Pressure-Test Your P&L
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Every restaurant bleeds — it’s simply a question of where and how much. Just as banks and governments occasionally conduct stress tests to model scenarios and validate the stability of their systems under pressure, restaurant chains (and their investors) should endeavor to objectively pressure test their P&L — with increasing rigor and frequency. By performing a gap analysis and applying industrial engineering practices across functional areas, it’s possible to uncover areas of opportunity and quantify where value is trapped or hidden in a business. We look at major cost drivers (historica ..read more
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Restaurant CAPEX Spend Goes Hand-in-Hand with Revenue Growth
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Capital is cheaper and more available than ever, and at least in the U.S. corporate profits are at record levels. Many organizations are using this opportunity to make strategic acquisitions or to increase stock prices by buying back shares and paying out larger dividends. But the strong correlation between CAPEX investments and revenue growth argues for a different strategy: putting capital back into the system. Public restaurants in the U.S. that spent 10.4% or more on CAPEX between 2012 and 2017 experienced an average of 11.9% revenue growth, almost twice the 6.0% average CAGR. Despite b ..read more
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Some Chains Use Almost a Third of Cash Flow to Cover Rising Restaurant Interest Rates
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Since the 2008 financial crash, restaurant loans have slowly started to increase. While there are risks to lending to restaurant companies — relatively few barriers to entry and hard-to-protect intellectual property — the size of the global restaurant industry ($2.7t) makes foodservice an appealing market for bank loans and credit lines. At the same time, the dominance of multinational chains and large restaurant operators has reduced the risk on commercial investment to those companies. Both Bank of America and Wells Fargo have extended credit to major restaurant brands. Unsurprisi ..read more
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5 Key Benchmarks from Publicly Traded Restaurant Companies’ Income Statements
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
As a central element of any company’s regular reporting, restaurant income statements can be sliced a variety of ways to quickly uncover inefficiencies. These ratios also demonstrate the very different business models of heavily and lightly franchised systems. Median Revenue per Employee in Public Restaurant Companies $61.3k Compared to other industries, public restaurant companies in the U.S. have relatively low revenue-per-employee rates. Energy companies make just under $1.8m per employee, and supermarkets make $196.7k per employee, but the median revenue per employee in publicly traded res ..read more
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3 Reasons to Invest in CAPEX — Plus 1 Reason to Be Cautious
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Restaurant executives have to decide whether they want to be a tortoise or a hare. In the age-old fable, the tortoise moves ploddingly down the race course — slow and steady — eventually surpassing the hare, whose off-the-blocks speed can’t make up for his overconfident blundering. In Aesop, the choice is easy: be the tortoise. In business, it’s much more complicated. Operators must balance long-term initiatives against shareholders’ desire for short-term returns. Restaurants’ capital expenditure investments in technology, unit remodels, and new units boost revenue and create substantial ..read more
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Refined Focus & Franchising Help Build Operating Margins
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
It’s no secret that the operating margin is thinner in foodservice than almost anywhere else, owing to the fierce competition in the industry. However, some chains have achieved impressive results. Companies with a defined focus that differentiates them from other operations have better operating margins than those organizations that try to do too much. Franchising also helps strengthen operating margins, as it spreads costs out among non-company-owned units. A Clear Focus Plus Low SG&A Costs Boost Operating Margins Among publicly traded foodservice operations in the U.S., the top quartile ..read more
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Lean Labor Can Boost Gross Margins
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Gross margins consider the relationship between how much money a restaurant makes and how much money it took to generate that revenue in direct costs. High ratios indicate a lower cost of goods sold (COGS); a low gross margin indicates that the organization isn’t benefiting from high markups on its products. Among top publicly traded players in the U.S. foodservice industry, operations with simplified menus and lean labor strategies have higher gross margins. High Labor Costs Cut Into Gross Margin Top-quartile U.S. foodservice chains generate a gross profit margin at least 1.8x the industry me ..read more
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Strong Operational Models & Low Debt Help Increase Profit Margin
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
Unlike gross and operating margins, a restaurant’s profit margin considers every cost that affects the organization’s bottom line, including line items — like tax, depreciation, and debt payments — that aren’t directly related to operations. A company with a lower profit margin compared to its peers may be unable to absorb unexpected macroeconomic shocks and negative surprises. Keeping SG&A costs low and maintaining streamlined operations are key to high net profit performance. Substantial SG&A Expenses Can Push Companies into the Red All the companies in the bottom quartile of this ra ..read more
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3 Key Figures to Assess Restaurant Performance
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
How profitable are the most successful restaurant operations? The answer to that question will change based on the margins used to measure the organization’s performance. In this series, we examine three metrics that investors and managers use to gauge a foodservice operation’s profitability: gross margin, operating margin, and profit margin. How to Calculate Restaurant Profitability Margins Each margin calculates the relationship between a company’s revenue and its liabilities, from labor and food costs to administrative expenses and debt payments. Gross margin reflects what percentage of rev ..read more
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These Two Numbers Can Tell You a Lot about a Restaurant Operation’s Priorities
Aaron Allen & Associates, Global Restaurant Consultants | Restaurant Financing
by Aaron Allen
2y ago
A public restaurant company’s current stock price can tell you a lot about its past and current performance, but it doesn’t offer much insight into the future. Chipotle’s investors would have probably loved some warning signs before the food safety scandal that cut the chain’s value in half. Though they aren’t perfect crystal balls, an organization’s earnings per share (EPS) and dividends per share (DPS) say a lot about the executive team’s priorities, helping investors make educated decisions about where to put their money. Before we get into the numbers, some quick definitions. EPS is c ..read more
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