Before the pandemic, as technology started to take hold in the restaurant industry, restaurant chains went on a buying spree.
JAB Holding kept buying coffee-focused brands and then used those brands to buy other brands. Roark Capital created Inspire Brands. 3G Capital created Restaurant Brands International.
Darden Restaurants and Yum Brands kept buying. Smaller companies got into the act, too, as everyone from Huddle House (Perkins) to Logan’s Roadhouse and Krystal (SPB Hospitality) to Jack in the Box (Del Taco) got into the act.
The consolidation trend was here, we thought. Restaurant chains were following their cohorts in the grocery and convenience store spaces in kicking off what would assuredly be a multi-decade period of consolidation. The need for technology to remain competitive would demand it. The result: Strategic buyers were everywhere.
These days, however, those strategic buyers are on the sidelines. Companies are far more interested in selling brands than in buying them.
Last week, Darden said it might sell its Bahama Breeze concept, which is not performing to expectations. It’s the latest in a string of such moves. Krispy Kreme sold Insomnia Cookies. Jack in the Box is selling Del Taco. SPB sold some of its brands. Panera Brands was even reportedly considering a sale of its non-Panera concepts Caribou and Einstein Bros.
Traditional buyers, meanwhile, have largely been on the sidelines. Inspire Brands, long rumored to be considering a pizza concept, hasn’t acquired anything in years. While Roark continues to buy everything not tied to a post, its recent acquisitions have been kept separate from its two operating vehicles, including Cinnabon owner GoTo Foods. Brand collectors like MTY Food Group and Fat Brands have been quiet, amid concerns of valuations or financing issues.
Restaurant Brands International seems more intent on fixing its existing chains than buying other ones. Yum is “always” looking, but doesn’t seem in much of a hurry, either. JAB, which for about six years was among the most aggressive buyers we’ve seen, is more interested in the exits.
To be sure, some of these companies will buy again. Darden in particular has done a pair of recent deals in Ruth’s and Chuy’s. Its decision to let go of Bahama Breeze is simply an acknowledgement that something isn’t working.
Many of the other deals are being spurred by financial issues on the part of the buying companies.
Jack in the Box and Krispy Kreme, in particular, have shifted into cost-cut mode as their previous plans did not work. Both companies have seen their profitability take a hit. They are now both looking to pay off debt, prompting the decision to unload secondary concepts.
Indeed, in some cases investors and companies may have jumped into buying decisions without creating systems to ensure they would work in the first place. Many brands, both those that were acquired and those doing the acquiring, struggle after such deals, which erodes any financial benefit of the deal and ultimately puts pressure on management teams to erase the mistake.
As such, rather than a true multi-brand operator, you get buyer’s remorse.
But many companies are currently licking their wounds from a tough couple of years in the restaurant business. Three of the six Inspire Brands companies, for instance, lost sales last year. RBI is spending all its money buying and fixing Burger King restaurants. None of them can take on the debt required to fund another brand deal.
In other words, the industry simply isn’t healthy enough for another round of consolidation and financing is too expensive.
To be sure, all this could change in a minute with another big deal. But at the moment, brands are more content with going it alone.