As the small business financing space contemplates competition from merchant-integrated platforms like Square, Shopify, and Intuit, one behemoth is taking over the franchises themselves. The company is Roark Capital, an Atlanta-based PE firm with $37B in assets under management, and they taste delicious.
Roark Capital already owns Arby’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carvel, Cinnabon, Carl’s Jr., Hardees, Culver’s, Dunkin Donuts, Jamba, McAlister’s, Moe’s Southwest Grill, Schlotzky’s, Seattle’s Best Coffee, Jimmy John’s, SONIC, Jim’n Nick’s Bar-B-Q, Miller’s Ale House, North Italia, Nothing Bundt Cakes, and the Cheesecake Factory. Three of those are among the top fast-food sandwich chains in America (Arby’s, Jimmy John’s, and McAlister’s Deli). Roark is also presently in the process of acquiring Subway, the leading company in that category by nationwide sales. The deal was announced in August.
But now the FTC is saying not so fast on the basis that it might create a monopoly. According to Politico, “the government is focused in part on whether the addition of Subway gives Roark too much control of a lucrative segment of the fast food industry.”
“We don’t need another private equity deal that could lead to higher food prices for consumers,” railed Senator Elizabeth Warren on social media. “The FTC is right to investigate whether the purchase of Subway by the same firm that owns Jimmy Johns and McAlister’s Deli creates a sandwich shop monopoly.”
While many comments on social media made fun of this regulatory effort, perhaps such consolidation is a wakeup call for the small business finance industry. Once upon a time the textbook definition of a non-bank funding merchant was a restaurant or QSR sandwich shop. Although the target customer has broadened considerably since then, it may be worth keeping in mind that a large diversified portfolio of QSR funding customers might not be so diversified at all. Behind the scenes, it may actually all be a single counterparty. A small business might not be so small. You could be dealing with Big Sandwich.
The House passed a $55 billion bill on Thursday to provide assistance to restaurants that were not successful in receiving help from the federal Restaurant Revitalization Fund (RRF) last year. In a 223-203 House vote the measure was approved by lawmakers and was backed by only a few Republicans.
Over $40 billion in COVID-19 assistance was approved, replenishing the fund. An additional $13 billion would be provided for other businesses that remain struggling to recover.
The Restaurant Revitalization Fund was established under the American Rescue Plan, and signed into law by President Joe Biden on March 11, 2021 which issued $28.6 billion in direct relief funds. However, three weeks after launching, the funds ran out leaving only a third to receive relief funding out of 300,000 applicants.
Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.
If the bill passes the Senate, the 177,000 restaurants that were approved for RRF grants but did not receive funding before the portal closed are already in line as stated by legislators.
To overcome the 60-vote threshold to end a potential prolonged debate and pass the measure, it is undetermined whether Democrats in the evenly split Senate will be able to win over at least 10 Republicans.
Despite protocols of the pandemic being lifted, restaurants are still facing the negative effects with less staff and fewer customers. According to the National Restaurant Association, 9 in 10 restaurants have fewer than 50 employees and restaurant industry sales in 2021 are down by $65 billion from 2019’s pre-pandemic levels.
The main sponsor of the bill, Rep. Earl Blumenauer, D-Ore., and Rep. Dean Phillips, cited a survey from the Independent Restaurant Coalition and stated that over 80 percent of restaurants that didn’t receive grants have reported that they are on the verge of permanent closure.
The five buroughs of New York City are still quiet. Restaurants remain closed to inside dining; gyms still await their regulars to return (beefcakes deflating with inactivity), and in-person schooling has been pushed back once again, while the districts take an extra week to prepare.
Through it all, business owners are losing money. Some have had enough.
Il Bacco, an Italian restaurant in Queens, is leading the charge. The restaurant recently filed a $3 billion class-action lawsuit against New York, signed by more than 300 restaurants. Il Bacco is a three-story eatery in Little Neck, 500 feet from the Nassau county border where restaurants can open to 50% capacity.
Another group of restaurants met separately at a rally in Staten Island to speak out against the inaction of lawmakers and to formally propose a separate lawsuit to force the reopening of restaurants.
On behalf of Bocelli, Joyce’s Tavern, and the Independent Restaurant Owners Association Rescue- (IROAR) papers were filed in Richmond County, calling for the emergency opening of restaurants throughout NYC at 50% capacity. IROAR was started last week as a confederation of 14 disgruntled restaurants. More recently the association has grown to 180 members.
Tina Maria, daughter of the owner at Il Bacco, also started an online petition with more than 5,000 signatures at writing.
On Sept 9th, shopping malls can open to 50% capacity and Casinos to 25% capacity, but restaurants like Il Bacco still struggle to make up for six months of decreased activity.
In speaking at the rally on Tuesday, Bob Deluca owner of Delucas Italian Restaurant said he and his workers have put in hundreds of hours of work a week just to see government officials keep his business from opening. Now he said, enough is enough.
“We’re being discriminated against, we’re being bullied,” Deluca said. “My mother told me to always stand up to bullies and stand up for people in need who are being bullied. Right here, this is our knockout punch.”
Deluca dropped the lawsuit on the podium, punctuating his frustration. He said he never wanted it to come to this, but it has come to it. Deluca reacted to Mayor Bill de Blasio’s comment from two weeks ago, stating restaurants were for the middle class and wealthy people.
“We are workers, it’s not a luxurious lifestyle, we are barely middle class,” Deluca said. “What about the waiters, the busboys, what about the dishwashers the bartenders, and the cooks. To say restaurants are for the middle class and wealthy is the most ignorant statement I’ve ever heard.”