Why Are So Many Quick-Service Restaurants Being Sold?

In California, skyrocketing real estate costs and rising labor rates have put a pinch on restaurateurs looking to sell, says broker Steve Zimmerman, president, CEO, and principal broker of Restaurant Realty Company.

“In high rent areas, either in northern or southern California, you’re seeing a consolidation of a number of independent non-franchised units, where the economics just don’t pencil out. You’ll still have some growth in the casual, fast-food arena, because people can still afford those type of opportunities,” Zimmerman says. “Most sellers if they have a viable business making money, most likely they are not making as much money as they did a few years ago. By and large sellers are motivated to sell.”

Zimmerman is more bullish on value-driven concepts. He has example after example of independent, full-service concepts that still rake in millions in annual revenues, but little to no profit. Rarely are independent restaurateurs in California selling as an exit strategy to retirement.

“It happens occasionally, but unfortunately a lot of people wait until it’s too late. Their sales have plummeted, their costs have increased,” Zimmerman says. “Seventy to 80 percent of our sells are what we call asset sales, which means there’s not much good will, the business is either marginally profitable or losing money, and the buyer potential is somebody thinking they have a better mousetrap … Very rarely do we sell something that somebody is really making money. That’s just the reality.”