Rising interest rates and increased cost of goods create financial challenges when looking to purchase a business.
The last two years have been a roller coaster for the restaurant industry as the coronavirus pandemic shut down much of the industry in 2020 and restaurateurs looked to get back to normal in 2021. In 2022, the restaurant market is finally rebounding and for many investors, it’s the perfect time to purchase an existing location.
However, the past two years have left many restaurant owners in a state of exhaustion. They made it through COVID shutdowns and are now dealing with lingering staffing issues. Owning a restaurant has become too much for many sellers and because of their fatigue, are needing to sell. Some owners who may have had plans to sell in 2020, were forced to put those plans on hold and work the business through the pandemic. With signs customers are returning to feel more comfortable going out to restaurants, many owners see this as the much need opportunity to sell.
In the current market, buyers are looking to capitalize on the fatigue and purchase a functioning restaurant with staff in place and an existing consumer base. There are concerns for prospective buyers. Rising interest rates and increased cost of goods create financial challenges when looking to purchase a business.
Also, due to the labor shortage, buyers see purchasing an existing business as an opportunity to purchase a seasoned workforce through the acquisition of the restaurant. In an ideal scenario, a buyer wants to retain all the existing staff following the transition. While these concerns are real for prospective buyers, they are not deterring them from the market because of the opportunity to buy an existing restaurant for pennies on the dollar of what it would cost to start from the ground up.
The restaurant industry is recovering from the revenue decline many faced in 2020, but not all restaurants are created equal in terms of interest from buyers. Quick-service restaurants are thriving right now and are the most popular restaurant for prospective buyers. Quick service restaurants require smaller staff, less square footage, and little to no in-house seating, reducing overhead expenses.
Traditional dine-in restaurants are recovering and once again finding success. However, because of the increased fixed costs associated with rent and utilities, there is a greater risk of failing because the number of sales required to just cover overhead is so much greater than a restaurant with a smaller footprint. However, there are still plenty of experienced restaurateurs with the know-how to make a successful investment in this space.
The restaurant industry is rebounding after a tough two years and that rebound leaves a lot of opportunities to buy an established restaurant from both successful and weary sellers looking to put this chapter behind them. With pandemic restrictions in the rearview mirror, the state of the restaurant industry is looking brighter in 2022.
Bryan Vitagliano is the leading restaurant broker at Strategic Business Brokers Group, in affiliation with American Realty Brokers. Bryan has helped dozens of restaurant owners sell their restaurants across Arizona.