interest rates spawn “misallocation of capital” as investors (and institutions in turn) underestimate the risk side of the equation.
The question that was most poignantly asked throughout this conference was: “How big does my operation have to be to raise capital from institutions?” And most private equity investors responded with something along the lines of “We like to see upwards of $5 million of EBITDA (earnings before interest, tax, depreciation and amortization) at the store level.”
The experts at Valbridge agree in part with this response, but also concur that it depends on the assets you’ve obtained and who exactly is managing them. We believe it all depends on the unit level economics—existing, or even planned, and the credentials of management… in short: size matters, but importance varies in different situations.
At Valbridge, we specialize in comprehensive valuation and advisory services for many food industry companies and franchisees throughout the nation. We believe this varies to a degree based on location and circumstance. Valbridge will leverage our expertise and our experience from over 675 professionals to tailor an evaluation that meets your needs. Why? Because each property presents a unique challenge and demands it.
Profit V. Labor Costs
Profit margins for restaurant operators, even the best of the best, are severely challenged with labor costs which inevitably keep rising and rising. Traffic continues to be challenged, in spite of delivery, mobile apps, curbside pickup, and other operating initiatives. Franchisees are increasingly unhappy with franchisors marketing leadership that focuses on discounted deals. The traditional “conflict of interest” between franchisors, driven by royalty generation, and franchisees who fight the daily battle for unit level profit, has been exacerbated by the current environment.
What we’ve noticed is that the key promotional price point for many restaurant chains across the nation has become ONE DOLLAR (the value menu at McDonalds, $1 any size French fry at Wendy’s, etc.).
While the franchisor will make the case that these deals are traffic builders, it seems as though only one end of the spectrum – etc., it’s hard to believe that profitability will be enhanced for the franchisees – is being focused on, and they are making their feelings known.
Robotics in the Kitchen
Restaurants are tending to lean more toward the way with robots that cook complex meals on-demand. For example, companies are now reimagining the airport restaurant experience by replacing servers who take customer orders with self-ordering tablets.
In fact, a study by the Center for an Urban Future found that the automation potential for waiters and waitresses is 77 percent. That figure increases to 87 percent when you factor in workers that prep food. This doesn’t mean all these jobs will be automated, but it is a stark reminder that automation has and will continue to reshape the workforce in ways that impact workers and change the customer experience.
Restaurant operations utilizing automation in the future are likely to remain more competitive and prove a better service to consumers who continue to place an emphasis on time and value.
Valbridge at the Restaurant Finance & Development Conference of 2018
Valbridge especially attended this national conference in order to promote our first in class software program, national database of QSR sales, and our overall expertise in all areas of appraisal – real estate, business valuation and equipment, as well as our national footprint.
Clients across the United States benefit from our collective strength, with more than 675 staff in over 80 office locations, and our dedication to elevating appraisal industry standards for accuracy, integrity, reporting, technology and data.
Valbridge professionals can’t tell the future, but we’re trusted by clients to provide independent valuations and powerful insights for better business. That’s just one of the reasons why we continue to make dedications to our clients to advance our own industry-worthy knowledge by attending these renowned conferences throughout the country.
Valbridge has your back, and we won’t back down. Interested in learning more? Get in contact with the experts today to see how your business could thrive!