Across the decades, the restaurant sector seems to shift between assembling larger collections of restaurant brands and then slimming down their portfolios. The pendulum has been swinging toward bigger collections of restaurant brands in recent months, with the challenges of the times justifying the need for restaurant holding companies to seize business opportunities and diversify their portfolios. Last year was an especially active one for mergers and acquisitions as the restaurant sector began to rebound following Covid lockdowns. The pent-up demand following 2020’s challenges spurred restaurant holding companies to expand their existing platforms and represent a more diverse cross-section of the industry. On the extreme end, that resulted in Fat Brands acquiring restaurant companies such as Global Franchise Group, Twin Peaks, Fazoli’s and Native Grill & Wings in a matter of a few months.
Having increased scale can provide important protections in the face of the challenges restaurants are managing today, including supply and labor shortages, as well as the need for new technologies to improve the efficiency of operations. Larger restaurant collectives can parlay their scale into preferential purchasing agreements with suppliers and more favorable contracts with third-party delivery companies and technology providers. They can offer more appealing opportunities and benefits to potential hires and more easily adjust staffing to accommodate new store openings and events. A restaurant also doesn’t have to be a major conglomerate to benefit from scale: Even small-scale scaling up can offer similar advantages to brands with a handful of locations.
But is scaling up for everyone? Since times continue to be unstable, with coronavirus variants still posing risks, inflation persisting and interest rate increases looming, it makes sense to proceed with caution. While scaling up offers some key advantages, it also exposes a business to additional risk. Scaling up a business often helps a business reach more customers and increase cashflow, which in turn helps it invest in new capabilities that will help it continue to grow. But it also generates new expenses – and if you have underestimated sources of competition or consumer demand (which has been going through a period of transition in recent years), scaling up may generate more stresses than it eases. Further, while a restaurant can gain supply-chain efficiencies at scale, it can also multiply the headaches of not being able to source critical ingredients needed by a range of restaurant brands. Taking advantage of the supply-chain efficiencies requires a business to have a detailed, real-time view of its inventory, as well as an ability to pivot quickly to predetermined back-up plans when menu ingredients are late, early, overpriced or unavailable.
Foodservice CEO is provided for informational purposes only. It is intended to offer foodservice operators’ guidance regarding best practices in running their operations. Adherence to any recommendations included in this Guidance will not ensure a successful operation in every situation. Furthermore, the recommendations contained in this website should not be interpreted as setting a standard of operation or be deemed inclusive of all methods of operating nor exclusive of other methods of operating.
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