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CIT: Smaller Restaurant Franchisees Face Lending Challenges

September 17, 2013, 06:49 AM
Filed Under: Restaurant

Large and middle market restaurant companies, as well as franchisees of top-tier brands, have ready access to capital, but franchisees of smaller brands are finding it more challenging to secure debt financing, according to Bob Bielinski, Managing Director of CIT Corporate Finance, Retail and Restaurants at CIT Group Inc. Bielinski provides an overview and outlook for the U.S. restaurant sector in “2013 Restaurant Sector Update”, the latest in a series of in-depth executive Q&As featured in CIT’s Executive Spotlight series.

Customization Equates to Success for Fast Casual

Customization continues to be a hot trend in two growing areas of the restaurant business: fast casual pizza and self-service yogurt. Bielinski comments: “The customization trend is linked to the increased popularity of fast casual restaurants. From the consumers’ point of view, one of the major appeals of fast casual restaurants is the ability to customize. The appeal of designing your own pizza and having it cooked for you in a matter of minutes is very strong.”

He continues: “Self-service frozen yogurt shops also appeal to consumers’ desire for customization. It allows do-it-yourself mixing of different yogurt flavors and toppings with complete control over quantity.”

Social Media Can Determine Success vs. Failure

The internet is more important than ever for restaurants, as people increasingly use it to research their dining decisions. Bielinski says: “People have always looked to friends for dining suggestions, and word of mouth is still very important. However, social media has broadened ‘reviewers’ scope of influence and expanded their circles of ‘friends.’ For independent restaurant operators, what’s said about you on Facebook and Yelp can be the difference between success and failure.”

Fast Casual Taking Market Share from Quick Service and Casual Dining

According to Bielinski, the most interesting growth in the restaurant industry will continue to come from fast casual brands, which are taking market share from traditional quick serve and casual dining restaurants. He says: “Fast casual restaurants better meet the way consumers want to approach their dining experience today. The quality of the food is higher, the dining atmosphere is newer and fresher, and the consumer is in control of the time commitment required for the meal.”

M&A Activity Possibly on the Horizon for 2014

M&A activity has generally been slow in 2013, but activity may be picking up heading into the new year. Bielinski comments: “Because private equity firms generally hold assets for 4 to 6 years, you would have expected to see the beginning of the divestiture cycle for 2010 deals this year, but that hasn’t happened yet. I don’t expect to see the beginning of an echo boom of transaction activity in the restaurant sector until 2014.”

To read the full Q&A report, click here.

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