Strategies to mitigate the impact of commodity price swings and fluctuations in the cost and availability of key ingredients will become more critical as price elasticity shifts. Restaurants able to adjust menu offerings, better manage inventory or access alternative sources in order to avoid passing price increases on to customers will be positioned to thrive. Larger operators and those with deep pockets will also have an edge. “In tough times like these, things like scale and liquidity matter,” says O’Hara. “Chains can combat these multiple forces much more easily than independents, and having stronger cash reserves provides more buying clout with suppliers.”
That bigger-is-better stable operating environment sets the stage for an increase in M&A activity in the restaurant sector. A few large deals, including household-name chains being bought by both private equity and larger restaurant sector operators, have already been announced.
After a year-long drought, the restaurant-equity market is showing signs of a healthy rebound. Mediterranean restaurant chain Cava debuted on the New York Stock Exchange in June 2023, valued at $4.8 billion, becoming one of the top-performing IPOs for companies valued above $500 million.4 Meanwhile, in mid-September, Dutch Bros. raised $300 million in a primary offering that was substantially oversubscribed.5 Both deals capture the appetite for restaurant issuances: Consumer demand for great brands and products remains healthy, but investors hunger the most for strong balance sheets, particularly in the equity market.
“We think a lot of assets will come to market in the beginning of the new year,” says Matthews. “There’s pent-up demand on the buy side from institutional investors and on the sell side from operators interested in an exit, both of whom have been holding out for a better deal-making environment.”