Please recommend a Financial/Strategic Analysis framework for a Restaurant Chain

aech11's picture
Rank: Monkey | 33


What kind of financial/strategic analysis would you recommend for analyzing a Restaurant Chain? I want to expand my knowleedge regarding the analytic framework for this industry. It would be great if someone could provide some advice from a PE perspective.

Thank you.

Comments (11)

Mar 13, 2019

Are you looking to open a franchise, or acquire a franchisor? Are the stores all company owned and you're looking to buy the company?

A good first place to start would be to find a publicly traded company that matches the model you're looking at, and review their statements / presentations to see the key metrics they look at. Then review some free articles on SeekingAlpha

Mar 13, 2019

Thank you for answering.

In my case, I work as a financial/business analyst for a company in the food industry. One of our business segments is the restaurant industry. We already own a restaurant chain and we are always on the look for new chains to acquire.

The head of the division is a really smart guy who used to work in PE. He has taught me a few metrics for analyzing restaurants. However, I would like to contribute more insights.

Mar 13, 2019

I'll preface with never having worked on a restaurant deal. I'm sure others will be able to be more helpful but here are some quick initial thoughts.
- Avg. customer per day / avg. meal price / avg creation cost per meal
- median household income of surrounding area
- population growth of surrounding area
- personnel turnover at restaurant
- rent or lease costs (is land owned, can you do a sale leaseback?)
- standard valuation metrics (someone above mentioned)
- focus on SG&A (is it high relative to peers? Is this because they deliver a better service or are they inefficient with their spending? Also applies to COGS where their server costs would likely be)
- DD on buying process (can I consolidate buyer power with another asset I own in the area?)
- local economy dynamics (Is the area dependent on an industry? Is that industry stable? Higher priced restaurants will likely be hit harder in a slowdown)


Mar 19, 2019

This person sounds like a retard.

Mar 19, 2019

His shit's all fucked up and he talks like a fag.

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Mar 19, 2019


Most Helpful
Mar 19, 2019

Have done a fair bit of restaurant work on the sellside, and some key metrics you will want to look at (in addition to some of the more macro trends that taking a step back mentions). Most of these you will want to look at in the context of how they compare against peers.

  • Same Store Sales (SSS) - yoy growth of the mature store base
  • Average Unit Volume (AUV) - avg. sales per mature store
  • Average Check
  • Sales Mix (Food vs. Beverage (both NA and alcoholic)
  • Daypart mix (BF, lunch dinner, late night)
  • Average cost to build / Preopening Costs
  • Ramp to maturity (ie how long a new location takes to look like a mature store)
  • ROI / payback period on new store openings
  • If it has franchised locations you will want to look at the start-up costs for franchisees, what their annual fees are (generally ~7% of sales) and any additional annual costs (e.g., marketing)
  • There are a few states (CA, MI, ...) that make Financial Disclosure Documents (FDDs) publicly available which can contain some pretty useful info as well
  • Black box and knapp track publish monthly sss data on some of the broader segments (casual, fast casual, qsr, etc)
  • USDA publishes monthly data on some key food costs (dairy, beef, chicken, etc)
  • Based on their geography, you will want to look at minimum wage increases in those states (eg if they have a lot of CA locations, probably going to be difficult to control labor costs at company-owned locations)
    • 4
Apr 25, 2019