My favorite conference to attend every year is the YPO Restaurant Roundtable. Usually 50 or so people gather to discuss business in a highly confidential setting. The vast majority of the attendees own restaurant businesses which puts me in the minority.
The 2009 conference was held last week and the tone this year was different. There were four messages I took away from the session. First, 2009 will be The Year of the Writedown. Businesses that borrowed money and can’t pay it back will need to write down their debts and give up ownership in the process. Hearing this reminded me I of a conversation last month with a good friend of mine who owns a bank. He told me in somewhat of a confessionary way that he now owns two restaurants. I found that odd, but it became more even after hearing from the group last week of this emerging dynamic.
Second, the word “opportunity” was thrown around like a Mariners pitcher facing a juiced-up Barry Bonds. The basic premise is that business values have been cut in half forcing restaurant companies to shed sites for a price (sometimes free) that is well below their medium-term value. The consistent ratio I heard was somewhere between 2-1 and 3-1, meaning they were being presented deals to buy sites for 2-3 times the cash flow of the business. 5-1 was the historical benchmark (and one that will re-emerge down the road). So, for now people in the room sense the opportunity window is open.
One of the highlights each year of this conference is the celebration of major success stories of the past. For some reason, several of those stories this year had a common undercurrent — they were accidents — which is the third thing I took away from the conference. Ray Kroc was not the founder of McDonald’s. He sold ice cream dispensers to the McDonald brothers who owned a single burger joint and decided after visiting on a sales call that the joint could become an institution. The inventor of Atari started Chuck E Cheese to promote some new games. Bill Anton of Anton Foods was running an unprofitable nightclub when he and his wife Pat were pulled in reluctantly and against their judgment to the LA airport as their first of many successful airport ventures. I developed a new appreciation for the proverb, “Opportunities are accidents that occur with your eyes open.” Or something like that.
Fourth, efficiency rules. Owners were trying to figure out which menu items they should cut, the exact right shifts to staff, better ways to bring in another order from off-premise, and other ways to make an extra margin point. And that made me popular at a conference where suppliers rarely are. I got pulled into side meetings about everything we do for the industry. The idea of spending a lot of money on new sites at the same old rate seemed more excessive to many of them, but not the idea of spending more on their existing ones.
I’ve spent 14 years at Radiant wondering how to properly position ourselves for new sites, industries and markets while also adding a lot of value to existing sites. I see the mirror image now of that equation — focus more on adding value to existing sites first while also properly positioning ourselves for new sites. That was one of several thoughts the conference cemented for me. Keep my eyes open for who is buying and other “accidents.” Banks are more important than ever, as they will be at the forefront as new owners emerge for existing sites whose owners can’t pay their bills. Finally, as easy as it is to think the people who write checks for our solution are hibernating, it is not the case with many of them. There is a contingent looking for the opportunity of a lifetime given how low the valuations of restaurants are. I want to figure out how to help them become more efficient and fulfill their dreams as they buy up sites which less healthy operators are forced to dump.
