Restaurant industry goes through a transformational stage: witnesses a rush of exits and entries

Restaurant business isn’t always the kindest to entrepreneurs, and many find that after a successful foray into the world of food service, it’s time to put down the apron and menus and sell their restaurant for a nice profit. According to industry insights, a lot of business owners are listing their F&B businesses for sale. Especially post covid, the business turmoil has left the industry with in-stability, with many now left with no or little capital to operate. 

One such facilitator, Ok! Acquired is witnessing many people selling their ready-made licenced businesses because of various reasons. Some of them wished to discontinue, and a few of them wanted to shift their base to another country. Having said that, this selling of the businesses is a very profitable business opportunity for new-age entrepreneurs who are literally going out and buying new businesses with their financial capabilities.

If the business is not making money or is marginally profitable this is called the Assets in Place purchase. With these types of purchases the buyer is usually interested in the fixtures and equipment, lease, leasehold improvements and any licenses that go with the business and they are not normally interested in the name and menu of the business. The buyers for this type of business have their own menu and concept in mind. The criteria for pricing the Assets in Place business is the ratio between the sales price and sales. 

More buyers than sellers

“While a large number of people are selling their ready-made businesses with liquor and bar licences, there is also a larger group of people who want to get into the business and transform restaurants into nightclubs, thereby reviving the nightlife market. In today’s market, this is a continuing trend,” Subh Jha, founder of Ok! Acquired informed who primarily focuses on bridging the gap between buyers and sellers, as well as investors, by providing an online platform through which they can buy, sell, or invest in a company from anywhere in the world. “Furthermore, before listing a company, we verify the documents to ensure that buyers do not fall prey to fraudulent companies,” he added.

Legal solution provider Legal Salah has registered a spike in the number of F&B business owners coming to sell their businesses in order for the company to assist them with legal proceedings and GST transfers. “Having said that, we have also seen new entrants stepping into the entrepreneurial world by purchasing these businesses and turning them into profitable nightclubs. This is a very lucrative opportunity for new-age entrepreneurs. So, if you see it from a different angle, this is a very lucrative opportunity for new-age entrepreneurs,” Sujit Jha from Legal Salah commented.

Determining Sale Price

There are a number of different variables that go into what a restaurant could sell for; but at the end of the day, a restaurant sells when the amount the buyer is willing to pay and the amount a seller is willing to accept the match. The right sales price will ensure that the restaurant gets sold at a price and in a time frame that makes all parties happy.

Some of these variables are the financials, the owner’s role and hours spent in the business, the experience of the staff in place and whether a manager is present or not; the quality of the assets, and how the business is trending year over year.

A profitable restaurant will typically be valued based on the seller’s discretionary earnings. These earnings are the pretax and pre-interest profits before non-cash expenses, one-time investments and any non-related income expenses. The level of discretionary earnings will determine how attractive the business opportunity is to a buyer and ultimately the sales price. Having accurate books and records will go a long way in securing an accurate valuation. It is even better if the year over year sales are trending positively.

Owners change management stays

According to Swarna Daga, founder of Social Neeti, there has been a frequent change in F&B management lately. Restaurant brands are staying, but management and ownership are changing as more and more F&B business owners are selling off their businesses. This stands true, especially for smaller/individual restaurant brands. 

“The pandemic has negatively impacted the small restaurant entrepreneurs as they fight for their survival due to the lack of funds. The dine‐in restaurants in India had taken a massive hit during this time, which has left them with very little savings and has also led to mass unemployment. However, what we notice is that there has been a significant shift in ownership,” she informed. 

With every downturn in the business cycle, the established players who do not have deep pockets shut shop whereas the new entrants with fresh capital try to fill in the gaps left by such players. As a SaaS start-up based in Kolkata, eWards assist F&B businesses with seamless data analytics through their integrated products. With little or no income from established outlets, restaurateurs and hoteliers are desperately exploring the use of technology to buttress floundering revenue. 

Founder of eWards, Abhishek Mimani commented that post covid there is a big opportunity in the f&b sector because of two reasons, closure of many businesses and the want of people to go back to dine in formats. “All fresh entrants who do not have carried forward losses are benefitting from the above. If you look at it that way, the new-age entrepreneurs have a lucrative business opportunity! We have noticed around four such management shifts happening, while we remained with the businesses for the same services, the management changed,” he said.

It may be a better idea to sell the restaurant as an entire asset. For buyers looking to use the space as a restaurant, it may be more enticing to invest in an established eatery with a great wait staff, a solid menu, and loyal customers already in place. While the industry goes through the transformation, the ratio of entry and exit is something eagle-eyed by the investors.