Restaurant Industry Commentary-2017

By Rick Ormsby
Managing Director
[email protected]

After several months of restaurant conferences, here is my spin on important restaurant industry perspectives and how they affect franchisees in 2017 from a financial, lending and M&A perspective:

  1. M&A is expected to pick-up in 2017 versus 2016, assuming no political or geopolitical problems.
  2. Looks likely that there will be a rate hike in December and possibly again in early 2017.
  3. Inflation, regulation, taxation and repatriation are near-term issues that could bode well for the restaurant industry.
  4. Look for a big possible tax change in the first 100 days or so of the new administration. Any tax policy changes could have a positive impact on M&A if capital gains taxes are lowered. Sellers of restaurant companies will be winners if so as their net proceeds would increase.
  5. Debt markets were healthy in 2016, and this pattern is expected to continue into 2017.
  6. 2016 has seen some brands struggling for same store sales growth and negative traffic.
  7. Many experts predict better consumer spending, stronger restaurant sales and better traffic in 2017.
  8. The IPO market was very slow in 2016; several restaurant companies filed for bankruptcy.
  9. As valuations narrow between public and private markets, we might see more restaurant companies go private, especially in the casual dining sector.
  10. Overall EBITDA multiples in the middle-market appear to be slightly lower in 2016 than 2015; however, some brands are clearly bucking this trend.
  11. There seems to be a valuation bifurcation of haves and have-nots for differing restaurant brands.
  12. Restaurant revenues will continue to be challenged by grocery stores and by increased competition from new unit development.
  13. Restaurant brands that have scale, relevancy and differentiation will continue to succeed.

A few questions to consider:

  1. Will menu price increases send customers to grocery stores, where prices have been steadier? 
  2. Can your brand attract and keep the finicky millennial age group? 
  3. How strong is your store-level EBITDA, and how do you plan to defend it in 2017? 
  4. How are your brand’s same store sales trends, and what’s in store for 2017?

Please feel free to reach out anytime if you want to talk about these comments above. It would be an honor to talk about how they might apply to your franchise business.

Rick Ormsby
Managing Director
[email protected]