Mergers and Acquisitions in the industry
With the news that RFG had just taken over Crust we thought we would ask analysts and industry commentators their opinion on these recent industry developments. We start with leading strategy specialist Rod Young, MD, of DC Strategy.
QSR Media: How should a small QSR get noticed by some of the bigger players in the industry?
Rod: Ensure you have a good looking and contemporary brand. Have a growth trajectory with both company owned and franchised stores backed by a well developed franchise program with good documentation. Have good property leasing arrangements under the locations. Be differentiated from others in your segment and have a pr strategy to tell your story. But.......most of all be profitable especially at the store P&L level
QSR Media: Will we be seeing more of it in the industry?
Rod: Absolutely, yes. Acquisitions and mergers is the new growth strategy for mature franchised and non-franchised networks. The reason is that many of the market leader like Foodco, RFG and retail zoo (boost juice group) are very profitable, cashed up and can raise capital but many of their brands have reached or can see their horizon of maximum store penetration in Australia and have limited and slowing growth prospects for new stores but want to continue to leverage their expertise in operating foodservice networks in this country.
Chinese, Indian, us and European food businesses have also expressed an interest to buy rather than build in Australia.
QSR Media: What are some of the upsides and downsides for the industry of this kind of aggregation?
Rod: Upsides for a purchaser (and vendor if they retain equity) include creating a new horizon of growth for an emerging brand and access to better and more retail locations as these big more established players have good retail real estate contacts and site finding and evaluation abilities. There is also the potential for more sophisticated management information systems and marketing coupled with economies of scale in purchasing.
Downsides for vendors are selling out too soon or not retaining enough equity or control and watching your concept become substantially more valuable under new ownership.
Downsides for purchaser are overestimating their ability to transform a business and integrating it into the existing group culture and underestimating the time and cost of integration to achieve increased profitability as well as the appointment of a competent CEO to take responsibility for execution of the transition, implementation and growth plan.
QSR Media: Any other comments?
Rod: The sale or merger of a franchise networks need to ensure the franchisee relationships, fears and expectations are correctly managed.
The foodservice sector is showing strong performance when compared to retail goods sales and the better foodservice operators are continuing to enjoy above inflation yoy same store growth.
As a franchising specialist, dc strategy is getting a high level of enquiry from businesses that have achieved proof of concept and profitability and want to develop a franchise program to really accelerate growth and market profile.
There are huge opportunities to develop new niche markets or simply develop a better business model in large traditional markets such as coffee shops and cafes.
