When most people hear the term “acquisition,” their minds immediately jump to multi-billion dollar deals like Exxon’s $77 billion purchase of Mobil in 1999 or the $165 billion AOL-Time Warner deal in 2000. As a restaurant owner, the recent news that Restaurant Brands announced plans to acquire Popeyes Louisiana Kitchen for $1.8 billion likely caught your eye.
While these deals garner headlines, most business acquisitions aren’t measured in the billions of dollars, or even millions of dollars for that matter. Growth by acquisition is a viable strategy for even small and medium-sized businesses, including restaurants. Whether it’s right for your restaurant or chain is a different question altogether. In some cases, it might make more sense to grow organically by seeking investment, opening up satellite locations or franchising.
The restaurant world is full of examples of successful executions of all these strategies. Let’s take a closer look at the merits of organic growth and acquisition, and explore some examples of where they’ve been implemented.
Organic Growth in the Restaurant Industry
Generally speaking, organic growth is the most natural form of expansion and offers you, as a restaurant owner, more control over the process. Organic growth won’t eliminate “growing pains” like feeling there isn’t enough time to accomplish your goals, or trying to match the pace of hiring with revenue growth. However, if you remain focused on improving your services and marketing, you’ll find that growth more controllable over the long-term.
A great example of organic growth also happens to be a purveyor of organic food. Before Denver-based Chipotle Mexican Grill experienced health safety problems and a dip in public perception in late 2015, the company experienced an almost record-setting growth trajectory by growing organically. Chipotle grew from 15 restaurants in 1998 to more than 500 in 2005 and more than 1,500 in 2015. At one point, the company was opening three new restaurants a week.
Chipotle’s growth is an example of great marketing. Despite, for all intents and purposes, being a fast-food chain, Chipotle skyrocketed in a time when Americans were beginning to shun fast food. However, by advertising its organic, wholesome ingredients sans preservatives or chemicals with the slogan “Cultivate a Better World,” Chipotle bucked the trend.
Growth by Acquisition in the Restaurant Industry
While organic growth has its merits, growth by acquisition can be just as successful, if not more so. Organic growth, unless you’re the next Chipotle, tends to take a considerable amount of time. Buying a restaurant, on the other hand, can be accomplished more quickly and yield immediate benefits.
As a restaurant owner, growth by acquisition involves buying up already successful competitors and quickly expanding into other markets. There are even large corporations that build their entire business largely by acquiring fast-food franchises. Take GPS Hospitality, for example. The Atlanta-based company acquired 200 Burger King restaurants in a single deal in 2016, bringing the company’s total Burger King location count to 424.
Acquisition is not without its downsides. Internal pressures, culture clash, reorganization, and market changes are just a few of the potential headaches that come with an acquisition. Look at the aforementioned AOL-Time Warner deal. Sure, it was big, but it’s also considered one of the great failures in mergers and acquisitions because the grand plans were stalled by AOL’s rapid decline in the face of broadband internet pressure. Less than 10 years after the deal closed, Time Warner spun off AOL, never to be heard from again.
Is Acquisition Right for your Restaurant?
Maybe the stakes for your restaurant aren’t as high as AOL-Time Warner, but they’re still considerable. The question of whether acquisition is right for you is a highly individualized decision.
In order to be successful, careful, strategic planning is required to ensure growth is viable and sustainable over the long-term. You specifically need to consider whether you can afford the acquisition costs and any subsequent dip in profitability as you get your new location or locations up and running.
If you’ve gotten to this point, you probably have some specific restaurants you’re considering acquiring. Continue to monitor the competition to see where synergies can be created, but also look outside your immediate community. Research restaurants for sale in your area or the regions you’re considering expanding in. From there, determine whether buying one or more restaurants will help you meet your growth and revenue goals. If that’s not your area of expertise, consult with your accountant or financial advisor to weigh the benefits — and potential drawbacks — of an acquisition.
The expansion phase is exciting for any restaurant owner or franchisee. Consider your decisions carefully but commit to your strategy and prepare to roll with the punches.