The U.S. restaurant industry is experiencing an uptick, with mergers and acquisition activity up to $3.9 billion, from $3.7 billion last year. According to the 23rd edition of the Chain Restaurant Industry Review, released today at the Restaurant Leadership Conference by GE Capital, Franchise Finance, the total volume of syndicated leveraged loans in the restaurant space increased almost 21 percent last year.
Also, proof that the American consumer is feeling more confident about the economy, nominal restaurant sales rose 4.2 percent to $425.6 billion in 2012. Sales are projected to increase 3.8 percent to $441.9 billion this year.
The Top 100 restaurant chains' systemwide sales were nearly $210 billion, representing more than half (51.1 percent) of all restaurant sales last year, and gaining 0.5 percent market share from 2011. Their sales grew 4.7 percent 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 percent was the highest since 2007. Franchised unit growth jumped 180 basis points to 77.3 percent of the total — the largest share since the survey's inception 23 years ago.
According to the Review, 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 percent to $11.2 billion in 2012, while sponsor deals declined 11.2 percent. Nearly three-quarters (73 percent) 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 2012.
"In contrast to the slow but promising recovery in the global financial markets, the U.S. restaurant industry has been very focused on growing and expanding," said Agustin Carcoba, president and CEO of GEFF. "The activity has been driven by the improving economy, changing consumer habits and shifting U.S. 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."
Broken down by segment
Full-service restaurant sales were up 3.1 percent to $202.2 billion in 2012. FSR menu prices increased 2.6 percent in 2012, compared to 2.3 percent in the prior year.
Quick-service sales, including fast casual brands, increased 5.6 percent to $179.3 billion. QSR menu prices increased at a 3.2 percent annual rate in 2012 compared to 2.2 percent in 2011.
Cost of goods sold (COGS) and labor costs comprise more than 60 percent of operating expenses at both FSRs and QSRs. Operators can achieve savings and increase profits by carefully managing COGS as well as advertising, rent, royalties, etc., according to the report.
"Restaurants typically have relatively limited profit margins, so operators are always trying to adapt to changing consumer tastes while balancing their other costs," Carcoba said. "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."
Industry sales figures included in the review are attributable to the National Restaurant Association.
Read more about restaurant trends.