Brian Buss and Doug Bania are IP valuation and damages experts at Nevium Intellectual Property Consultants.
Many restaurant owners consider selling or franchising their business at some point, especially when they have a unique atmosphere to attract buyers and investors. Knowing how your "vibe" contributes to the value of your establishment is critical not just to maximizing proceeds in a transaction, but also to protect its uniqueness and potentially even monetize it.
Consider the case of a New York deli chain recently considering the sale of its flagship establishment and franchises. For this 100-year-plus-old family-owned restaurant chain trading as much on heritage as heritage beef, its intellectual property (IP) included not just trademarks and domain names but also intangible brand assets, such as the look and feel associated with having been in continuous operation in Manhattan since a bygone era.
The prospective buyer for this group of restaurants, butcher shops, and delis in Manhattan and Queens was actually more interested in purchasing and leveraging the heritage more than the existing operations. The key drivers of value here included location, history, service culture and relationships with customers and suppliers.
Sawdust on the floors
Putting a number on these assets required visits to the shops and restaurants to gauge character, surroundings and mood, revealing sawdust on the floor, friendly staff, handwritten specials and fully stocked shelves and freezers. Importantly, these restaurants had an older and more impressive look than that of their rivals.
Looking at what it would cost to acquire similar businesses in this case, relevant comps were hard to find due to the idiosyncrasy of these types of restaurants. Further, similar trademark license agreements involved trademarks with wider recognition and related to franchise concepts that licensed both trademarks and proprietary business processes.
Butchers, delis and restaurants are quite common. Customers have lots of options and substitutes, and can usually find a lower price if cost is a factor. Additionally, long histories are not even unique for these businesses — or any businesses — in the five boroughs thanks to strong family ties that propel them forward through the centuries.
The trademarked logos were being used with packaged meals and foods sold inside the shops — none of it with premium pricing, likely in a nod to longtime customers — and awareness was strictly local. The company had a limited licensing program in place, allowing other delis in New York to sell branded products, but the reported financial returns were disappointing.
Of the company's estimated $50 million value, these brand assets made up a significant chunk at 10%, but since the owners failed to properly leverage these intangible assets, the restaurant group faced brand vulnerability and the buyer ultimately moved on.
Putting your vibe to work
If you've worked hard to create a unique dining atmosphere, there are a number of steps you can take to maximize its value.
First, make sure your pricing is on par. Good pricing strategy is about more than day-to-day profitability; it actually ensures your IP is performing to its potential, maintains its value over time and helps position you for a sale or franchise opportunity.
If you've franchised or licensed your logo, make sure you have consistency among the logos and concepts to capture brand equity. It's exciting once those royalties start rolling in, but over time your IP will be worth more if you're reinforcing the brand every time a customer sees it.
Finally, make sure you own all the rights to use all of your intellectual property and intangible assets. As a restaurant grows, business partners can come and go. In those early days you may not have given any thought to who secured the domain name or other social media accounts and who still has access. Together, your name and unique vibe are potentially worth a lot, but without proper rights, you could miss your opportunity to take it to the next level.