A rebased rental market, a new competitive landscape and higher consumer spending will all help the restaurant, pub and bar sector to bounce back in 2021, according to a new report from accountancy and business advisory firm BDO.
BDO’s latest annual Restaurants and Bars Report found that despite the toughest trading conditions in living memory, the restaurant, pub and bar sector continued to attract investment in 2020 as investors judged that the eventual loosening of lockdown restrictions and a successful vaccine roll-out would help drive economic recovery.
M&A activity in the sector during the year was dominated by distressed transactions as COVID caused restaurant and bar values to drop significantly - from around 7x-8x EV/EBITDA multiples pre-COVID to just 1x-2x in Q2 2020.
This led a number of investors to expand their presence in the market, attracted by the prospect of a reduced competitor landscape, better rental terms and the emergence of new sales channels to consumers.
Optimism has further improved following the Bank of England’s prediction that the economy will recover rapidly in 2021, due in part to consumers beginning to spend some of the £125bn put into savings last year.
Despite the more promising outlook, BDO’s report reveals the toll that COVID-19 has taken on the restaurant, pub and bar industry in 2020, with total sales down by almost 80% during the year. However, the report also highlights how the sector has done its best to adapt to changing circumstances, utilising the various government support schemes and innovating using new technology and delivery models.
The quick-service restaurant (QSR) sector was particularly well placed to navigate its way through 2020. In the second half of the year, both franchisors and franchisees looked to deploy their growing cash reserves to drive growth across multiple channels.
BDO expects M&A activity across the QSR sector to increase significantly in 2021 as both operators look to put their capital to work and investors seek existing platforms primed for growth across multiple brands.
Mark Edwards, partner and head of the restaurants and bars sector at BDO LLP, said:
“The Government support schemes have provided a much-needed lifeline to restaurants and bars during 2020, but this support must be prolonged and extended not just for front line operators but to the vital supply chain they depend on.
“There is no denying that the next few months are going to be incredibly difficult for the hospitality sector but for those that can survive, there will be opportunities to stabilise and prosper once the lockdown lifts.”
Looking at the landscape for 2021, Mark Edwards added:
“It is clear that some consumer habits will have changed permanently and as operators look to rebuild, we fully expect operators to look at reduced labour, more flexible property costs and the use of technology as priorities, while a sharper focus on menu and customer offer will also be essential.”
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