CIT: Improvement in Restaurant Sector Should Continue
Slow economic growth and continued high unemployment have limited the recovery in discretionary consumer spending, but steady improvement for the restaurant sector should continue according to Bob Bielinski, managing director and head of the Restaurant Industry Practice at CIT Group. This topic is one of many discussed in the U.S. Restaurant Industry Outlook, the latest in a series of executive video Q&As featured in CIT’s Executive Insights video series.
Financing Available for Large Operators
Like consumers, lenders stepped away from the market during the downturn; however, they have returned, along with some new entrants. “Large and middle-market restaurant companies, as well as franchisees of larger chains, have accessed the debt markets to finance growth, whether it’s acquisitions, new units or remodels,” said Bielinski. “However, if you’re a smaller company or a franchisee of a smaller chain, you’re probably still finding it difficult to get financing.”
IPO Markets Strong, M&A Steady
Earlier this year the market saw a steady flow of mergers and acquisitions transactions, including deals for Yard House, P.F. Chang’s, O’Charley’s and Benihana. Bielinski commented, “There have also been a significant number of franchisee transactions driven by the sales recovery and by the potential increase in taxes in 2013. It’s a great time to sell a business because valuation multiples are very high and the debt markets are strong, so buyers can get financing. However, the restaurant companies that were sold in 2010 and 2011 have new owners that aren’t ready to sell.”
The initial public offering market in 2012 has been strong for restaurant companies. Burger King and Bloomin’ Brands, the parent of the Outback Steakhouse chain, are formerly public companies that had gone private and are once again public. The public market has also welcomed smaller companies, including Ignite Restaurant Group, Chuy’s and Del Frisco. Bielinski added, “The exciting news is the access these smaller companies now have. In the past the market wouldn’t have been accepting of companies that small.”
Social Media’s Impact – Jury’s Out on Daily Deal Sites
Social media continues to have an impact on the restaurant industry, as Twitter and Facebook allow companies to communicate with their customers and customers to communicate with each other. Bielinski said, however, “The jury is still out on daily deal sites like Groupon. There’s a debate among restaurateurs as to the benefit of these sites. If Groupon customers simply chase deals and never become permanent customers, there’s not much benefit to the restaurateur.”
Steady Improvement for the Sector in Sight
According to Bielinski, while consumers are still spending, unemployment needs to come down for the sector to see meaningful increases in restaurant sales. He comments, “Consumers have a tremendous amount of choice in the restaurant industry. The strong operators, especially the fast casual players, are going to see continued solid sales and they’re going to continue to add units. In the aggregate I think we’re going to see steady but slow improvement in the sector.”
For the full outlook: click here.