Valuing Restaurants by gabyion

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									By the Numbers
    Valuations: Restaurants
and Pizza
   Mgt 357 – Summer, 07
   Galbraith
Importance of “numbers”
   Food Service is really a “food
    factory”, needs to be run and
    managed like a production process
    (CEO, Foodmaker – now “Jack-in-
    the-box)
   Comparable numbers are readily
    available
       National Restaurant Association,          2,098 (2007) stores
                                                    mostly corporate owned
       Specialized vendors (Pizza, etc.),
                                                  Expanding in NC
       Traditional ratio sources (RMA, Troy,     Acquired Qdobe
        D&B),
                                                    353 nouveau Mexican
       Comparable sales (PratStat, Bizcom)
       Financial Statements of publicly traded   Jack in the Box Inc.
        firms (ex. Joes eatery, JOES.OB)          9330 Balboa Ave.
                                                  San Diego, CA
Restaurant Categories
 Fine dining (>$40.00 per check)
 Casual (fastest growing segment)
     Specialty   (micro-brews, steakhouses)
     Ethnic
     “Eatertainment”

   Family (losing market share)
     Chains (Dennys)
     Independents
Restaurant Categories
   Home Meal Replacement (mid-price) – big
    losses
     Kenny Rogers
     Boston Market

   Quick Service
     Off-premise   (take-out)
     On-premise

   Pizza
Restaurant Categories
 National Chains, Regional Chains,
  Independents
 Chains market share slowing down
       1972   30.2%
       1978   40.2%
       1983   44.6%
       1989   46.6%
       1992   46.4%
       1996   49.3%
       1999   49.9%
       2002   49.6%
       2005   49.2%

   Regional Chains are most competitive
Key Ratios: Restaurants
   Food and Beverage Cost-       Seat Turnover (turns)
    Sales Ratio                   Residence Time
   Product Cost Percentage       Production Time (per
   Labor Cost Percentage          meal)
   Prime Costs Percentage        Same Store Analysis (for
   Occupancy Costs                multi-restaurant firms)
   Net Profit
   Menu Contribution Margin
    Some Ratios - Restaurants

                             Quick-Service    Limited Menu Table   Table Service

Food Costs                            34.3                  35.6             36.2
Beverage Costs                        32.3                  28.2             27.8

Product Costs                         34.6                  34.2             34.5

Payroll and Related Costs             20.2                  25.1             33.4

Prime Costs                           54.8                  59.3             67.9
Occupancy Costs                       14.4                  12.1             12.4

Profit before Income Taxes              8.2                  4.3               3.2
Pizza Statistics
    Pizza
   Limited/fast service restaurants
     34.6% (product cost),
     29.2% (labor cost),

     Prime   cost of 63.8%.
   Pizza industry average prime cost are
    reported somewhat lower,
     60% average, with a
     55% prime cost considered above average (source,
      PMG)
Independent Pizza
   Independents continue to gain market share of
    the total number of pizzerias in the U.S.
     Now   comprise 64.3 percent of all the pizzerias in the
      U.S., which is up from 64.2 percent in 2004.
   However, sales declined as a percentage.
     independents    earned 49.22 percent of the industry's
      total sales compared to earning 50.7 percent of the
      total industry sales the previous year.
     For 2004, independents earned an average of
      $338,745 per/unit compared to $341,534 per/unit the
      previous year, for a decrease of 0.8 percent.
Chain/Franchise Pizza
   Franchise locations appear to be capturing
    sales in the pizza category.
     Chains  increased their share of the total
     industry sales to 50.78 percent of the $30.9
     billion dollars in pizza sales.
     Average per/unit sales for the period between
     July 2004 and July 2005 was $629,334, which
     is up 3.6 percent from $607,364 per/unit the
     previous year.
Pizza - The Big Four
   Pizza Hut's sales were up 4.5 percent while units were
    down 0.3 percent from the previous year.
   Of the chain/franchise pizza facilities, Pizza Hut
    remained the largest operations
       17.02% of the total U.S. sales in the pizza segment
       10.74% of the units.
   Per/unit sales for Pizza Hut were $701,467 for 2005.
   Of the Big Four (Pizza Hut, Domino’s, Papa John’s and
    Little Caesars)
       Pizza Hut’s - up 2.10 percent.
       Domino’s – up 3.48 percent and
       Papa John’s - up 0.14 percent
       Little Caesars - down 7.60 percent
Pizza Trends (2007)
   Ethnic Fusion Flavors
     California   Pizza Kitchen
 Latino Flavors (top 5 product)
 Healthy (lower calories, organic, etc.)
 Gluten free pizza
Pizza Hut History
   Pizza Hut was established in 1958.
   Currently it’s the largest operator of pizza establishments in
    the U.S.
   In 1977 Pizza Hut was acquired by PepsiCo, Inc. As part of
    the PepsiCo, the Pizza Hut franchises benefited from
    cooperative sales of Pepsi-Cola brand soft drinks and Frito-
    Lay brand snack foods. In October 1997, PepsiCo spun off
    the restaurant businesses (Pizza Hut, KFC and Taco Bell)
    and Tricon was founded. On May 16, 2002, Tricon officially
    became YUM Brands, Inc. with the addition of two new
    brands, Long John Silver's and A&W. YUM Brands, Inc. is
    now the parent company of Pizza Hut, Taco Bell, KFC, A&W
    and Long John Silver's.
   YUM Brands now make up the world's largest restaurant
    group.
Pizza Hut - Product Offerings
 Pizza Hut operates in 86 countries and
  territories throughout the world.
 Approximately 23 percent of the U.S.
  units and 21 percent of the non-U.S. units
  are operated as corporate units.
 Pizza Hut features a variety of pizzas,
  which may include Pan Pizza, Thin ’n
  Crispy, Hand Tossed, Sicilian, Stuffed
  Crust, Twisted Crust, The Big New Yorker,
  The Insider, The Chicago Dish and
  4forALL.
Valuing Restaurants
 Adjust seller’s financial statement to
  account for: a) personal expenses, b)
  managers salary, c) other extraordinary
  items
 Assess against industry standards
 Compute “cashflow”
 Select “cashflow” capitalization rate
 Determine value
Valuing Restaurants
Key Issues
 10 year lease, or 5 year with option
 Rent between 6% to 10% of sales
 Determine causes of large variances with
  industry standards
 Can cashflow cover debt and taxes and
  still make profit?
 Are sales increasing
 Are assets in good shape
Valuing Restaurants
Rules of Thumb
 New Restaurant should make 2 1/2 times
  investment first year.
 Value equals one times revenue (with real
  estate)
 Value equals 1 to 11/2 times adjusted
  earnings plus inventory and equipment
 Value equals 30 to 40% revenues (without
  real estate)

								
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