Restaurant Outlook for 2022 - and Beyond - Is Positive
The first several months of 2022 have shown the promise of a year of comeback and recovery for the restaurant industry – words none of us might have imagined while we were in the thick of it, burdened with shutdowns and labor issues at the start of 2020. Now accelerated by the innovations emerging from 2 years of creative pandemic pivots, the foodservice industry is coming back strong.
The spotlight is on QSR and franchise restaurants as they lead the industry in restyling efforts. Restaurants became the unsung hero of the Covid-19 pandemic and now generate great interest from investors who see their potential in 2022 and beyond. Big things are expected in foodservice, making it the prime time to buy or sell a restaurant.
Just as franchise restaurants fared better than independents during the downturn, they sold at a faster pace in 2021, a trend that has continued in the first part of this year. Fast-casual restaurants had good years in 2020 and 2021, with many outpacing the previous years’ performance. Their ability to quickly pivot to takeout, curbside pickup, and delivery was easily accommodated by the franchise business model and their fast-casual approach. There is power in numbers, and the franchise brand strategies not only mitigated risk, but set the stage to gain momentum.
The price point was ripe for the takeout and delivery model, already equipped with service through drive-thru windows and takeout containers. Closed dining rooms helped control costs, leading to higher profitability on many fronts.
The fast-casual market was valued at $125.6 billion in 2019 and is expected to reach $209.1 billion by 2027, a CAGR of 10.6 percent from 2021 to 2027. This growth is fueling investors and job seekers looking for an opportunity and is driving restaurant sale transactions higher.
Through the first part of this year, the industry is not without its challenges. But for investors, these challenges are manageable and do not deter restaurant sales. Supply chain issues are dominating most industries right now, including foodservice. Restaurants are having to rethink menu options based on what foods are available. Analysts suspect supply chain issues are likely to plague the U.S. at least through this year and into next.
Based on numbers from the U.S. Bureau of Labor Statistics, inflation is pushing up the price of beef and grain products significantly from last year. Once again, this will mean fewer menu options and higher prices being absorbed by consumers.
This challenge is alleviated by consumers who seem to be taking all of this in stride. Trends from 2021 indicate that patrons are willing to spend the money to eat out or for takeout. Whether because of decreased spending at the height of the pandemic, or government stimulus checks, consumer spending has rebounded despite fluctuating Covid variant numbers. Businesses and consumers appear to understand that navigating these fluctuations is the new normal.
Even the labor difficulties in the service sector are being resolved. Restaurant owners have figured out how to do more with less — as have consumers. Longer wait times and occasional lines for food and service are a given. In addition, patrons know store hours have been reduced and days of service cut as a result of smaller crews.
Restaurants are benefiting from continued automation, which is a natural outcome of the labor shortage facing the industry, with many brands embracing technology to reduce labor hours. Because this industry has so easily adapted and positioned itself well for the future, investors are hungry.
According to the most recent BizBuySell Insight Report, restaurants are making a strong comeback, with closed transactions up 42% over the previous year. However, the report noted, transactions are still down 8% from Q1 2020 levels and 22% from Q1 2019 pre-pandemic levels.
The report also noted that median sale prices for restaurants are up 51% YOY, observing that “As more distressed businesses recover, aging owners see this as a window to retire, while buyers see an opportunity to take over prime locations and open new concepts.”
At my company, We Sell Restaurants, we saw unprecedented growth in transactions of 33% over the previous year. At the same time, sales dollars grew by 66.4%, reflecting higher average unit sales prices (up 24.9%) over the previous year.
Reasons for growth
As a restaurant sales specialist, I see a number of reasons for growth. Those previously in the industry who were displaced during the pandemic were able to amass cash reserves from enhanced unemployment benefits. Those same families have healthy 401(k) positions and homes with very high values. They are now ready to reenter the industry and are seeking opportunities of their own rather than working for someone else.
There is unprecedented “movement” going on from state to state and coast to coast. The geographic preferences of the restaurant buyer are shifting, and they have more flexibility with remote working options for their spouses than ever before. For that reason, we are seeing dramatic relocations occurring with families moving for established cash flow and profitable opportunities.
The restaurant industry is well-positioned to continue its momentum from 2021 throughout this year. This is thanks to creativity and innovations we may not have otherwise seen for another 5 years if consumer demand hadn’t insisted on fast tracking, and the industry’s quick pivots keeping a very high-demand industry surviving and now thriving. Savvy entrepreneurs recognize the strength of the fast-casual franchise model, and it whets their appetite for investment.
Robin Gagnon is the CEO and co-founder of We Sell Restaurants, the nation’s largest restaurant brokerage firm. It is the only business broker franchise specializing in restaurant sales and specializes in assisting restaurants brands establish franchise resale programs. She recently was named chair of the IFA’s Women’s Franchise Committee.
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Franchise Update Magazine: Issue 2, 2022