CIT Group Inc., a provider of financing to small- and middle-market companies, has released a new podcast titled “2011 Outlook for the U.S. Restaurant Industry,” featuring the insight of Bob Bielinski, CIT’s head of Restaurant Industry Practice within corporate finance.
Bielinski touches upon consumer behavior as well as current challenges and opportunities facing restaurant CEOs.
CIT’s “5 Minute Capital” interview with Bielinski focuses on the restaurant industry’s impact in the U.S. economy, based on its sheer size – 4 percent of the GDP – and its role in providing entry-level jobs.
To date, 10 percent of the U.S. workforce is employed in the restaurant industry.
Because of this influence, the restaurant segment’s survival is critical to the overall economy. Fortunately, Bielinski said recovery is underway in 2011.
“Consumers have frugality fatigue – they’re ready to comeback and spend some money. Restaurants are a very easy way for them to have a little indulgence, but not break the bank,” he said. “I think people are very optimistic about 2011 that you’re going to see increased sales and hopefully increased profits, as well."
Although consumers expect improvements this year, operators are smart to be mindful of stubbornly high unemployment rates and commodity cost inflation. To navigate continued adversities, Bielinski suggests simply sticking to the core of the brand as best as possible.
“Anyone can start a restaurant business; the barriers to entry are fairly low,” he said. “But a brand that’s meaningful to the consumer, that’s a true competitive advantage.”
Fast casual segment leads growth
The biggest segment poised for growth is the fast casual segment, which includes brands such as Panera Bread and Chipotle, as well as smaller chains such as Noodles and Company, Einstein Noah and the “better burger crowd” led by Five Guys.
“They’re by no means price leaders, but why are they successful? Because people see value in their food,” Bielinski said.
He added an important mantra to follow is that of Panera Bread's co-founder Ron Shaich, who said it’s important to recognize that you can’t please everyone all the time, but it’s important to find a niche and be consistent.
“Everyone was discounting and couponing and to not follow the crowd was hard,” Bielinski said. “But the best brands didn’t and they prospered.”
Capital becoming more available
Although it remains difficult for startup companies to acquire capital, opportunities are becoming more available. If a smaller company shows the ability to grab brand momentum – through marketing or word of mouth – it will position itself to attract the money it needs to grow, Bielinski said.
“There is financing available for the restaurant industry,” he said. “Larger brands are enjoying favorable terms right now and middle-market lenders that left (during the recession) are coming back. For smaller brands, it’s more difficult, but private equity firms are interested in finding growth companies.”
Another boon is the recent change Congress made to the Small-Business Proposal (SBA) which raised the maximum loan size from $2 million to $5 million.
“This is very significant and very exciting for smaller companies,” Bielinski said. “By raising the maximum loan size to $5 million, you may actually be able to grow enough to the point where you are funding your own growth, instead of relying on outside sources to meet your business plan.”
The full interview with CIT’s Bielinski is available online.