First of all, let’s excuse the awful food pun in the title of our article. However, joking aside, few would disagree that restaurants have become the core industry of a lot of private equity investors.
One only has to take a look at some of the biggest PE-firms around to see this in action. Marc J Leder and his Sun Capital firm now own countless restaurant chains, with Strada being one of the most popular. In fact, history seems to dictate that as soon as a private equity firm dabbles in this industry, they are quick to jump on the bandwagon and continue to acquire more. This is something which happens much more frequently than it does in other industries.
So, why is this proving to be the case? Let’s now look at some of the reasons why private equity investment firms are gobbling up so many restaurants and making them such a core part of their strategy.
Restaurants can share efficient processes
Some companies might invest in the same industry time-and-time again, but that doesn’t mean to say that each company within this industry share the same business processes.
The restaurant trade meanwhile is quite straightforward. Customers enter the establishment, make their order, before receiving their food. It’s all of the processes in-between these three stages which can really make a difference. Those that have experience in this sector know how to cut down on time and ultimately, as the old saying goes, “time is money”.
Therefore, armed with past experience in a different restaurant chain, a PE-firm can come in and quickly implement a process that is known to be effective.
They mostly use the same equipment
On a similar front, the majority of restaurants use very similar equipment. Sure, fast-food chains might take advantage of different types of cookers compared to more luxurious branches. However, on those occasions where similar equipment is used, private equity investors can quickly step in, take advantage of their contacts and either buy more efficient systems, or additional ones which can be used in new branches.
Similar principles can be used with the food itself. It’s all about having the contacts to make those economies of scale.
The restaurant trade is resilient
As well as making changes to business processes very easily, it’s also worth mentioning that the restaurant trade is incredibly resilient. Even through the recent financial crisis, few were closing their doors and the public were still keen to eat out.
In some ways, it means they are much less risky than alternative industries.
It’s an easy business to expand
This relates to the business processes we’ve already spoken about. The nature of restaurants mean that they are easier to expand than other types of industries.
Considering the nature of private equity is creating more value and expanding, this benefit is huge. Knowing that a business can comfortably expand immediately shows an investor that it does have lots of potential value locked away; it might just need that experience and knowhow to release it.