China Travel Blog

What a nice restaurant, how much is it worth?

We are all able to judge if a restaurant is “cool” or not, based on its location, its atmosphere, the people, the courtesy of the waiters, the wine list and of course, what we eat and what we pay for it. This article deals with a different type of judgement: what is the value of the restaurant itself? If You believe that Real Estate values depend on bricks and revenues, just pass on. For those interested in valuing intangible properties instead, just have a look. (The location is Rome in Italy but Names and Values have been changed.)

Introduction and approach

EqS Equity Studio was recently challenged to place a value on one of Rome’s most famous restaurant, Marcello’s. It is located in the centre of Rome, exactly where you would expect it to be. Believe me, its one of the best places You may want to spend an evening dining out or, if you can’t afford it, just to have a cappuccino in its Coffee Lounge.

The first aspect when starting the job is defining what the value is. We came to the conclusion that Marcello’s value is the sum of the three different values:

a) There is a value because in order to run its business, Marcello’s holds an administrative license. That is, naked and with no goodwill, a first bit of value.

b) Then Marcello’s has a value because it developed a Goodwill both as a Coffee Bar and as a Restaurant.

c) Finally Marcello’s has a value because of its well known Trademark which captures people from all over the world.

We will not give Real Estate or Fixed assets appraisals: you do not need to read here to understand how to calculate these.

The Value of the administrative licenses

Marcello’s operates in the centre of Rome, in Italy. To run its activity as Coffee Bar and Restaurant it needs an administrative license issued by the Rome Council. Marcello owns two licenses for the sale of food and beverages, both acquired from the previous tenant and then authorised by the local authorities. The first license permits the sale of food and beverages while the second license permits the sale of alcoholics liqueurs.

The value of licenses varies every year based on the market conditions. We have asked a local firm in Rome specialised in the sale of Coffee bar licenses to sell us a full license for the same district in Rome and we have been asked the price of € 120.000, which is one of the highest price in town. With this amount we can therefore acquire today a full license similar to those of Marcello’ and use it in similar premises: we then value Marcello’s naked licenses with no label or goodwill a total of € 120.000.

The Value of the Goodwill

When transferring a commercial license the seller and the buyer transfer the goodwill of the restaurant. There are various aspects that determine the value of goodwill: some are related to the location, other are related to the activity, other to the people.

The location. The centre of Rome was celebrated in the movie “La dolce vita” by Federico Fellini in year 1960. The movie introduced the usage of the word “paparazzo” and, although the film talks about the loss of values in a helpless moral atmosphere, it gave a tremendous appeal to all the places of the set. Rome’ centre lost some of its appeal as a commercial district in the years 1990 – 2000 but has returned to be a place full of coffee bars and fashion shops in the last few years. Difficult finding a better location in Rome.

The activity. Marcello’s is a glamour place, sophisticated, all new, high target, nice place to go. The Coffee Bar is full all day long, especially for breakfast, but never too crowded. No doubt that it is one of Rome’s more successful coffee bars. The restaurant is not as well positioned. During our visit at lunch time we counted the people in the outside and inside: a terrible low occupancy rate at lunch time, better in the evening. The restaurant seems clearly not successful as it might be in such a famous district.

The people. Mr Franco Rossi, the current owner and manager, acquired Marcello’s only five years ago and did a great job both in terms of place and revenues. There are 40 people working at Marcello’s and the impression attending the site is that they are quite a lot. The service level according to Rome’s standard is good but the location of this restaurant might require a higher class: it’s a bit noisy and waiters sometimes talk to clients as they were friends and that might not be what we would expect from a 5-stars (and expensive) place.

Valuation methodology, benchmarks and result

We value Marcello’s goodwill with the market method. We have therefore investigated current market prices for coffee Bars and Restaurants in Rome in order to derive a benchmark to apply to Marcello’s taking into account all the peculiarities of the target.

We analysed a wide number of sale offers relating to “Bar” and “Restaurants” in Rome, both issued on newspapers and offered by local agents with whom we discussed, we consulted the official price list issued by trade agents and we also derived some price multiples from transactions recently completed.

The price range varies depending on the location. Taking into account only top tier locations, we derived current market parameters based on: price per available seat, price per square meter, price to annual turnover vat excluded, price to annual turnover vat excluded in top location, price to Sales, Price to Ebitda.

We then applied our sample multiples to Marcello’s data, thus obtaining a valuation of Marcello’s goodwill of € 6,5 million.

In our valuation the ratio Price to available seats and the Price/Ebitda multiple result to be very high, but we consider this as the additional value of being in a place known all over the world.

Our valuation is on a stand alone basis and considers the input data as they were given to us by the client. In a sale auction, including the higher potential value that a buyer might place on this location, the final price could clearly be different.

Nominal Price and PV

When discussing about the Value of a Coffee Bar or Restaurant we must keep in mind that the nominal Price of a transaction differs from the Actual Price because of the long terms of payments. It is common practise in this industry to pay cash a percentage of some 20% of the agreed Price and pay the 80% difference in monthly instalments up to 5 years. At a 7,50% WACC the current value is therefore 86,54% of the nominal price. Applying this rate to Marcello’s we obtain: € 6.500.000 x 86,54% = € 5.625.100

Mr. Rossi and the value of the People

We do not know if Mr. Franco Rossi and his staff would continue running Marcello’s should the place chance owner. Although he is an entrepreneur and a manager and he is not a celebrated chef, we still consider that part of Marcello’s success relies upon the people that is running it today. We would therefore apply a rebate of 20% to our valuation should the people walk away.

The Value of the Marcello’s Trademark

Object of the Appraisal

We now come to the most challenging part of the job: what’s the value, if any, of a celebrated label such as Marcello’s? The object of the valuation is the economic content that a buyer may derive from the usage of the Marcello’s Trademark in the economic environment in which it operates and under the jurisdiction on the Italian patent law.

Testing the Value OUTSIDE the context in which the Marcello’s Trademark is currently used

There are three basic questions for an initial assessment of the value of the Marcello’s trademark:

1) The first question is: does the Marcello’s trademark or brand name differentiate the product or service with which it is associated? Is it unique enough to differentiate the product/service? When applying this question to Marcello’s we might want to discuss whether the Marcello’s trademark has a premium appeal on Rome’s clients compared to other coffee bar and restaurants. We would believe that Marcello’s has indeed a upper class positioning among coffee bar and restaurants in Rome, but we cannot be sure that this is due to the Marcello’s trademark itself and not to its unique location, to its sophisticated look and top class service.

2) The second question is: would others be interested in acquiring and using the Marcello’s trademark in a different context? Would the Marcello’s label allow the success to a second or third Marcello’s coffee shop located elsewhere in Rome or elsewhere outside Rome? We doubt this: we do not envisage the opening of a Marcello’s coffee shops chain simply based on the Marcello’s label. Besides this, there may be coffee bars and restaurants with the same name elsewhere with no links to the Marcello’s restaurant located in Rome.

3) The third question is: would a third party pay Marcello’s in Rome to license or use the Marcello’s name, either to duplicate its product or to extend its trademark into other products? We doubt this: Marcello’s is not a concept, there are no particular values associated to the name and the trademark legal protection is weak: we do not see potential usage of this brand name in other products paying royalties to the Marcello’s company in Rome.

In conclusion there is no evidence of value of the Marcello’s Trademark outside the context in which the Marcello’s Trademark is currently used in Rome. So let’s focus on the business as it is.

Testing the Value INSIDE the context in which the Trademark is currently used

The valuation of a Trademark is most effected by the context in which it is valued and the value placed on a trademark derives from the additional benefit that it may bring to the buyer based on the potential synergies. Marcello’s has filed the trademark “Marcello’s” to Rome’s Chamber of Commerce. This registration protects the company against the improper use of the Trademark relating to the coffee bar and restaurant activity in Rome. The filing allows a safer brand usage by the company but has no value outside Rome and in other product’s usage.

Basic considerations when applying the usual trademark valuation methods to the Marcello’s Trademark are:

1) The cost approach: the Marcello’s Trademark was clearly not created by the company and no apparent costs were incurred in adopting this label. The competitive advantages of the Marcello’s coffee bar are strongly related to its excellent location and we doubt that these would be maintained should Marcello’s move to a less interesting location in Rome. We therefore consider the replacement value of the label not relevant.

2) The income approach: Marcello’s price list is expensive but not more costly than other upper segment coffee bar and restaurant in Rome. Apparently the label is not premium price. We also doubt that the company may earn a significant stream of royalties when selling the usage of the Marcello’s label to other coffee bar or restaurant in Rome.

3) The market approach: we believe that in restaurants the value of the label is strongly dependent on the chef and the people running the restaurant rather than on the Marcello’s label. Should the chef and the people move elsewhere the additional value of the label may disappear leaving the only value of the location. We therefore see no relevant market value in the Marcello’s label without taking into consideration its people and its location.

4) The relationship approach: the issue is if the Marcello’s trademark allows a higher customer retention rate and a higher attraction rate compared to a new label. This aspect would need an in-depth customer analysis. During our visit we derived the impression that Marcello’s customers are attracted by the location rather than by the label itself.

A final key issue related to the valuation of the Marcello’s trademark is the fact that Marcello’s is a pure label and not a brand asset concept. We may explain this aspect with two extreme comparisons: MacDonald and Harry’s Bar.

Mac Donald’s is not a naked trademark, it is a corporate concept represented by a label. The concept includes precise procedures, consistency of experience in quality and service worldwide, strong Trademark legal protection, location selection, marketing approach. Mac Donald is not a label, it is a concept. On the other end of the market we might mention Harry’s Bar by Arrigo Cipriani. Founded in Venice, Harry’s Bar is not only known because of Hemingway or the Bellini’s cocktail (which may be similar to hundreds of similar coffee shops and restaurants) but because it developed a top class concept. The same customers attend Harry’s Bar in Venice, in New York and elsewhere with an extremely strong customer’s loyalty and retention. It is a club that everybody would love to be part of.

Marcello’s is a great place as a coffee bar and a great location for a restaurant. However when applying best practise methodologies to assess the value of its label we end to the conclusion that the value of the coffee bar and restaurant mainly relies upon its location and its people and no relevant additional value is directly dependent on the naked Marcello’s trademark.

Conclusions

Marcello’s is a glamour place, sophisticated, all new, high target, very cool. We derived a stand-alone market value based on the value of its Naked administrative license and a Value of the Coffee Bar and Restaurant Goodwill while we doubt that Marcello’s Trademark may have an additional Value in a different context.

As restaurant business is a people business it is crucial to the valuation that the current manager and his staff should continue the activity or not and we have considered that a portion of Marcello’s goodwill will simply walk away together with the manager, but this aspect should be further investigated in a real transaction.

 

Cesare Carbonchi, President EqS Equity Studio in Milan, Italy

 

About the author: Mr. Cesare Carbonchi is an international investment banker with large European and US experience in top tier institutions and with CEO experience in leading corporations. Cesare Carbonchi runs EqS Equity Studio in Milano, Italy.

About EqS Equity Studio: EqS Equity Studio is an independent corporate finance boutique that provides financial advisory and transaction services to corporate clients relating to their business in Milano, Italy. See website at www.eqsstudio.com

China is a very interesting and thrilling place to visit. There are a few key things that you need to be sure to bring with you, and some tips that can help you along your way.

You may ask yourself over and over again, “Is a trip to China worth it?” Well, I have the answers for you. China is a big country with a long history and unique culture; it is one of the most beautiful countries endowed with wonderful and natural sceneries which attract tourists every time of the year. A tour to China can be an educational tour, recreational tour, adventure tour, cultural tour or a religious tour. This depends on your preference and your length of stay, however whichever tour you decide to take, the trip is always worth it.

In order to enjoy your tour around China, it is advisable to engage in the services of a reliable tour operator based in China. Their agents have local guides who are willing to show tourists and visitors the sightseeing and attractions of the beautiful cities.

Since 24 popular scenic spots were listed in the World Heritage List by UNESCO, China has become a world renowned tourism destination. These places are well preserved relics which date back to some hundreds years with a historical and cultural theme. The attractions make for an interesting place to visit on your China tour. The sites as listed by UNESCO include:

1. The Ancient Building Complex in the Wudang Mountains: located in Hubei Province, these buildings represent the highest standards of Chinese art and architecture for over one thousand years.

2. The Ancient City of Ping Yao: this is a well preserved city which presents the way a typical Chinese Han city looks like.

3. Old Town of Xidi and Hongcun: these two traditional cities is a representation of the appearance of the rural settlements transformed during the last century. The styles and architectural designs of the houses in this region symbolize their survival mechanism of the locals.

4. Capital Cities and Tombs of Old Koguryo Kingdom: this site has archaeological remains of the 40 tombs and the three cities – Guonei City, Wandu Mountain City and Wunu Mountain City.

5. The Classical Gardens of Suzhou: the nine gardens in Suzhou showcase the natural landscape of a small historical city. Dating from the 11th to 19th century, the metaphysical significance of the beauty of Chinese culture is seen in the design of this garden.

6. Dazu Rock Carvings: these are magnificent and exceptional rock carvings which date back from the 9th to 13th century. These carvings contribute to the beauty of the landscape of Dazu. They signify the friendly combination of Taoism, Buddhism and Confucianism.

7. Potala Palace, Lhasa: The Potala Palace was the winter palace of the Dalai Lama. This Palace symbolized Tibetan Buddhism and how it influenced the administration of Tibet. The architectural design and beauty of the Potala Palace is what adds to its historical and religious interest.

8. The Imperial Palaces of the Ming and Qing Dynasties: These palaces are located in Beijing and Shenyang. The palace in Shenyang consists of 114 buildings which were constructed in the late 17th century. It has a library which contains important articles which testify to the foundation of the last dynasty of China.

9. Imperial Tombs of the Ming and Qing Dynasties: These tombs feature rich decorations of stone carvings, statutes and tiles with dragon motifs all of which illustrate the development of the architecture during the Qing Dynasty.

10. The Longmen Grottoes: These grottoes contain the largest and most impressive collection of Chinese art from the late Wei and Tang Dynasties. The Longmen grottoes showcase an outstanding manifestation of manmade artistic creativity.

11. Mount Lushan in Jiangxi province is one of the spiritual centers of China’s civilization. The strikingly beautiful landscape has inspired many artists to visit this place where several Buddhist and Taoist temples are found.

12. Mausoleum of the first Qin Emperor: This is located in Xian surrounded by the famous terracotta warriors. These statues remain to be unearthed with the small different figures. The horses, weapons and chariots are masterpieces of great historical interest.

13. The Mogao Caves: These caves are situated along strategic points on the Silk route. This point was an important trade zone during the ancient times. The 492 caves and cells have also contributed to cultural, religious and intellectual influences which are known for their statues and paintings of rich Buddhist arts.

14. Mount Qingcheng and Dujiangyan Irrigation System: The construction of this irrigation system began in the 3rd century. It controls the waters of the Minjiang River and distributes it to the farmlands located in Chengdu plains. Mount Qingcheng was the birthplace of Taoism which boasts of many sacred temples.

15. The Mountain Resorts and its Outlying Temples: This is a vast complex of ceremonial palaces and administrative buildings built into a landscape of pastureland, lakes and lush green forests. The Mountain Resort was the Qing Dynasty’s summer palace built in 1703 and 1792.

16. Lijiang Old Town: This old town has retained its reputation for its historic landscape and commercial center. The old town is set in a dramatic landscape representing the blend of different ethnic cultures to produce a sophisticated landscape of ancient architectures.

17. Peking Man Site at Zhoukoudian: This site lies 42km away from Beijing; still under scientific research, this site led to the discovery of the remains of Sinanthropus pekinensis. This site is an exceptional reminder of the prehistoric human societies who lived in the Asian continent. It makes for an interesting destination for adventure and archaeological scientists.

18. The Summer Palace in Beijing: This site is an imperial garden which was first built in 1750, destroyed by the war in 1860 and then later rebuilt in 1886. The Summer Palace has a natural landscape of hills and open waters and built among man made pavilions and halls which all together make the site a place of value. It is a representation of Chinese landscape garden design.

19. The Temple of Heaven: This is an imperial sacrificial altar in Beijing founded in the mid 15th century. It represents a complex of fine buildings surrounded by pine woods and gardens. According to Chinese cosmology, the overall layout of this temple and its individual buildings symbolizes the relationship between heaven and earth.

20. The Great Wall of China: The construction of this wall was built as a defense system to prevent the invasions from the north. This construction continued till the Ming Dynasty and has remained the largest military structure in the world with rich historical background.

21. Temple and Cememtery of Confucius and the Kong Family Mansion in Qufu.

22. Yin Xu in Hennan Province

23. The Yugang Grottoes in Datung city has about 252 caves and 51,000 statues.

24. Historic Center of Macao

Other natural and mixed sites listed in the World heritage List worth visiting include the Huanglong Scenic and historic area, Jiuzhaigou Valley and Scenic spot, Sichuan Giant Panda sanctuaries, the Three Parallel Rivers of Yunnan protected areas, Wulingyuan Scenic spot, Mt Emei and Leshan Giant Buddha Scenic Spot, Mt.Huangshan, Mt. Taishan and Mt. Wuyi. With this list showing the beautiful and majestic attractions of China, you are rest assured that your trip to China would be worth it after all.