In 2017, find out what our restaurant industry perspectives are and how they could affect franchisees from a lending and M&A perspective. Some things to consider: Will M&A pick-up? Are big tax changes headed our way? How strong is your store-level EBITDA?
Hey, this is Rick Ormsby at Unbridled Capital, and I wanted to take a few minutes to share some opinions from a macroeconomic standpoint on the franchise business. I think, in the near term, we may see some favorability in our economy that may lead to increase in productive consumer spending, due to some changes in regulation, some favorable changes in taxation, maybe a mildly increasing inflationary environment, which could bode well for the franchise industry, and we think merger and acquisition activity will likely pick up because of this.
In the franchise space, some brands have had a little bit of languishing traffic growth over the last year, and same-store sales growth has been a little challenged too, across some brands. There's been a bifurcation, so to speak, of brands that have performed well clearly, and others that have been languishing a bit. But hopefully with increasing consumer spending, you're going to see, in the franchise space, and the restaurant space, particularly, some increased favorabilities, greater sales, we've got good commodity costs, and hopefully those stay in place for the next year. If we have the rising cost of borrowing with increasing rates, hopefully it'll be somewhat muted. And overall, you'll see restaurant and franchise operators delivering what we hope to be a pretty nice and balanced P&L with some moderate growth.
There are a couple of items that I'd like to point out as risks. Certainly, the restaurant business, and much of the franchise business, has not been able to be Amazon-ed. In other words, you can't deliver a hot burrito right to your door in two minutes by clicking a button, although we might be getting there soon. But, because of that, you see a lot of capital coming into the industry on every street corner in America, to invest in restaurant retail businesses because of the perceived risk, or lack of risk, associated with it. And because of that, competition has been high and prices for real estate have been very competitive. So that's something to watch in the near term.
The second item to watch in the near term is grocery stores that are increasing their offerings and platform to compete with restaurant companies. I think that's going to be something you'll continue to see. Overall, I expect the companies and the brands and the franchises that can really differentiate themselves and focus on their core business really well and do simple things right, will be the ones that will continue to be worth the most, be talked about the most, and be the brands that people are loyal to. If you have any interest in talking more about this, please feel free to reach out.