It seems that every day we are faced with the news of consolidations or closures in the restaurant industry. Restaurant Business reported last September that restaurant “chain owners are engineering the greatest merger wave in industry history.” And they seem to be on the mark as big conglomerates continue to purchase additional brands.
According to Business Insider, 2018 saw more than 700 food-and-beverage industry mergers and acquisitions.
One of the largest of these is Yum! Brands, Inc which has over 48,000 restaurants in more than 145 countries and territories which include KFC, Pizza Hut, and Taco Bell.
Another big kahuna is Restaurant Brands International, home to Burger King, Tim Hortons, and Popeyes. And, of course, Darden Restaurants, owner of Olive Garden, LongHorn Steakhouse, and Cheddar’s Scratch Kitchen is yet another company in the same league.
And the list goes on. The truth is that some of the most iconic brands are controlled by about a dozen companies. While seemingly similar to a feeding frenzy out in the deep blue oceans of our world, these acquisitions are geared to reducing costs and increasing profits by the “strength in numbers” philosophy.
Why, then, do we tend to feel a bit of nostalgia when one of our favorite brands is swallowed whole? For one, we wonder if it will keep its unique characteristics—the traits that made us fall in love with it in the first place. For another, those of us who remember the ‘80s and ‘90s, recall the leveraged buyouts that became associated with corporate raiding and hostile takeovers. Fortunately, in this day and age, many large investors in the restaurant industry are focused on long-term investments. There are still a few, however, that specialize in acquiring en masse and then spinning off those businesses fairly quickly.
And then there are those acquisitions that just make sense. We see this often in the merger of two companies that, when combined, become a greater whole. One of the recent ones that I happened to catch of glimpse of was FoodBAM’s acquisition of Orderly.
FoodBAM & Orderly Combine
For those of you that are unaware of these two software companies that specialize in the restaurant industry, let me share the basics. FoodBAM is a BOH software strategy that incorporates inventory control, food costing, ordering, manufacturer rebate opportunities, and analytics. Recipe costing is established through the use of waste percentage, gross margin, profit, menu price, and total cost.
Orderly, on the other hand, automatically tracks food spending and the cost of goods sold without invoice data entry or inventory counts. Invoices from your food suppliers are automatically imported.
This combination makes sense—FoodBAM’s inventory management with Orderly’s cost management—helping restaurateurs with two of their greatest challenges.
Acquisitions Gone Wrong
Whereas combining best-in-class software technologies to create a better solution is a win-win situation, merging or acquiring restaurants is a business strategy that can definitely backfire. Here is a case in point:
Do you remember when Nelson Peltz, owner of Arby’s, acquired Wendy’s for a mere $2.34 billion? The year was 2008 and the merger was designed to benefit the two companies through increased scale. Wendy’s sales failed to improve, and Arby’s operating losses were a drag on the company. In 2011, Arby’s was sold to Roark Capital Group for about $130 million while retaining 18.5 percent stake, worth about $30 million at the time. (In 2018, Wendy profited on Arby’s success by selling its than 12.3 percent stake for $450 million).
What happened from that point is truly a tale of marketing genius. The not-very-tasty thin roast beef and soggy bun sandwiches were overshadowed by their new smoked beef brisket with gouda cheese followed by additional new creative menu items such as gyros and venison, some of which were offered for a limited-time only. The changes were announced via a great advertising campaign.
Arby’s climbing sales allowed them to purchase Buffalo Wild Wings for almost $3 billion in 2017.
It will be interesting to see just which restaurant is next to join the list of recently acquired by big business. It’s clear that as long as labor issues remain, and the high cost of real estate prevail, corporations will be turning to multiple concepts in order to aid their bottom line.