Jul 1, 2023 2 min read

Revival of the IPO Market – How Restaurant Groups are Leading the Charge

Restaurant groups are taking full advantage of this bull market.
Revival of the IPO Market – How Restaurant Groups are Leading the Charge

After an incredibly slow IPO market the last 24 months, activity is finally starting to tick up. Renaissance Capital, a provider of IPO exchange-traded funds and institutional research, counted 89 deals that have been filed in the United States, up 16% since last year, as well as 46 IPO’s, up 21% from the same period last year.

Not to be forgotten, restaurant groups are taking full advantage of this bull market. CAVA, the fast-casual Mediterranean chain, went public earlier in June. Public reaction was overwhelming positive, seeing the initial share price of $22 jump to $42 upon opening and currently hovering around $43 per share. According to Renaissance’s Chief Executive Bill Smith, “it’s clearly a green light for restaurant deals.” Cava’s IPO marked the biggest first day increase for a restaurant since Shake Shack in 2015. (Market Watch)

This was followed by news of GEN Restaurant Group, specifically GEN Korean BBQ, also going public on Wednesday. For those who are not familiar with the concept, GEN Korean BBQ is one of the largest Asian casual dining restaurant concepts (by total revenue) in the United States. The company has grown to 34 restaurants since opening in September of 2011, recording first-quarter net income of $4.1 million on revenue of $43.9 million. (Market Watch) In GEN Restaurant Group S-1 filing, they described their restaurants as having “modern décor, lively Korean pop music, and embedded grills in the center of each table. (Seeking Alpha)

Restaurant Business Online believes this is going to continue a trend of restaurant IPO’s in the coming months. Public candidates include MOD Pizza, Panera Brands, and Fogo de Chao. For a traditionally antiquated and analog industry, it is hard to believe that restaurants would be helping to lead a charge in a financial market change.

At their core, restaurants sell perishable goods in a low margin environment, a business model that traditionally, would have never been considered for the public market. In essence, it is the polar opposite from what makes technology companies so attractive. Google and Amazon have minimal overhead and tremendous margins, and therefore an incredibly different P&L than a business like Cava or Gen Korean BBQ.

How does one explain that these wildly different industries (and business models) can operate in the same public marketplace?

I believe the answer is twofold – The first and most obvious being that restaurant competence and capabilities have vastly improved in the last few decades, allowing for exponential growth, resulting in both massive chains and global reach.

However, the second cannot be found on any financial statement. While it is an imperfect belief, I believe it can be explained by the legendary writer and civil rights activist Maya Angelou. As she explains, “people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” Food, and specifically hospitality, when done at the highest level, is a feeling that goes beyond financials. Chipotle has done this better than almost anyone, creating a consistent and loyal following, and currently has an enterprise value of nearly $60 billion. Shake Shack, who IPO’d at almost $46 per share, has continued their global expansion and is up 100% YTD.

As both financial and technological resources become more accessible to the hospitality industry, inching towards those in other industries, more restaurant IPO’s will naturally follow. But it is the deeply personal brand identification with these restaurants, the innate feeling when consuming the food, beverage, and hospitality of a brand they adore, that will allow this industry to punch above their financial weight and reach new heights operators could only dream of.

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