Anybody else still feeling a little whiplashed from the last two and a half years, or is it just us?
As we head back into the peak of planning season, here are some ways we can help you in Q4 — earning a great close to the year and starting 2023 off with positive momentum.
With as fast as the consumer, competition, technology, and disruptive forces are moving and influencing the industry overall, executive teams are wise to bring in quantitative data and objective analysis about what is happening both inside and outside the business. We deliver rich insights and industry intelligence to help inform corporate decision-making and strategy.
Whether you’re looking to define growth markets or why some locations are underperforming, deep-dive geospatial analysis can be a key differentiator to support the roadmap, reduce risk, and help support a step-by-step growth plan.
M&A activity has turned increasingly global over the last decades. While in the early 1990s North America and Europe accounted for 90% of deal value, by the 2020s that has reduced to 70% and the participation of Asia Pacific, South America, and the Middle East & North Africa has tripled.
With the bulk of the restaurant industry growth springing from emerging and frontier markets, cross-border M&A is being used as a tool to fast-track international restaurant expansion. The best margins to be found often are in underdeveloped markets.
It is a good time to evaluate a sale; taking some chips off the table by divesting a few units, bringing on a partner, or even a full sale of the business. For foodservice brands with $20m+ in sales, we can help answer questions like:
If you’re evaluating a target in the foodservice industry, the questions that matter the most have changed. At the same time, most companies are reliant on maps that are mostly built on pre-COVID data and projections. Meaning their strategy is based on information and understanding that is far from accurate, not fully incorporating the change in the landscape due to the pandemic.
Without exception, diligence reveals new perspectives and insights across functional areas (from the efficacy of marketing and brand strength to how the P&L may change under different scenarios) that can contribute to improved business strength and performance.
Through our specialty in middle-market commercial and operational due diligence, we’re seeing that aside from the usual factors of concern evaluated throughout the course of diligence (commercial, operational, financial, operations, legal, IP, etc.), other factors like ESG and Diversity and Inclusion are coming up more and more as relevant aspects buyers want to be assessed.
As you think about objectives, strategies, budgets, and resource allocations for the next 3–5 years, do you sense your team could benefit from a fresh perspective, a richer understanding of the consumer and competitive landscape, and build plans that are as strong, yet agile, as is required today?
We can help you answer questions like:
Everything is getting smarter, and operators aren’t capitalizing on it yet. When we hear talk about technology, there’s rarely a focus on the Foodservice Equipment industry. For the players in this industry, growth has come primarily from acquisitions and incremental growth achieved through the expansion of key accounts. Incumbents have done little to innovate and bring to market compelling reasons to switch.
However, a multitrillion-dollar industry that has historically grown by inches has been hit with the most disruptive force it has ever encountered, and brands large and small are realizing they must look to technological advances to improve and modernize the unit economic model.
The global foodservice equipment category is ripe for disruption and it is up to the supply side to demonstrate the virtues of the product and attract demand.
A 2% increase in sales is equivalent to a 10% reduction in costs. Are you experiencing flat or declining sales and need to jump-start revenue at a system- and unit-level? We’re a top-line-oriented organization that is fanatical about driving revenue in a way that works both in the short-term (with quick-hits programs) and over the long-term (growing revenue and enterprise value without sacrifices to margins).
We build brand-centric strategies and support sales-building initiatives from diagnostics through development and deployment.
CAPEX as a percentage of revenue has bounced back. Among U.S. publicly traded restaurant chains, CAPEX was 7% of revenue between 2012–2016; it dropped to 5% of revenue from 2017–2019, then again to 3% of revenue during the pandemic (both from a cutback in planned spending along with supply chain challenges that hindered investments), and has bounced back to 5% of revenue in 2022.
In the long term, this CAPEX reduction trend is partially related to the growth of franchising (a capital-light model). But the 2022 bounce-back shows new openings as well as increased investment in performance optimization.
Most restaurant chains can not answer basic questions like “How many sales per hour are lost in slow drive-thru lines?” Performing an organizational design audit, evaluating QA/QC and cleanliness procedures, and conducting an industrial engineering assessment can surface areas that would benefit from optimization and produce fast gains in same-store sales.
Moreover, developing new prototypes and stores of the future will not only integrate new technology, improving efficiency across the system, but it will also give the opportunity to bake the brand back into the touchpoints that matter most. As we start planning for 2023, it’s time to re-think capital allocations and make bets that enhance enterprise value.
We believe great marketing just kills a bad operation faster, and specialize in developing holistic and integrated approaches for driving awareness, engagement, and revenue growth. Equally comfortable and competent in both B2B and B2C marketing and promotional strategy, we build strategy from the bottom up and inside out; from store-level merchandising to modernized neighborhood marketing, to national and multi-national product and brand launches. Ways we help include:
Refresh and revitalize. Restore relevance and reverence. Both the tech and restaurant industries share the same consumer, so it’s time the restaurant industry started getting used to the idea of continuous innovation. We help companies reinvigorate excitement for the brand, both internally and externally.
The fastest and surest way to improve sales, margins, the guest experience, and brand relevance is through effective menu strategy. We help with quantitative analysis led by data scientists; incorporate findings into new product, pricing, presentation, and positioning recommendations.
Working with your designers, we provide menu engineering insights (placement, descriptions, menu psychology, behavioral economics, industrial engineering principles, etc.) to showcase and improve menu merchandising, resulting in an immediate impact for same-store sales growth and meaningful margin improvements.
For investors that don’t have foodservice industry expertise, or that don’t want to be involved in the day-to-day but still achieve top-quartile returns, an operating partner can be the solution. An industry expert with deep industry knowledge who can build and install teams, design best practices, and run diagnostics to come to a creative growth strategy with a highly competitive ROI.
Our global experience across categories, cuisines and operating models helps us run operations efficiently. We are top-line-oriented and are always designing our plan with a risk mitigation strategy built upon years of industry-specific experience.
Industrial engineering is the discipline dealing with the optimization of complex processes and systems. For restaurant chains, this includes things like:
Restaurants’ labor cost increases are not going away (in the U.S., restaurant hourly wages increased an average 12.5% in the first half of 2022) and key items are putting pressure on restaurants’ food costs (food commodities increased an average 26.1% globally). Meanwhile, restaurant price increases averaged only 6.8%.
The only way to work your way out of inflation is innovation. This means investments in performance optimization, modernization strategy, delivery and drive-thru strategy, diagnostics, etc. Cost optimization goes hand-in-hand with building the top line via re-engineering processes and reimagining the guest experience.
COVID has put more demand on drive-thrus, forced operators to re-think their approach, and reminded many of the rewards of innovation. In the U.S., half of the food consumed is served at restaurants (food away from home), and about half that is at quick- and limited-service operators.
Quick-service and fast-casual chains with drive-thrus usually see between 50–70 percent of sales via the drive-thru. How much will improvements to drive-thrus mean for same-store sales over the next few years? How do we improve throughput? How are drive-thrus becoming smart? How do we customize the experience and streamline the BOH?
The answers to these types of questions will continue to support resilient systems.
It’s painful for both buyer and seller when a potential investment falls through. However, the seller can still accelerate times (rather than starting from scratch). Restaurant industry experts may bring a new perspective about the target, find investors with better prospects than the last one (for example with a more complementary portfolio, thinking differently about the debt/equity mix, or with a different vision on valuations), and get a second chance faster than you think.
Our sister company, Aaron Allen Capital Partners, can help if you’re weathering a broken deal storm.
Many foodservice startups are still non-investable. Usually when ARR is below the $6 million mark investors think there’s not enough proof of concept. In our view, there is no question that there’s a gap for foodservice technology companies that is leaving many who should survive behind.
We can help you get a viable path to go from prototype to proof of concept to adoption and can participate at a Board level to provide strategic input.
Market Landscape | Support to Create Foodservice-Relevant Product Features | Positioning and Communications | Team of Industry Experts | Go-to-Market Strategy
Franchising has enabled restaurant chains to grow exponentially across the world. And there is still plenty of room to expand. In mature markets like the U.S., chains account for almost 60% of foodservice sales — for every dollar you consume in restaurants, 60 cents go to a franchised system. But in emerging markets such as Latin America, the Middle East, or Asia Pacific, chains represent less than 20% of the market.
As these geographies grow and mature, the share of chains will increase and restaurant franchises could get as much as in mature markets. For franchisees, franchising enables local players to operate international brands that often have higher sales per unit (compared to local brands), and to import international systems for processes and efficiency without having to make a large initial investment to set them up (and saving time as well).
For those looking to create a new concept, if planning on fewer than 20 units it’s often better to franchise — think of all the costs involved in creating a new concept, including logos, training manuals and standard operating procedures, design, operational and systems, everything would have to be created from scratch. Industry experts can help you define what could work well in your market and the best franchise for that.
As is par for the course this time of year, advisory teams are filled to the gills and working relentlessly to conclude open deals before the end of the year. This will likely carry over into Q1 2023.
The U.S. market is leading the way for valuation growth but we expect this to ripple out across the globe. Is now the time to take a few chips off the table? Maybe (probably).
Whether you are buy-side or sell-side, the market is hot, the stakes are high, and quality advisors are worth their weight in gold. This will prove to be an extraordinarily important vintage year for parties on all sides of a deal.
We are focused exclusively on the global foodservice and hospitality industry. You can think of us as a research company, think tank, innovation lab, management consultancy, or strategy firm. Our clients count on us to deliver on our promises of meaningful value, actionable insights, and tangible results.
Founded and led by third-generation restaurateur, Aaron Allen, our team is comprised of experts with backgrounds in operations, marketing, finance, and business functions essential in a multi-unit operating environment.
We bring practical, relevant experience ranging from the dish room to the boardroom and apply a holistic, integrated approach to strategic issues related to growth and expansion, performance optimization, and enterprise value enhancement.
Working primarily with multi-brand, multinational organizations, our firm has helped clients on 6 continents, in 100 countries, collectively posting more than $200b in revenue, across 2,000+ engagements.
We help executive teams bridge the gap between what’s happening inside and outside the business so they can find, size, and seize the greatest opportunities for their organizations.