bannerFranchise News

How Inflation Is Impacting Restaurant Buying and Selling

A new report by BizBuySell provides interesting insights into the current value of restaurants on the market.

After over two years of COVID-related challenges, the rising inflation costs may make it feel like the world is kicking the restaurant industry when it's already down. But, although consumer prices are skyrocketing across the board, it appears that inflation may actually positively impact the sale of restaurant sites.

The value of restaurants being sold increased 51% for the first quarter of 2022, according to the latest BizBuySell Insight Report, which is a nationally recognized economic indicator that tracks the sales and listing prices of small businesses across more than 70 major U.S. markets and 65 industries. Restaurants sold for a median price of $225,000 in Q1 of 2022, the report shows, versus a low $149,000 in 2021. Additionally, the median revenue of restaurants reported as sold is skyrocketing, coming in at a record $720,000 versus $600,000 for 2021 (likely a product of rising menu pricing and accompanying sales).

Although there has been a lot of talk about the volatility of the post-COVID restaurant industry, it appears that buyers are clamoring to scoop up sites. Perhaps even more impressive than the rising price of average sales is the sheer number of transactions. According to BizBuySell, the first quarter of 2022 saw closed transactions go up a massive 42% over this time last year.

So, what does this mean for prospective restaurant buyers and sellers? The report presents some interesting insights into the behavior patterns of buyers, for one, with many hyper-focused on current trends, as opposed to historical data. In other words, sellers need to emphasize the business's success over the past year or so when going to market, not just overall growth since day one.

And just because restaurants are selling for more doesn’t mean other industries aren’t struggling due to inflation. In fact, the report shows that the median revenue of all sold businesses dropped 5% during the first quarter of 2022. Restaurant buyers should pay attention to how other industries weather the storm, as a slowdown in the construction sector, for example, could significantly impact whether or not it is a wise idea to remodel an existing restaurant building.

Buyers and sellers should also take note that the BizBuySell report suggests that the impact of inflation on the restaurant industry varies significantly based on geography. The West Coast, for example, is seeing an impressive turnaround in 2022 with 21% of the units reported sold at the beginning of the year, but the South is emerging as the clear winner, with 42% of restaurants sold.

While it may seem like a good idea to wait for prices to go down, the report suggests that now is an opportune time for restaurant buyers to get in the game, especially as interest rates are set to increase in response to inflationary pressures. 

Overall, higher sale prices, more closed transactions and increased restaurant value are good signs for the future outlook of the food service industry.