Consumers in search of value and quality are driving a comeback in sales in the restaurant sector, according to Bob Bielinski, managing director, corporate finance – Restaurant Industry Practice for CIT Group Inc., a provider of financing to small businesses and middle market companies. This is just one of the insights Bielinski offers in "The Impact of the Market Downturn on the U.S. Restaurant Sector," the latest in a series of in-depth executive Q&As featured in CIT's "Executive Spotlight" series.
Bielinski explains how the economic recovery is producing increased sales and M&A activity in the restaurant sector. "In some cases, sales are coming back faster than expected," said Bielinski. "I expected anemic sales through the first half of the year, but the most recent economic data indicates that the consumer has resumed spending. In addition, the M&A market for restaurants is getting hot very quickly. There were more notable restaurant deals in the market during the first quarter (2010) than the total number of notable deals completed last year."
He suggests that consumers with a limited budget and many options will favor brands that offer a high-quality dining experience at their price point, noting, "Consumers have too many choices today to be satisfied with sub-par or even average execution. With unit growth opportunities more limited and profit pressure hopefully subsiding with improved sales, management teams need to focus on restaurant-level execution. At the end of the day, it's all about the consumer's experience."
The extra good news about focusing on execution and experience is that it doesn't mean lowering prices, according to Bielinski. It's about the value positioning of what each restaurant does well. He admits that the pizza industry in particular is very promotion oriented, but offers recently acquired take â€˜n' bake brand Papa Murphy's as an example.
"They have a very interesting niche where consumers rate them high on the value and product quality scale," Bielinski said. "Food quality degrades the minute you take it out of the oven. So if you're eating it five or ten minutes after it gets to temperature â€¦ look, everyone is advanced in how their product holds, but at the end of the day, eating it right out of oven has to help flavor. Finishing it off makes you feel like you're serving something you had a part of. (Papa Murphy's probably offers) better ingredients because they save on labor a bit.
"Everyone can step it up, the question is who will?"