How much value does the ‘sustainable’ label add to a hospitality business for sale?
An accountant will generally value a business based on a multiple of its profit added to the value of any property included. However, buyers will often pay more for a business for sale if they perceive it to boast a strong brand or unique selling point that the financials don’t account for.
How much of a difference does the ‘sustainable’ tag make to the value?
‘Sustainable’, for bars, hotels or restaurants, means having an ethical supply chain, using water and energy efficiently, reducing food waste, using local and seasonal produce where possible and fair trade goods for overseas produce, and sourcing fish from sustainable stocks and meat and dairy from farms with high welfare standards.
Before you can assess the merits of a sustainable claim, however, you need to assess its credibility. Accreditations and/or membership of organisations running accreditation schemes help such an assessment. For example, for restaurants, an accreditation from the Sustainable Restaurant Association (SRA) is a reliable barometer. Launched in 2010, it designates to its members a gold, silver or bronze standard of sustainability.
Some would argue that by allowing McDonald’s to join it must set the bar pretty low, but like an Olympic high jump the bar is raised constantly with members having to meet stricter and new benchmarks with each successive year.
So, in year one, they might simply have to prove they source ingredients from ‘sustainable’ sources, but in year two they may have also to cut their water usage to comply.
If you’re buying a business flaunting the word ‘sustainable’ in its marketing material then it’s worth asking the following: are they a member of the SRA or a similar credible accrediting scheme that demonstrates their sustainable practices? How long have they been a member? What level of accreditation do they have? Which benchmarks have they met to achieve it?
Revenue and cost implications
Far from just being worthy, being sustainable has implications for both sides of the hard-headed fundamentals of business: revenue and costs. 70% of restaurant goers are more likely to eat in a restaurant recognised for its sustainability, according to a Populous survey.
But just because it boosts the bottom line, it doesn’t mean it’s worth paying over the odds for a restaurant for sale just because it boasts a sustainability accreditation. If it gained its reputation through a reduction in food waste, frugality with water and sourcing ingredients from sustainable sources, then it has done so through simple changes that don’t cost anything. That said, there’s still a value in the sustainability tag if it’s been marketed effectively and therefore enhanced the brand’s reputation and goodwill.
Sustainability can generate substantial, one-off costs
Becoming more ‘sustainable’ can entail large, albeit one-off, costs. For example, additional building insulation and energy-efficient fridges and ovens can cost thousands. A restaurant or bar for sale that has undergone such an overhaul is certainly sustainable in a very meaningful way. Enjoying a high energy efficiency rating, it will offer prospective buyers the promise of low overheads in a sector where margins are often tight.
Does sustainability matter to customers?
But despite the fact that sustainability ultimately equates to lower costs, a perception persists that sustainable food is a preoccupation of people who are wealthy enough to care: the pious middle classes. Convincing potential customers that sourcing fish from plentiful stocks is cost-effective as well as ethical, and that lower energy costs can result in lower prices, should be a pillar of your brand message.
The socio-economic profile of your location is nevertheless important. Areas with a young, metropolitan demographic such as Bristol, Brighton or London are undoubtedly the most auspicious locations for ‘sustainable’ hospitality businesses.
Article by Adam Bannister, managing editor of BusinessesForSale.com. Adam also manages content for other titles in the Dynamis stable, including FranchiseSales.co.uk and BusinessWings.co.uk, as well as being an occasional contributor to the Huffington Post, Talk Business magazine and Start Your Business Magazine.