Why the appetite for investing in restaurant brands has never gone away, according to Archer Capital, Minor DKL Group, and Mad Mex
Executives share what brands need to know before you take their businesses overseas.
It goes without saying; the food retail business is a risky one. With rising rent prices, cutthroat competition, and disruptions driven by technology, uncertainty is more of the norm in the industry than the exception.
Any brand aspiring to become the next McDonald’s would have to wonder: how do potential investors feel about the industry today? Is there still an appetite for quick service chains, given the challenges that even the biggest industry giants are struggling with today?
According to Peter Gold, Managing Director at Archer Capital, one of the country’s leading private equity firms, that appetite has never gone away.
“Food is one of those great industries. That is one of the three basic needs, and we need it at least three times a day. So yes, there is always an appetite to look at food and food retail,” he said at a panel discussion at the QSR Media Sandhurst Fine Foods Conference & Awards 2019.
For him, it’s less a matter of the challenges to be found in the industry, but of the opportunities. Good businesses are good regardless of the industry, and for brands that have solid strategy, network, operations, and leadership, investors are always right around the corner.
“Capital is attracted to scale. Businesses are likely to achieve more interest and better valuations when they are in an established and profitable phase, with considered and realistic plans for network growth,” Gold suggested.
“For a fund of our size, though, there’s not a lot of opportunities that have the scale and size established. We are an investor that generally looks to put 50 million to 250 million into a business and combining that with leverage and debt. So we’re looking for businesses that are earning at least 20 million to 40 million. But there are obviously many other private equity funds and they would start at a smaller scale smaller level.”
Nick Bryden, Chief Executive Officer of Minor DKL Group, agreed. As a subsidiary to Thai-listed Minor International, a global company focused on three primary businesses including restaurants, hotels and lifestyle brands distribution, their concern is more about finding businesses that fit into their systems than the current outlook of the industry as a whole.
“The food business remains a fantastic business. It’s highly relevant to customers. It’s typically cash producing and the capital requirements are a lot lighter than hotels. So, you know, we still see interest and we acquire brands in the space that we think are complementary to our portfolio,” he said.
Taking your brand overseas
That said, having a working scalable business in one country and taking it into another is an entirely different thing.
Speaking from his experience in partnering with chicken chain 4FINGERS, Clovis Young, Founder & CEO of Mad Mex Fresh Mexican, suggested that brands do their due diligence before deciding to enter a new country, where many new and different cultural and societal factors can come into play.
“Sometimes we think we got the best thing in the world. And all we’ve got to do is put it somewhere, and then that’ll be the best business ever. I don’t think it will go that well,” he said.
Consumer preferences, strict regulations, certification boards, and cultural taboos are all likely challenges that could hinder a brand’s plans for expansion, he said, especially in a culturally diverse region like Asia. But once overcome, Young said that there is a wealth of opportunity to be found.
“I think Australia generally is pretty limited in the amount and kind of activity in the [investment] space,” he said.
“Increasingly, you do need scale to be efficient. You've got to have a great app, you've got to have an AI enabled chatbot, you've got to have a website. It’s got to be really slick, you've got to have hot branding, and all of these things cost a lot of money. And those are big material hurdles and if you don’t figure out a way to get scale and get on the playing field, I think it’s really tough to compete.”
The sweet spot for a brand expanding through partnerships, Young explains, is to find one that can complement your business and then leverage each other’s established resources. Partnerships make sense when skills and resources are complementary.
For a company as large as Archer Capital, what they are looking for in a partner is the capability of being able to deliver on a combined strategy.
“It’s got to be about growth, it’s got to be about doing the right thing, creating businesses to become even more complex. You’ve just got to have a formula that is differentiated, that hits all of those marks and then stay true to it,” Gold said.
“We generally stop when it comes to execution. And that’s a very clear line that most investment firms like to have. We don’t run the businesses, we don’t want to run the business, we want to partner with good management teams who can execute.”
Bryden added that it is also a matter of looking at each business proposition on its own, and how a partnership can add value to the overall growth of both companies. Among these concerns are a brand’s leadership approach.
“One of the critical things that we actually look at which is a little different is that we like to keep our founders in the business and engaged in the business,” he said. “So we’re typically looking for someone who we believe has genuine vision, has the passion, the drive and wants to be in the business for the long term. But it’s also someone we feel that we can work with.”
