Restaurants Sales Projected to Rise 6%

One of the important segments of net lease is the food and drink industry. Citizens, a banking company that some time back acquired Trinity Capital and its expertise in the restaurant industry, came out with its review of industry trends from 2023.

Here are some of the key points:

Operators saw continued strong demand with projected sales reaching $997 billion, for a 6% year-over-year increase. Just over a third of people visited casual dining restaurants at least once a week. As macroeconomic forces continue to ease, their projection is for another 6% increase in 2024, though increased consumer debt — at historic levels — could have a dampening effect.

Operators managed inflation through increasing menu prices, in some cases multiple times, through 2021, 2022, and 2023. Wage inflation is easing from the peak of about 13% in late 2021 and early 2022 to mid-single digits today. California’s upcoming fast food wage increases will have a negative impact.

There was a “modest easing” of merger and acquisition activity in 2023, given interest rates and transaction valuations. The largest “big” example was Roark Capital’s $9.6 billion acquisition of Subway in 2023 Q3. Enterprise value/EBITDA multiples of 15x were similar to peak levels in 2021. Momentum will depend on falling interest rates, easing of inflation, sustained activity in public equity markets, resets of value expectations, and sponsors reaching the limit of how long they can leave capital idle.

“The top 500 largest restaurant chains added more than ~3,500 locations during 2023, a growth rate of 1.7% that was the largest since 2016.” Overall gross unit development should in the final 2023 tally be about 2.8%. “Many operators are currently setting the stage for expansive new unit growth plans in the near future, McDonald’s: targeting expansion of 50,000 restaurants by the end of 2027 (25% increase), Qdoba: targeting expansion of 1,500 restaurants by the end of 2033 (50% increase), Portillo’s: targeting expansion of 920 restaurants by the end of 2026 (53% increase).” In 2024, expect operators to continue expanding ghost kitchens for take-out and delivery only.

One area of automation advancement that restaurants are looking toward is using apps to customize and order meals for curbside delivery as well as delivery through a third-party partner. Among other things, that means having adequate driving and parking space as well as facilities to enable pickups without interrupting in-person service.

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