Helpful Tips for Sellers, Buyers and Landlords in Selling and/or Buying Food and Beverage Businesses in 2024
In 2024, there are some unique points that we believe will be helpful for buyers, sellers and landlords of food and beverage businesses to know which are discussed below. This year the landscape is more challenging for food and beverage operators and the major challenges include as follows:
1) Continued increased costs of food and beverage, labor, utilities, insurance, financing and other operating expenses,
2) A shortage of employees, and,
3) A reduction of disposable income for some people.
Please read below some helpful tips for buyers, sellers, and landlords in dealing with these challenges in today’s environment.
Sellers Helpful Tips
1) If an Assets in Place Sale (the business is marginally profitable or not profitable and the buyer will change the name, menu, concept, and proprietary items) the seller should be flexible with the price and terms. The rational for more seller flexibility is that there is an added risk to the buyer in starting a new concept and in many cases the buyer will have to do some remodeling of the physical plant to execute his new concept in addition to changing the menu, name, concept and other proprietary items.
2) If a Going Concern Sale (the business is profitable and the buyer is going to run the business as it is currently operated keeping the name, menu, concept, and proprietary items in place) and the seller wants to get top dollar for the business some sellers are completing the items indicated below.
A. Investing in upgrades and improvements that can boost the business’s appeal. This includes updating equipment, enhancing the menu to include some health-conscious items, creating an outdoor dining area if possible and improving the overall customer experience by more professional training of staff.
B. Putting together comprehensive documentation, including financial statements, customer data, and operational manuals which are essential to attract serious buyers.
C. Integrating technology for online ordering, delivery, and contactless payments are in high demand.
3) Sellers in some cases are willing to provide some seller carry back financing if the buyer has a strong financial and operational background. Historically sellers have not wanted to provide seller financing as they know that the restaurant business is high-risk and the buyer could fail and the seller could end up getting back the business in a worse condition versus when he sold it to the buyer and the sellers loan will not be paid off. Today that attitude can change based on how anxious a seller wants to move his business.
Buyers Helpful Tips
1) There is strong buyer demand for businesses with a strong cash flow and reasonable lease terms.
2) For businesses that are marginally profitable and/or are not profitable buyers want to negotiate a lower price than the asking price if the asking price has not been properly priced as an Assets in Place Sale.
3) Buyers of a Going Concern Sales are concerned that the menu meets the needs of today’s market place. Today’s consumer market are largely health conscious and part of the market is looking for plant based and organic food selections.
4) Buyers are conducting more thorough due diligence, focusing on operational efficiency, staff retention rates, and customer loyalty programs.
5) If the business requires extensive remodeling and/or physical improvements the buyer expects the following in many cases: 1) the expected improvements needed are partially reflected in the price of the business, 2) the landlord will give them free rent for a reasonable time to make these improvements and/or 3) the buyer expects the landlord to make a financial contribution towards the tenants required leasehold improvement upgrades.
6) Since interest rates have gone up so dramatically over the past years and the buyer cannot obtain from the bank the amount of financing and the interest rate, they need to make the purchase financially feasible in some cases the buyer is asking the the seller to provide some of the financing. A seller carry back loan can have a lower interest rate than institutional financing and the term will be between three to seven years.
Landlord Helpful Tips
1) In some cases, landlords are willing to waive a base minimum rent and will work with a percentage rent only for the first few years of the lease.
2) As usual, the landlord wants a buyer that is operationally and financially strong. They want a buyer that has several years of food and/or beverage management experience and/or preferably ownership experience.3) Landlords in most cases will require a personal guarantee from the buyer unless the buyer has been well established and currently owns and operates multiple successful food and beverage businesses.
4) For businesses that require a major remodel at the time of the buyer’s acquisition of the business landlords are becoming more receptive to give the tenant free rent for a reasonable number of months that it will take the operator to open for business. In some rare cases landlords will make a cash contribution towards the tenants’ improvements either in addition to free rent or in-lieu of free rent.
The market today is more oriented towards being a buyers’ market as there is a larger inventory of food and beverage businesses for sale than normal. This larger inventory is a result of the added challenges today of trying to operate a profitable food and beverage business. This is largely a result of most operator’s inability to offset increased operating costs (food, labor, insurance, utilities, occupancy and financing costs, etc.) in menu price increases dollar for dollar as most customer markets do not have the economic means to absorb these increased costs in their personal budgets. Consequently, in some cases customers are eating at these places less often, are trading down to patronize less expensive food and beverage businesses and/or are eating at home more often. In addition to the above challenges food and beverage operators face these major additional challenges: 1) continued increased competition which further cannibalizes the market, 2) shortage of qualified employees and 3) in many downtown and financial district locations a reduced customer base due to the smaller office population and a reduced tourist and convention customer base.
Irrespective of the added challenges of operating a successful food and beverage business today the industry will continue to be viable as people enjoy eating out to satisfy their hunger as well as the following:
1) Eating a variety of foods they can’t get at home,
2) Convenience for those people who don’t have time to prepare meals at home, and,
3) A source of entertainment to be with family and friends.
All of Restaurant Realty’s Agents and Brokers are well equipped to deal with a diversified group of sellers and buyers. For further information, please contact Principal Broker Steve Zimmerman at steve@restaurantrealty.com or call 888-995-9701.
Now celebrating our 28th year, Restaurant Realty Company® has a successful track record helping over 3,200 clients in completing over $1,000,000,000 (billion) in Business and Real Estate transactions including the following: Selling/leasing ove
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