The economic recovery in the wake of the 2008-2009 recession has been lackluster, but for the quick-serve industry, things have been even worse.
Pre-recession, through the early 00s, restaurant growth in the sector was brisk, as consumers, flush with high employment rates and increasingly comfortable with low savings rates, continued a trend of preparing meals away from home.
With those larger economic trends having reversed (see exhibits 1 & 2), the trend line for the quick-service industry, despite pockets of growth, has been decidedly negative over the past few years.
The interest of lenders and private equity investors in the space has not significantly dampened the challenges the industry faces. Many of these capital providers supported growth plans that, in the face of a painful recession and uninspiring recovery, have proven overly optimistic.
In 2011 alone, quick-serve companies Friendly’s, Perkins & Marie Callender’s, Real Mex Restaurants, Quiznos, and Sbarro, among others, embarked on restructurings, either in or out of bankruptcy court (see exhibit 3).
For quick-serve operators, the question in 2012 must be how to thrive in the face of considerable headwinds. There are five areas operators should focus on in order to beat the competition in 2012:
A more centralized approach, by contrast, argues for high-quality talent in the central office but calls for less initiation from the managers in the field. Either approach can produce results, but operators find themselves in trouble when they adopt HR policies that are at odds with their structure.
Quick-serve operators need to ask themselves honestly whether they have the data, analysis, and reporting capabilities they need to manage their company at peak efficiency. If not, further investment is a necessity.
Recently, a financial advisor was retained by a multiunit quick-serve operator. The operator had been recapitalized by a private equity buyer, and management was energized by the mandate to develop a growth plan. The advisor provided expertise in a number of crucial areas:
While the initial development and management of this forecast exceeded the ability of the internal team, after the forecast was developed and reporting became routine, existing staff was trained to maintain this functionality.
As a result of the dedicated efforts of management, equity investors, lenders, and financial advisors, the company achieved a remarkable turnaround in a short time frame. The turnaround from troubled, under-performing quick-serve operator to a recapitalized company aggressively pursuing growth opportunities was achieved in approximately six months.
Despite the feel-good economic forecasts for 2012, the macro picture of the quick-serve space remains challenging.
There are too many units chasing growth at the same time that consumers are retrenching. In order to thrive, operators must focus on operational discipline and generating maximum cash per dollar of revenue.
While a rising tide has a tendency to lift all boats, companies can still grow value and profitability while the tide recedes.
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