Maggie Wise, Windham Brannon’s Restaurants Practice Leader, recently attended the Restaurant Finance and Development Conference (RFDC) on Nov. 13-15, 2023, in Las Vegas. The conference is hosted annually by the Restaurant Finance Monitor, providing a place where restaurant company owners, operators and financial executives can explore and discuss the current landscape of the restaurant business and capital markets. The conference is considered top-tier for business leaders in the restaurant industry, with content provided by multiple guest speakers for restaurant owners, operators, executives and board members of multi-unit restaurant companies, whether public, private, franchised, non-franchised and independent restaurant groups.
Key Takeaways
Much of the content at the RFDC focused on innovation and change adaptation for the restaurant industry for 2024 and beyond. Below are some key takeaways from the conference’s sessions:
- Smaller square footage is trending – The COVID-19 pandemic has driven a permanent shift to takeout, drive-through and delivery methods for customers, which has subsequently created a trend for smaller footprints in coffee chains and other specialized sects, such as pizza. Additionally, the cost of capital, building materials, rent and land is high, further incentivizing brands to shrink their square footage. At Windham Brannon, we recommend that any operators looking to open new locations should closely review and analyze their forecasted profit and losses (P&Ls) to determine if the decrease in rent costs with a smaller square footage exceeds the decrease in sales as a result of a smaller footprint. You may find that your EBITDA is unchanged, and that it’s faster and cheaper to build the smaller location.
- Automation and artificial intelligence (AI) are crucial to success – It is impossible to ignore the benefits of automation during a period in which labor and supply chain costs are extremely high. As consumers are unwilling to accept menu price increases that match rising operating costs, restauranters are being forced to find other solutions to protect margins. While the initial investment is high, the returns on a brand utilizing AI and automation in front and back-house operations are proving impressive. Their incorporation into a strategy for growth will become essential.
- Working from home has impacted customer behavior patterns at restaurants – As more of the workforce continues to work at home or remotely, customers are visiting restaurants during different times of the day and closer to their homes or place of remote work, reducing commute time. Customers are spending more time in leisure activities (golf, skiing, salons, shopping, etc.) and looking for restaurant options within or near these locations. Additionally, overall retail spend is down in cities and moving to suburb areas. As same store sales continue to decrease, we recommend that restaurants analyze their store sales data by location, region and market to identify trends, as well as understanding when peak sales are actually occurring, then shifting labor and staffing to reflect these changes. Windham Brannon can help you understand and identify such sales trends in your data.
- 2024 mergers and acquisitions (M&A) activity will increase – Regarding the outlook for restaurants in 2024 in capital markets and the economy, 2024 is expected to be a busier year for M&A and IPO activity, as 2023 was considered a slower year. As such, margins are expected to stabilize, and investors will be keener to begin making deals.
- Loyalty programs – Data from restaurant loyalty programs have proven that there is no single “right way” to structure a loyalty program. Consumer buying patterns are ultimately unpredictable, even for the most loyal customers. Regardless, offering a loyalty program to customers is still a preferred option as opposed to having none at all.
- California is changing the landscape for the restaurant industry – Since the passing of California’s controversial Fast Act Bill in 2022 (AB 257), the restaurant industry has been abuzz with the impacts the bill is expected to have on the bottom line. Even with later amendments and changes to AB 257 from the QSR legislative Agreement, the impact has expanded far beyond California’s borders when it comes to wage increases, including price increases, pressure for comparability from other regions, risk of a “copycat effect” in other states and jurisdictions, stalled economic growth for new franchisees in California and potentially a decrease in entry-level jobs.
- How large franchisor brands can support franchisees for success – The conference featured much discussion regarding how large franchisor brands can support their franchisees with a strong, well-developed business model that sets up the franchisees for success. Windham Brannon’s professionals recommend that franchisors discuss with their team of advisors how to promote their own brands in 2024, including discussion about how key business plans like smaller footprints, simplified menu offerings, better training and changes to “value meals” to account for rising inventory costs can make for very successful bottom line.
At Windham Brannon, we stay abreast of trends in the restaurant industry and are prepared to help you develop a strategy that keeps you competitive and sustainable. For more information about how Windham Brannon’s Restaurant Practice professionals can help you plan for the future, contact your Windham Brannon advisor today, or reach out to Maggie Wise.
