# Optimism at the Restaurant Finance and Development Conference (RFDC)

There was an unmistakable buoyant sense of optimism permeating the air at mid-November’s Restaurant Finance and Development Conference (RFDC), held in the vibrant city of Las Vegas. This positive atmosphere was largely fueled by several key factors: a decisive election outcome favoring a candidate perceived as pro-business, decreasing interest rates, enhanced willingness from regional banks to engage with restaurateurs, and a noticeable rise in non-traditional capital options. Together, these elements combined to create a refreshing landscape for restaurant operators and investors alike.

# Reflecting on a Challenging Year

Above all, however, there was a collective benefit of hindsight, with the tumultuous year of 2024 substantially behind us. That year was characterized predominantly by headlines highlighting bankruptcies, closures, and various restructuring endeavors, emerging as far more challenging than anyone had initially anticipated. Yet, within these challenges lie opportunities, and the prevailing sentiment was one of adaptability and resilience.

Shauna K. Smith, CEO and cofounder of Savory Fund, articulated this sentiment during a panel discussion at RFDC. She noted that tough times often force businesses and operators to refine their operational efficiency. “In challenging times, you figure out how to operate better. Then, when the favorable times return, that efficiency translates into growth,” she stated. This encapsulation of the conference’s optimistic outlook resonated with many attendees, who were heartened by discussions of potential silver linings in an otherwise difficult business climate.

# Investment Firms Eager for the Future

Savory Fund, known for its focus on emerging brands, is not alone in its anticipation of a more fruitful landscape for equity investments. The overall consensus among conference attendees and industry experts is that 2025 is shaping up to be a year brimming with activity in the mergers and acquisitions (M&A) space, following a somewhat subdued year in 2024. A recent TD Bank survey revealed that an impressive 84% of restaurant operators believe that M&A activity will see a significant uptick in the upcoming year.

“Some pent-up demand is emerging,” stated Alicia Miller, cofounder and managing partner of Emergent Growth Advisors. “There’s confidence that those looking to sell can find willing buyers, and investors with capital are eager to jump back into the fray after sitting on the sidelines for two years. I carry cautious optimism that we’re on the cusp of a more stable environment conducive to transactions.”

# A Stable Banking Environment

This anticipated stability is underpinned by a gradually recovering banking environment. After witnessing considerable fallout following the failures of numerous regional banks in 2023—marking the most profound disruption in the banking sector since the 2008 financial crisis—the landscape has now settled. With high interest rates putting immense pressure on financial structures throughout 2024, imbalance between supply and demand ensued. However, as rates begin to ease and banks focus on high-quality loans, a clear recovery is taking shape leading into the new year.

“A number of banks had previously withdrawn from the restaurant industry, but that trend is shifting,” remarked Mark Wasilefsky, head of TD Bank’s Restaurant Finance Group. “Now that those banks find themselves in a more viable position, it’s time for them to begin reallocating their resources effectively once again. It feels as though the car is starting to shift back into first gear.”

# Industry Resilience Amidst Bankruptcy Headlines

This shift towards a more positive outlook persists even against the backdrop of ominous headlines affecting much of the restaurant industry or, intriguingly, perhaps because of them. Jeffrey Pielusko, managing director of investment bank Carl Marks Advisors, noted that every bankruptcy presents an opportunity to strengthen the industry by eliminating underperforming establishments. “With every closure, the overall quality of operator portfolios improves,” he explained.

Furthermore, Wasilefsky emphasized the idea that many high-leverage transactions have already been “washed out” through the bankruptcies and restructurings that dominated 2024. “As liquidity begins to improve, we can anticipate a more robust stage for growth,” he added.

# Growth in Investment Opportunities

As the market embraces this general improvement, more investment opportunities are likely to arise, according to Miller. She highlighted that as the industry’s health strengthens, asset prices, particularly for high-quality establishments, are expected to rise. “I foresee an increase in interest for ‘good’ exits rather than merely ‘optimal’ exits, which were the primary focus during the tumultuous times of 2024,” she noted. “There’s a palpable appetite for quality assets. As markets recover, now seems like the opportune time to engage actively instead of waiting indefinitely.”

# The Role of Timing in 2025 Investments

Along with the optimistic sentiments surrounding investments, timing is also a crucial factor for 2025. Following the initial stages of the pandemic, there was a noticeable surge in M&A activity by late 2020 and into 2021, driven by an increase in consumer demand for dining experiences. The inherent cycles of investment suggest that significant activity could resurface in both 2025 and 2026, particularly in the context of a recovering economy.

# Anticipating Increased M&A and IPO Activity

Wasilefsky believes that 2025 will not only witness substantial M&A activity but is also likely to see a resurgence in initial public offerings (IPOs). He pointed out that only Pinstripes went public in 2024, and this was made possible through a special purpose acquisition company (SPAC) early in January. He anticipates IPOs picking up momentum in 2026 and 2027, reinforcing overall market vitality.

John Gordon, founding principal of Pacific Management Consulting Group, echoed these sentiments, indicating several brands are poised for IPOs, having bided their time amidst ongoing volatility. He specifically mentioned that strategic M&A will become more prevalent as the market steadies, similar to Darden’s acquisition of Chuy’s in 2024.

# A Cautious Optimism Amidst Ongoing Concerns

It is essential to acknowledge that despite burgeoning optimism, substantial uncertainties continue to loom. For instance, concerns regarding the economy and potential tariffs from the incoming administration could hinder the free flow of capital and dampen overall growth expectations. “While the economic turbulence has filtered out less adept operators, thereby fostering a stronger overall industry, the outlook remains sufficiently unstable to keep operators in a cautious mindset,” noted Pielusko.

Further emphasizing caution, he stated, “I don’t foresee dramatic spending increases or significant rate cuts coming back to life. Operators are still inclined to batten down the hatches rather than spend liberally, emphasizing individual capital consciousness.”

# Navigating Investment Strategies: Finding Stability

While widespread investment or spending may not “roar back” in 2025, there are still ample reasons to feel optimistic about a more stable and conducive operational environment in the foreseeable future. As the investment landscape continues to transition, it is vital for restaurant concepts to evolve from “struggling” to “good,” “great,” or even “optimal” to capture the attention of potential investors. Gordon emphasized the critical importance of focusing on unit economics and operational efficiencies.

To regain customer trust in value amidst rising prices, Gordon urged operators to be transparent about the reasons behind price increases due to inflation in food and labor costs. “We must work our way back into consumer favor,” he advised, highlighting the necessity for operational improvements that extend beyond simple price adjustments. Value is now more closely tied to perception than before, and optimizing every sales channel should become a priority.

# Adaptive Strategies: Restructuring Focus

Gordon underscored that as inflation continues to affect costs, restaurant operators must explore efficiencies in their profit-and-loss statements in areas such as labor, utilities, and capital expenditures. “With rising construction costs and increased capital requirements, we must sharpen our focus on both the construction process and operational management to preserve resources,” he asserted.

To further enhance operational effectiveness, he advocated for flexibility in product offerings and pricing strategies. A “barbell approach” that balances entry-level value offerings alongside premium products, as well as innovative strategies like suggestive selling or maximizing distribution contracts, could drive profitability. Gordon strongly stressed the impact of energy management systems in achieving operational efficiencies, particularly in the kitchen.

# The Plight of the Casual Dining Segment

A significant challenge in the industry stems from the struggles of the casual dining segment. Gordon cited the bankruptcies of notable names like Red Lobster, Buca di Beppo, and TGI Fridays, as well as multiple closures in chains such as Denny’s, Hooters, O’Charley’s, and Applebee’s. He attributed this to a lack of differentiation and the fact that economics no longer support many casual dining establishments.

Pointing to the need for adjustments, Gordon remarked that achieving average unit volumes of $3 million for casual dining is increasingly difficult in today’s market. He urged operators to shift gears and consider innovative approaches, including fast testing of new concepts and utilizing multiple sales platforms for delivery.

# Investment Strategies for 2025: Priorities for Success

As the outlook for the restaurant market slowly improves, maintaining operational efficiency while catering to discerning consumers will be critical to navigating the evolving landscape. Operators must begin contemplating their investment strategies for the near term. Gordon unequivocally emphasized the need to invest in people as a top priority. “Strengthening our operations is essential, particularly after the pricing challenges we’ve faced,” he advised.

Following personnel investments, Gordon pointed to product development—both menu innovations and refreshing the physical space—as another essential area of focus to ensure relevance in a dynamic market.

For Wasilefsky, the physical appearance of restaurants and the integration of cutting-edge technology should take precedence, focusing on systems designed to streamline operations and enhance profitability. “Artificial intelligence, for instance, will significantly revolutionize aspects like kiosks, drive-thrus, upselling, and targeted marketing initiatives,” he noted. “The upcoming advancements will likely be impressive, and consumers may be unaware of the technology driving these improvements.”

In this context, the **AI legalese decoder** can also play a pivotal role in transforming operations. By simplifying the often convoluted legal language associated with investments and contracts, restaurant operators can make better-informed decisions quickly and effectively. This tool can save time and provide clarity on legal obligations, ensuring that operators remain compliant while focusing on optimizing their operations and investment strategies.

# Conclusion: Embracing the Future of the Restaurant Industry

As the industry gears up for significant changes in 2025, restaurant operators must adapt and innovate continually. Preliminary but promising signs point toward a more stable environment, even as consumers maintain heightened expectations regarding value. Navigating this complex landscape will require a well-rounded approach that prioritizes investment in human capital, embraces innovation, and utilizes advanced technology to enhance profitability. By implementing these strategies and leveraging tools such as the AI legalese decoder to streamline operations, restaurant operators can position themselves for success in the evolving marketplace.

Contact Alicia Kelso at [email protected]