Full-service restaurants are projected to spend $2.3 billion on capital expenditures this year.
As the economic recovery continues, restaurant operators are increasingly making capital expenditures. Data compiled by the National Restaurant Association found 59 percent of the nation’s restaurant operators spent money on equipment, expansion, or remodeling during the three months ending in February, and 62 percent expect to do so before autumn.
The percentage of operators projecting new capital spending was at the highest level in more than a year. It also marked the 18th consecutive month a majority of restaurant owners indicated they would make a capital expenditure.
Additionally, Barnes Reports projects full-service restaurant capital spending will grow 5.7 percent to $2.3 billion this year. That includes $1.29 billion for equipment and machinery, and $1 billion for buildings and structures.
The hike is not surprising, explains B. Hudson Riehle, NRA senior vice president of research. “As the nation’s economic situation has stabilized and restaurant spending has moved up over the past couple years, capital expenditures have mirrored that growth,” he says.
The NRA projects restaurants will see a 3.8 percent sales increase this year, the strongest gain since the economy began rebounding. Just as the recession created pent-up demand for consumers to visit restaurants, there’s been considerable pent-up demand for capital spending.
“During the recession, just about everybody hunkered down and was forced to focus on his business and performing better,” says Lex Lane, vice president of Maryland-based United Capital Business Lending. “The chains that survived came out stronger, and when things began to take off again around 2012, they were ready to roll.”
Capital expenditures are typically dedicated either to expansion and remodeling or for purchasing equipment.
“What you see in the data in general is that limited-service restaurants tend to spend more heavily on equipment than table-service operators, and conversely, table-service restaurants tend to spend more in the expansion and remodeling arena,” Riehle states.
In addition to costs for construction, that also can mean updated furniture, air conditioning, technology, and kitchen equipment.
The North American Association of Food Equipment Manufacturers (NAFEM) reported total market sales for all foodservice companies in 2013 hit $9.94 billion, up 11 percent from two years earlier. The top categories were refrigeration and ice machines (24 percent) and primary cooking equipment (20 percent). Some of the spending increase is due to operators investing in equipment that provides better returns due to labor savings, energy efficiency, and increased consistency.
“Operators are becoming more tech savvy; it’s been moving that way for the last 10 years,” says NAFEM spokesman Charlie Souhrada. The idea of using technological advances for energy and water efficiency throughout the restaurant is not only right for the environment, it also saves money, he says.