On the Margin
Other industries take a liking to restaurants

Other industries take a liking to restaurants

This post is part of the On the Margin blog.

On Monday, Urban Outfitters acquired The Vetri Family group of restaurants, including Pizzeria Vetri. The news generated a lot of buzz — and more than a little head scratching.

Yet this is part of a bigger trend: Industries outside of restaurants have been putting money into restaurant businesses.

That same day, in fact, Quaker Steak & Lube filed for bankruptcy with a stalking horse bid from a chain of travel centers, TravelCenters of America Inc.

Earlier this year, Whole Foods Market Inc., made an investment in the growth chain Mendocino Farms. And the organic foods maker Hain Celestial partnered with private equity firm Catterton to invest in the salad chain Chopt.

“I think it’s a trend we may see more of,” said Roger Matthews, managing director in the restaurant group at Bank of America Merrill Lynch.

As we noted earlier, the restaurant industry has little fear of losing its business to the Internet because, as Matthews noted, restaurants are social occasions. And they tend to lure younger consumers that spend a higher percentage of their income at eateries.

In addition, restaurants are a relatively safe investment. While it’s difficult to start a restaurant and keep it open, once a chain and a brand get established it can be nearly impossible to kill.

In many of these most recent instances, the companies making the investments had specific connections with the brands or were in the business, anyway.

Mendocino Co-founder Mario Del Pero has been seeking advice from Whole Foods for years on how to ensure a plentiful supply of fresh, local ingredients for its restaurants. And Whole Foods has such a healthy prepared foods business that it should be considered part restaurant, anyway.

Chopt sells Hain Celestial products and its growth could give those products a bigger market.

TravelCenters of America, or TA, already operates a bunch of restaurants in its convenience stores and its acquisition of a brand is a natural next step. And Quaker Steak, which has a gas station theme to the point that is sometimes mistaken for an oil change shop, would be a natural fit in a bunch of highwayside gas stations.

To be sure, Urban Outfitters is the unlikeliest investor of the bunch. And investors didn’t much like the idea, either, as the stock plunged more than 14 percent at one point on Tuesday.

But crossover investments are hardly a new phenomenon. Entertainers open restaurants all the time. Designer Ralph Lauren has opened a few restaurants, including The Polo Bar in New York.

And Matthews believes that interest from companies in the restaurant business could herald a new era of strategic investments in growth brands, similar to the acquisition of R Taco and PizzaRev by Buffalo Wild Wings.

“I think we could see this happen,” he said. “As restaurants watch Whole Foods and Hain Celestial and Urban Outfitters make these investments, they’re going to say, ‘Hey, it might be incredibly expensive to buy a company for 20 times (cash flow). But if we could grow a company more effectively, more efficiently and faster, there could be some tremendous value creation there.”

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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