Houlihan Lokey, an investment banking firm, recently reported on the state of the restaurant industry, including the eatertainment and M&A markets. While there were some signs of a slowdown, for the most part, eatertainment venues dominate in an industry where consumers are increasingly cautious. And, while M&As have slowed, high-value deals are apparent, hinting at recovery.
Here, we’ll explore the latest news in the eatertainment and M&A world as well as the restaurant industry at large.
Eatertainment Defined
Part fusion and gourmet food, part playing and competitive sports, eatertainment is a win-win for customers looking for activities and great food. And, when compared to other entertainment venues, such as theme parks and concerts, it offers a more affordable alternative.
Public Market Performance
As of September 2024, year-to-date, there’s been mixed performance when analyzing Bowlero, Dave & Buster’s, and Topgolf against the S&P 500. This performance was affected by traffic challenges and the reduced ability to raise prices. However, these concepts have historically been better at limiting headwinds than those in the broader market.
These concepts also support a higher check average due to the combined activities. Houlihan Lokey believes the segment will see a significant uplift going into 2025.
Highly Compelling
Combining high-quality food and beverage with an activity is especially compelling to various demographics. The survey found that 78% of millennials prefer eatertainment venues, while 70% of consumers prefer eatertainment over casual dining. Because they attract guests across the convenience-to-experience spectrum and deliver the all-important experience, the market continues to inspire optimism despite an overall slowdown in the industry.
Both Dave & Buster’s and Main Event bring in, on average, about 80% of their customers from within 30 miles, demonstrating the need for local entertainment. While walk-in visitors are down, Dave & Buster’s special events program shows a 9% increase in revenue compared to 2019.
The M&A Market
According to Houlihan, some opportunistic restaurant acquisitions are making their way to the table. Brought on by new capital resources, they believe it demonstrates a hint at recovery and resilience.
The following represent a few recent M&A transactions:
- Playa Bowls acquired Sycamore Partners to fuel rapid expansion plans.
- Rubio’s declared bankruptcy, selling the brand to their existing lender, Trew Capital Management.
- Insomnia Cookies went to Verlin/est to accelerate growth and reach more than 1,800 bakeries.
- Red Lobster filed Chapter 11 and was acquired by the existing lender, Fortress Investment Group.
- Darden acquired Chuy’s on all outstanding shares for asset alignment and entry into a new dining category.
- Elite Restaurant Group assumed 100% equity stake of MOD Pizza in a merger agreement to prevent bankruptcy.
- Restaurant Brands International acquired all outstanding shares of Carrols Restaurant Group, the biggest U.S.-based Burger King Franchise, with the goal of accelerating 600 restaurant renovations.
- Tropical Smoothie Café was purchased by Blackstone to help accelerate growth.
Q2 Winners
It’s no surprise that the three Q2 winners are CAVA, Wingstop, and Texas Roadhouse. Wing Stop had a remarkable quarter, with an increase in traffic of 27% and an increase in same-store sales of 28.7%.
According to Houlihan, those positive numbers reflect hyper-personalized digital sales experiences, a shareable menu, and unique discounts.
CAVA showed an over 14.4% growth in same-store sales, demonstrating the draw of healthy, high-quality food, including the addition of Steak. These healthy options come at an affordable price.
Texas Roadhouse found a 9.3% same-store sales growth. However, they experienced an $8 million average unit volume, which far exceeded both Wing Stop and CAVA, which came in at $2 million and $2.7 million, respectively.
So, what does this tell us about the restaurant industry? As always, it’s the brands that have developed their “experiences” that excel in the market.
EMERGING is a growth capital fund at the forefront of the technology-driven transformation in the restaurant and entertainment sector. We’re excited to be part of the eatertainment segment, supporting concepts as they expand across the nation. To learn more about our strategic growth resources, mentorships, and connections with the leaders in the industry, contact EMERGING today.
