As America moves to reopen, there are certainly those who wonder if anyone is buying a restaurant today. The answer is a resounding YES! We Sell Restaurants has seen traffic substantially increase and the market rebound steadily since the lowest point in traffic (week three March). For the month of May, it is not only website traffic that is outpacing the prior year. New buyer inquiries are 15% ahead of 2019 and those signifying strong interest by submitting confidentiality agreements have grown by an astounding 19.9%.
Here is how we are quickly classifying those buying a restaurant today.
Opportunistic Consolidators – The first group to the table for buying a restaurant is made up of groups or individuals seeking to consolidate large groups of stores. They are working to obtain market share while opportunities abound, and their goal is to control a geographic area. These buyers are making offers with We Sell Restaurants with offers for 25 to 40 units, much larger transactions than this “Main Street” brokerage firm would typically write.
Low End Procurers – Not unexpectedly, there are those seeking to capitalize on perceived market conditions and make low offers on restaurants. On the plus side, there are a lot of buyers in this group. On the minus side, the offers are low. However, some sellers would rather accept a diminished offer now rather than close their doors or remain on the hook for the lease. This is a natural function of supply and demand and while these offers are not as high as we would like them to be, they are nevertheless plentiful, generally for cash terms and ready to close quickly.
Franchisors Seeking Share – Another group quick to enter the market are franchise brands. They are seeking opportunities they may have been locked out of in the past few years of competition for the best spaces. Brand Presidents are calling We Sell Restaurants directly to make offers so they can re-brand stores into their concept, then repackage and sell the store to their pipeline of clients waiting on sites.
There are two other important groups buying a restaurant as an outcome of the current COVID19 crisis. Both have been displaced and lost jobs they were performing well. Now out of a job, they are turning their attention to entrepreneurship because they are just not sure they want to work for someone else. They include:
Corporate Refugees – When we wrote our book Appetite for Acquisition we spoke about this group of buyers. They are currently unemployed and quite frankly a little ticked off that after years of loyal service, they were kicked to the curb at the first sign of trouble. They have decided to work for themselves going forward. They do not have the time to wait to buy the rights to a franchise and then build it out. They want to turn the key and start making money immediately. They want the security of past performance and buying a restaurant for them represents a new job with earnings on the books. Yes, these earnings got beat up a little, but they believe life is returning to normal and they will be cashing a check as the owner in charge when it does.
Experienced Operators – Restaurant closings are happening and some of the numbers are staggering. The National Restaurant Association originally predicted up to 11% of restaurants would permanently close but we are seeing numbers exceed that estimate. As of last week, Business Insider said the count could go to 20%. Announcements from Steak and Shake that they are permanently closing 57 units out of 624 and Potbelly looking to exit 100 stores, makes it easy to see that a lot of talent in the industry is now on the sidelines. We predict, and are already seeing, lots of those experienced operators turning their attention to buying a restaurant.
Why not? They have the skills. We are coaching Franchisors to view their experience as more significant than cash in the bank and we predict we will see loyal and strong operators turn up as the newest owners where they previously worked for others. The long-term unemployment benefits portion of the CARES Act will assist this phenomenon.
Overall, we are seeing strong optimism, strong buyer traffic, commitment to success and overall, a belief that our best is yet to come with different groups all buying a restaurant in today’s market.