Around the Restaurant Industry in 60 Minutes
It was almost like speed dating, as nine experts at the Restaurant Finance & Development Conference provided quick market snapshots and nuggets of information from their unique corner of the restaurant industry.
Speaking of investment trends for emerging concepts, Baird’s Chris Sciortino said the restaurant world is at an extraordinary period for capital availability with a similarly extraordinary supply of early-stage concepts deserving (and receiving) investments. Beyond big money flowing to promising concepts, Sciortino said many legacy brands are transforming themselves to match current tastes.
What’s driving this activity?
“We’re seeing a significant evolution in expectations of what the customer wants,” he said, with fast-casual taking share of QSR and traditional casual dining stalwarts.
Todd Jones, of GE Capital Franchise Finance, brought a sober message, reminding attendees that “this time is not different”—specifically, that old-school financial ratios still matter. From his perch in the industry, he predicted prolonged low interest rates, modest inflation, ongoing high multiples and a significant increase in M&A activity.
“In general, 2015 has been a very strong year for same-store sales,” he said. “Traffic, the main thing we watch at GE Capital, is still mixed. There are others still struggling with traffic, and that’s the predictor of how well your brand is resonating with consumers.”
Applying lessons learned through his career at McDonald’s, Robert Donovan, reflected on the genesis of Chipotle, as well as the company’s other efforts to increase growth and diversify the company’s portfolio.
His advice to the audience included not falling in love with a product in the process of starting or purchasing a brand, and don’t underestimate the power of established local brands should you consider a move into new territory.
With the headline of “Obamacare is here to stay,” Franworth’s David Barr said those expecting significant changes in its implementation should hope for a change in the government’s executive branch.
Expecting further tweaks to the law, he focused his message on encouraging attendees to properly report their results and employee data, a process he characterized as “extremely burdensome.”
“If you’re in the private equity world or are a senior executive, it needs to be addressed at this moment,” he said.
Focusing on ever-shifting commodity prices, David Maloni, president and chief commodity strategist at the American Restaurant Association, offered good news, predicting easier times for those whose business depends on favorable protein prices, for example.
“Fast casual and ethnic restaurants are benefiting, while wing restaurants and steak places are still hurting,” he said. “Even though a lot of restaurant chains are benefiting, we believe it’s time to be looking for a bottom in the commodity markets.”
As prices begin to increase once again, Maloni predicted less capital flowing to farmers, which could result in higher protein and dairy prices in the years to come. Bacon and pork belly, for example, have seen significant price shocks in recent months.
“Be looking long term here,” he added. “Talk to your suppliers … make sure you’re protecting that upside, and make sure you’re protecting that margin.”
Paul Sill at Forum Analytics gave a fascinating look at how mobile-geospatial data is changing many industries. Just by carrying a cell phone, he said, consumers are providing a raft of data about their routines and preferences, which could be unlocked by businesses to provide a richer look at how to market, and who to market to.
On the IPO side, Damon Chandik of Piper Jaffray said that although “we’ve seen the return of the restaurant IPO,” a slowdown of the China economy and other international disruptions could slow the pace of new Wall Street debuts in the coming months.
“There’s a general market sentiment out there that we may not be heading towards the bottom, but we’ve certainly plateau-ed,” he said. “Restaurants continue to deliver the best unit growth of all consumer sectors, and are one of the few sectors insulated from trends impacting retailers, like e-commerce and globalization.”
From Hilco Global, Navin Nagrani said that companies going through bankruptcy still provide real estate opportunities for restaurant operators and retailers looking to pick up new turf. To get the jump on potential opportunities, he recommends scouting the region to develop a list of potential chains that are likely to have an upcoming restructuring, which could be a big opportunity.
He closed with a timeless recommendation to the group to avoid being one of the “opportunities” for other businesses.
“Remember that cash is king, so be liquid.”
Rounding out the hour, Chris O’Cull, a consumer and retail analyst at Key Bank Capital Markets, spoke of companies using technology to create value for their guests along the lines of Jimmy John’s, Dominoes, Starbucks and Buffalo Wild Wings.
Finding ways to make servers more productive—and profitable—and finding ways to improve the guest experience without bombarding them with marketing, he said, is the key to ensuring that technology truly upgrades the dining or retail experience for the end users.