Product and Service

Companies included in restaurant –upscale& fine dining sector in food service industry primarily operate upscale& fine dining restaurants.


Demand for Product and Service

As our comparable traffic data indicates, the demand for upscale& fine restaurants seems to have been stronger and declined at much lower pace compared with casual dining sector in the past several years probably due to its market segment, which is apparently different with other sectors.  Higher price allows companies to lower price to keep traffic while it is increasingly difficult to do so in 2018 as decline in traffic go deeper.

The Sector

Sector’s current, trend, causes behind trend, and future

Current and Trend

  1. Generally, as it has been happening across all restaurant industry the demand for upscale& fine dining restaurants has also declined since 2015 as indicated by the decrease in comparable traffic. However, the decrease seems to have been offset, to large extent, by restaurants of this sector’s stronger ability to adjust menu price.
  2. Compared with restaurants in casual sector, more companies in this sector take advantage of their relatively higher margin buffer to retain traffic or grab customers. It seems that the upscale& dining restaurants have received relatively less impacts than those in fast-casual and casual dining sector as seen by the moderate decrease in traffic that they had already before 2017. However, it seems the traffic is declining at larger pace in 2018.
  3. The extent to which business are franchised is much lower than that in QSR sector and therefore, their margins usually have smaller buffer than QSRs to mitigate impact from declining sales. This is actually why we have seen that margins of those companies in this sector have been down generally as their comparable sales went down but those in QSR did not. However, the reduced menu price also contributes shrinking margins.

Causes behind the trend

We think the trend happening among restaurants in this sector has reflected changes in economy that influence consumers’ spending. Generally, benefiting from the recovery of economy, especially quantitative easing monetary policy and low borrowing cost, consumers’ spending has been strongly stimulated and kept on the high level, which probably has been the major reason why we have seen the favourable industrial environment in the years before 2015. However, as a recovery of low wage increase and the recent change in monetary policies and their influence such as rising interest rate and slow rise in property price, pressure on the increase in consumers’ disposable income increased or at least they feel the pressure on increase in their income or wealth. However, the pressure or the perceived pressure does not usually exist among consumers’ segment of upscale& fine dining restaurants.

Slowing down mall traffic resulted from changes in economy and in shopping habit (turned to online) is attributable to the declining traffic of restaurants in QSR or fast-casual sectors but little influence on restaurant in this sector.

Higher price products usually present higher sensitivity to declining purchasing power from the consumers with lower income. However, as we analyse above, the purchasing power of consumers of fine dining restaurant may be less influenced by the pressure on increase in wage. In fact, they may benefit most from acceleration of economy recovery.

Another reason that may be attributable to the decrease in sales in this sector may be increasing competition as a result of increased new opening of restaurants. This is actually, based on our data, consistent with the expansion of new restaurants that happened in this sector around 2015. If this is the major reason that caused the decrease in comparable sales of this sector, we will be able to see a quick bounce back among existing restaurants as companies stopped opening new restaurants and shut down existing ones.

Unlike in the sectors with lower menu prices and thus lower margins, in fine dining sector pricing seems to be key factor in competition. Therefore, those restaurants that are able to effectively manage their operating will be on a better position to survive in the tough time.

Industry Future

We think the accelerating recovery of economy will eventually benefit most restaurants in this sector. It may need less time for restaurants in this sector to deal with narrowed margins than those in other sectors.


General Financial Performance of Companies In the Sector

Data indicates the average increase in comparable sales all across this sector went down from around 1.7% of 2015 to around 0% of 2017 and then went up to 1.2% in 2018.  Correspondingly, traffic all across the sector decreased 0.5%, 0.5%, 1%, and 1.5% in 2015, 2016, 2017 and 2018 respectively. It seems that slowing down traffic contributes the downturn in comparable sales of fine dining restaurants between 2015 and 2016. However, the accelerating decline in traffic since then has been completely offset by more spending per customer.

Generally, impacts of unfavourable climate of restaurants industry to traffic since 2015 seem to be less significant to this sector than to casual restaurants as indicated by their numbers of decrease in traffic. For some companies, reduced menu prices help slow pace of decrease in traffic while caused decrease in sale simultaneously.


                                                        Growth in Comparable sales              Growth in Traffic

                                                         2018     2017        2016         2015               2018       2017           2016            2015

  •  Quick service restaurants      0%         1.3%        2%           4.8%                1%         -0.9%         -1.3%           0.6%
  •  Fast-casual restaurants          -1%       -2%         -0.8%        3%                  -5%       -3.5%          -1.5%          0.2%
  •  Casual dining restaurants      1.3%      -0.6%      -0.9%       1.7%                -0.9         -2.4%          -2.3            -1.1%
  •  Fine dining restaurants          1.2%       0%         -0.2%        1.7%                -1.5%     -1%             -0.5%          -0.5%
  • QSR-Coffee, tea, and baked    0.8%      1.2%        3%           4.7%               -1%           0%


Unlike in QSR where companies use franchise as buffer, companies’ margins in this sector declined as traffic and thus sales slowing down. However, to retain traffic and as well because of small space to allow price to go up, few companies in this sector improve their margin and sales by significantly raising menu price. In fact, since 2017, it seems companies started more aggressively promote menu to offset the decline in traffic. Most of companies experienced shrinking gross margins (12%) and operating margins (4%) in 2018.

According to our analysis, the current companies’ enterprise price/EBI ratios (or /sales) is average 24 with an interest/EBI ratio of 14%.

Average enterprise Price/EBI ratio (2017):

QSR: 31     

Fast-casual: 40 

Casual dining: 30

Fine dining: 21

QSR-Coffee& baked: 25

Average Enterprise price/EBI ratios (2018):

QSR: 29     

Fast-casual: 35 

Casual dining: 29

Fine dining: 24

QSR-Coffee& baked: 31

The average cash flow/share of companies in this sector presents decrease of 10% and 4% for 2017 and 2018.

Metrics, Benchmarks, and Multiples

Looking for  financial metrics, benchmarks, and growth measurements to help you make decisions in corporate operating and strategy?

Please click the button below.

Looking for  multiples to help you make decisions in pricing of PE, M&A, or distressed debt transactions?

Please click the button below.