Restaurant brand value multiples keyed to price positioning

BVWireIssue #160-4
January 27, 2016

When eating out, how important is the restaurant brand? An analysis from Markables illustrates trademark comparable data for both full service and fast food restaurants (fully owned and operated restaurants only, not franchised operations). Some of the larger restaurant brands in the sample are LongHorn Steakhouse, The Capital Grille, O’Charley’s, Yard House, Roman’s Macaroni Grill, Mimi’s Café, and Einstein Bros. Bagels, among others.

Two key points: The analysis reveals two noteworthy issues. First, restaurant brand value multiples depend on the price positioning of a particular brand. Full service, sit-down restaurants generate a higher brand value premium than fast food restaurants. The same observation can be made within each group. Second, pure play trademark royalty rates must not be confounded with franchise royalty rates, which are most often in the area of 4% to 6% on revenues. As a rule of thumb, the value of the trademark makes up for approximately 50% of the franchise, with the remainder for the operating system, recipes, and trade secrets.

Trademark royalty rates range from 1.5% to 5% on revenues, with median rates of 2.3% for full service and 2.0% for fast food restaurants (see chart). The trademark accounts for about 25% of enterprise value of full service restaurants and 35% for fast food restaurants. Average enterprise value multiples for the sector are 0.85x revenues for full service and 0.75x for fast food restaurants.

Markables, based in Switzerland, has a database of over 6,500 trademark valuations published in financial reporting documents of listed companies from all over the world. The database reports value solely for the use of trademarks (not bundled with other rights).

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