RRupdates

 

Thursday
Mar162017

March

Delivering on Delivery

  • A well-known investment bank estimates that the $30B restaurant delivery market (> 50% from pizza) has the potential to grow to $210B. McDonald's says restaurant delivery is a $100B market. Wow!
  • Delivery may add convenience for those cocooning at home, but how about the added cost in an extremely price sensitive market?
  • 3rd party delivery fees can range from $4 - $8 plus tip. With restaurant consumers focused on the grocery store price gap, who exactly is it that is going to drive delivery to a $210B business?
  • The pizza players have demonstrated how their proprietary delivery can be cost effective, but that business line has been in their DNA for decades. 
  • We suggest that operators focus on delivering the fundamentals first before confusing things with too much emphasis on delivery.

Source: RR/BDO 2017 Consumer Survey

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Monday
Mar062017

February

 

Franchise Loan Originations Peaking

  • 2016 restaurant originations reached a new all-time high as the entrance of new lenders more than offset the void from GE Capital’s exit.
  • 2017 origination prospects are solid, although slightly less bullish.
  • Borrowing rates ticked-up in 2016 due to a slight increase in spreads and index rates with a similar outlook expected for 2017.

 

Source: RR's 2017 Franchise Finance & Valuation Report (outline)

 

 

Public Valuations Outdistancing Franchisee Multiples 

  • Peaking franchisee unit level EBITDA valuation multiples.
  • Public franchisor EV/EBITDA multiples continue to rebound, creating a larger premium to private multiples. 
  • Current real estate cap rates reached new lows.

 

Sources: Hedgeye; RR's 2017 Franchise Finance & Valuation Report (outline)

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Monday
Mar062017

January

Inflation Coming?? 

  • Treasuries are telegraphing higher inflation which, in turn, suggests elevated interest rates. While real assets (restaurants or stores) represent a great inflation hedge, prospects of higher interest rates could also suggest lower valuation multiples for a highly leveraged asset class. One thing is for sure, operators must maintain pricing power by improving service, experience & product if they are to pass along higher input prices. 

 

Who Wants to Tip?

  • With declining unit supply and only 30% of consumers shopping deals, what is the problem with casual sales?
  • Could it be that consumers are growing tired of tipping? If so, growing to-go sales maybe more important to the segment than we know as this channel allows consumers to avoid tips and lower their bill by 15% to 20%, leveling the playing field with fast casual.  

Source: Brinker reports

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