Speaker 1: Welcome to Chopping It Up.
Speaker 2: I'm your host, Mike Halon, the senior Restaurant and food
Speaker 2: Service analyst at Bloomberg Intelligence. Our research and that of
Speaker 2: bi's five hundred analysts around the globe can be found
Speaker 2: exclusively on the Bloomberg terminal. Today, we're joined by Andrew Smith.
Speaker 2: Andrew is the managing partner and co founder of Savory Fund,
Speaker 2: the private equity investor in the restaurant space. Thanks for
Speaker 2: joining the pod.
Speaker 3: So excited to be here finally. Listen to all your
Speaker 3: other ones though, Mike, and they're really really good. So
Speaker 3: I'm actually just excited to chill out with you this morning.
Speaker 2: So dude, same same, Yeah. Yeah, I've been looking forward
Speaker 2: to doing this since I met you at the uh
Speaker 2: the Black Box. Yeah, the Box Panels.
Speaker 3: That was a cool event too. They did a great job.
Speaker 1: Yeah, they always do. Man.
Speaker 2: And one of the tidbits I got from when we
Speaker 2: were on that panel, I think you made a mention
Speaker 2: to the fact that you you you're you know, you're
Speaker 2: a race car driver.
Speaker 1: So have you been out on the track recently or well.
Speaker 3: Not recently, but man, every single day I wake up.
Speaker 3: I actually I collect a little bit too. And so
Speaker 3: whenever I passed any of my cars that I collect
Speaker 3: and I was like, gosh, dang it, I got to
Speaker 3: get back out on the track. But yeah, I I
Speaker 3: raised Porsche and Audi for four and a half years
Speaker 3: and some of the funnest times. It was like one
Speaker 3: of those checkboxes in my life and I did it.
Speaker 3: So yeah, it was fun.
Speaker 1: It's very cool.
Speaker 2: So what what's your all time favorite car to race
Speaker 2: and is there one that you're like dying to drive
Speaker 2: but you haven't yet.
Speaker 3: I think my all time favorite card to race has
Speaker 3: been the GT four Kman Porsche. But my the one
Speaker 3: that I want to I want to race is uh yeah,
Speaker 3: the Ferrari Challenge Car, so the two ninety six Challenge car.
Speaker 3: But I drive those, but I don't race them. And man,
Speaker 3: racing them would be very expensive.
Speaker 1: I'm sure insurance would be pretty expensive.
Speaker 3: They don't even ensure of Mike, you hit the wall,
Speaker 3: you're paying for it, so there's no expense.
Speaker 1: So a very high replacement cost, very high replacement go. Yeah, awesome,
Speaker 1: very cold.
Speaker 2: All right, what's what inspires you to start the Savory
Speaker 2: Fund and what's unique about the way it operates?
Speaker 3: Yeah, Mike, my career started actually in tech, if you
Speaker 3: can believe it. Nineteen ninety eight I started my first company.
Speaker 3: And I think it's funny when I say this to
Speaker 3: people because it really does age me. I mean, I
Speaker 3: know you can see me. But I do have a
Speaker 3: few grades now, Mike. I think I've earned those. They're
Speaker 3: hard earned. But I started my first company nineteen ninety eight.
Speaker 3: It was streaming media. Can you believe that? Like you
Speaker 3: think about that in our lifetime, like it hasn't the
Speaker 3: streaming media and like video on our phones and TV,
Speaker 3: it hasn't always existed. And the answer is no, it
Speaker 3: didn't always exist, and the Internet was fairly new with
Speaker 3: stream media in nineteen ninety six, seven and eight, I
Speaker 3: started streaming media company. So that's where I started my
Speaker 3: impetus and my entrepreneurial career was. Then I built and
Speaker 3: sold out to a public company, and then I started
Speaker 3: another company that was in financial software and then construction software.
Speaker 3: When I was doing my last company, which was a
Speaker 3: construction software company that was private equity backed, my wife
Speaker 3: of at the time, how many years is that was?
Speaker 3: Ten years we were married, We had two toddler boys,
Speaker 3: and she says, hey, I want to do something different
Speaker 3: than just be a stay home mom. I'd like to
Speaker 3: do a business or whatever. And I said, well, great,
Speaker 3: what would you like to do. You've been such a
Speaker 3: great support to me. And she's like, I'd like to
Speaker 3: open a restaurant. I'm like, oh, my hell, that has
Speaker 3: the stupidest idea, Like why would you ever do that?
Speaker 3: And I had all these fallacies in my head about
Speaker 3: the industry, which most people do that don't really know
Speaker 3: the ETHNB industry, And what came out of my mouth,
Speaker 3: Mike was I think it's a great idea, and I
Speaker 3: would love to support you, and I think we should
Speaker 3: definitely do that. And for that reason, I'm married for
Speaker 3: twenty five years now, Mike. But yeah, I supported her.
Speaker 3: And she opened up her first restaurant in two thousand
Speaker 3: and eight, and believe it or not, it was like
Speaker 3: the worst time in the world for tech and the
Speaker 3: stock market and banks and construction, and so my life
Speaker 3: was on fire. And she opened up her first restaurant
Speaker 3: and to my surprise, it was absolutely slammed. It was
Speaker 3: so busy, and I'm like, how's that fair? Like why
Speaker 3: is my life on fire now? And she's like crushing
Speaker 3: it and The one thing that I was so impressed
Speaker 3: with was after a few months of her being in business,
Speaker 3: I remember looking at her p and l her finances
Speaker 3: and I'm like, holy crap, what is that? And she says, Andrew,
Speaker 3: that's called profit because I had never seen that before
Speaker 3: my whole career. Mike is a tech CEO and founder.
Speaker 3: And so, to shorten up the story, the following year,
Speaker 3: I sold my tech business. We actually stabilized it and
Speaker 3: we sold it, and I called her up and said, Heed,
Speaker 3: I'd love to join you and see what this is
Speaker 3: all about. So we really started our business career sixteen
Speaker 3: years ago was just kind of try something together, do
Speaker 3: something together. And boy, our whole career Mike has been
Speaker 3: a series of moonshots. We kind of said, well, let's
Speaker 3: do five of these, and let's do ten. It was
Speaker 3: a bakery and cafe concept at the time. We ended
Speaker 3: up doing fifty of them. So that was kind of
Speaker 3: like one of those moonshot stories where it's like, wow,
Speaker 3: we just built one hundred million dollar business just because
Speaker 3: it was serendipitous, and we really started building this an
Speaker 3: amazing team behind us. We got into Little Caesars program
Speaker 3: and they had eighty seven Little Caesars, and then we
Speaker 3: started having brands come to us and say, hey, what
Speaker 3: you're doing with these other brands, could you do for us?
Speaker 3: And we had this incredible ops team, we were operators,
Speaker 3: and so we said, yeah, I think we could probably
Speaker 3: do it with other brands too, and so we started
Speaker 3: making investments in twenty and seventeen. In twenty eighteen, and
Speaker 3: that was really the pivot of our previous company to
Speaker 3: the Savory Fund, where we decided to take really our
Speaker 3: operational background, our team, our playbook of growth and apply
Speaker 3: it to emerging brands. And instead of doing it with
Speaker 3: just the bank of Andrew and Shauna, we decided to
Speaker 3: do with others that we know and trust. And so
Speaker 3: we raised a Savory Fund one in twenty eighteen, or
Speaker 3: Savy Fund two, which was a absequent one hundred million
Speaker 3: dollar funds will both back to back on hundred million
Speaker 3: dollar funds in twenty twenty one, and then we just
Speaker 3: launched fun three for two hundred million dollars to beta
Speaker 3: this year.
Speaker 1: Very cool.
Speaker 2: Why don't you talk to me a little bit about
Speaker 2: your process of identifying potential investments.
Speaker 3: Yeah, the process is actually pretty easy. People think that's
Speaker 3: really really hard. But Mike, you and I are were
Speaker 3: patrons of restaurants, right, and it's really easy when you
Speaker 3: go in to a restaurant, right when you walk in
Speaker 3: to go, wait a second, there's something really good here.
Speaker 3: And then you go through the process or you order,
Speaker 3: or you sit down and you're served, and when you leave,
Speaker 3: you think, well, they have everything there, the sites, the sounds,
Speaker 3: the smells, that everything was hit, like all my senses
Speaker 3: were hit and they did it amazingly. Those are the
Speaker 3: brands we all remember, and those are the brands that
Speaker 3: we typically are talking to. And it's interesting that most
Speaker 3: people would probably step over them because they're not multi
Speaker 3: regional players yet. But if you look under the underbelly
Speaker 3: of that business, most of the businesses we look at
Speaker 3: they've been around for ten years, fifteen years, and they
Speaker 3: have six to fifteen units, and there are these unbelievably
Speaker 3: successful brands, but most are just not looking at them.
Speaker 3: And so for us, we think, well, why have they
Speaker 3: not continued to grow? And we realize it's because it's
Speaker 3: just a different skill. There's a skilled gap for me
Speaker 3: to start something, and there's a skill gap mostly for
Speaker 3: founders to take things from call it ten units to
Speaker 3: one hundred units or ten units to fifty units, and
Speaker 3: it's really the skill that we have as a team.
Speaker 3: So when we identify brands, we look for the ones
Speaker 3: that are typically stepped over but are absolutely evolving that
Speaker 3: flavor segment or the segment of emerging brands within that area,
Speaker 3: and we approach them directly. So, Mike, if you had
Speaker 3: a restaurant, we would call you up and say, listen,
Speaker 3: we think the world of your brand and the concept,
Speaker 3: and we'd love to meet. I'd say ten out of
Speaker 3: ten times we get the founder to respond and meet
Speaker 3: with us. So it's been very, very fun to meet
Speaker 3: with the founders across America. We diligent sixteen hundred brands.
Speaker 3: Can you believe that it's been a few Yeah, so yeah,
Speaker 3: we just look for the ones that are kind of
Speaker 3: stepped over, but the ones that are really doing something
Speaker 3: very unique and kind of show their head above the
Speaker 3: rest of the crowd.
Speaker 2: That's cool, and that's is that kind of the target
Speaker 2: for brands around ten units, is that that's typically what
Speaker 2: you're looking.
Speaker 3: Yeah, I would say we go down to as low
Speaker 3: as five and you know, I think five to ten units,
Speaker 3: you start to get data that you can actually underwrite
Speaker 3: and look at and say they have they done enough
Speaker 3: to scrub off the startup phase, the fad phase, the
Speaker 3: well it's just is this just cool right now, but
Speaker 3: it's not going to be very cool three or four
Speaker 3: years from now. I think it gives them time to
Speaker 3: evolve through some cycles. Yeah, and typically during cycles you
Speaker 3: see the most out of a brand, out of the
Speaker 3: leadership team, out of a founder, right, So we like
Speaker 3: to get to the point where we kind of see
Speaker 3: them go through a couple of evolutions or cycles. So yeah,
Speaker 3: we like five to ten units kind of the call
Speaker 3: it five to fifteen years.
Speaker 2: All right, Cole, is there something more to like, you know,
Speaker 2: figuring out what trends are hot and discerning a fad
Speaker 2: versus you know, outside of just maybe staying power for
Speaker 2: that particular brand.
Speaker 3: Yeah, there is. I mean obviously there's some data. There's
Speaker 3: a lot of great data. And if you look at
Speaker 3: even the group that you and I were talking about
Speaker 3: earlier with black Box, I mean there's great data out
Speaker 3: there that we followed to see where consumer trends are
Speaker 3: spending their money. So yeah, we know that there's some
Speaker 3: flavor segments out there right now, especially that we're very
Speaker 3: interested in that they're hot, that they're being disrupted. If
Speaker 3: you think about, you know, the Asian category, for instance,
Speaker 3: Mike as an example, you know, we all grew up
Speaker 3: going to eat at the little hole in the wall
Speaker 3: shop that's really, really, really good Asian food, you know,
Speaker 3: a Chinese cuisine or a you know, a Thai cuisine.
Speaker 3: But they're starting to go out because the second generation,
Speaker 3: we home G two and G three, they just don't
Speaker 3: want to take over. They want to go something else
Speaker 3: with their lives, and so they're really faced with either
Speaker 3: trying to sell it to someone that will take it
Speaker 3: or just shut them up. So we've watched that data
Speaker 3: the last several years, and if you look at the
Speaker 3: King of the Pin, I mean it really is Andrew
Speaker 3: over at Panda Express. I mean, he's crushed it. It's
Speaker 3: something that we all have to just stand there and
Speaker 3: revere him for what he's done. But there's a lot
Speaker 3: of disruption in that category with the single shops, and
Speaker 3: so we think that something like that is very interesting
Speaker 3: to us. So we've looked at a lot of Asian
Speaker 3: concepts recently and it's incredible to see that you're and
Speaker 3: my dollars. If there's a good shop around us, we're
Speaker 3: spending money there often. I mean, it's on the pin
Speaker 3: wheel of options. And so that's kind of an idea
Speaker 3: of where we start focusing because we feel like that
Speaker 3: trend will be interesting for the next several decades.
Speaker 2: Yeah, and I feel like if it really fits in
Speaker 2: with the growth of delivery because it travels so well, right.
Speaker 3: For sure, it does travel well. I mean, who doesn't
Speaker 3: like a cold noodle, even totally warm?
Speaker 1: So yeah, it's very cool. I had a Sheish State
Speaker 1: on the pod recently, you know, Ashish.
Speaker 3: Of course I know that she's he's my banker's great.
Speaker 1: He's great for he.
Speaker 3: Worked with me on buy and he also helps me
Speaker 3: with on the cell side, so he's great. Harrington Park's great.
Speaker 1: Yeah, he's awesome.
Speaker 2: So yeah, he was on the pod and he mentioned
Speaker 2: there's significantly more demand for the franchise ors versus company
Speaker 2: owned chains right now and that we've kind of had
Speaker 2: that shift. You know, I'm sure it depends on the brand,
Speaker 2: But when do you think a change should start looking
Speaker 2: at franchising? Is it at ten units, twenty five units,
Speaker 2: fifty units? When when should that you know, new muscle
Speaker 2: be worked on. Yeah, I think that he knows what
Speaker 2: he's talking about.
Speaker 3: I think that there's been a shift to franchise or
Speaker 3: models where people want to buy the franchise or because
Speaker 3: they can, they can push the expense and the cost
Speaker 3: and the risk of growing and developing those brands off
Speaker 3: to the franchisees. And the reason why they're doing that
Speaker 3: is because it's expensive right now. Everything's expensive to build.
Speaker 3: Real estate's expensive. Interest rates are high, so it's expensive
Speaker 3: to service that debt. So you really push that risk
Speaker 3: adjusted return off to the to the you know, the
Speaker 3: franchise e, and then for years, the franchise or you
Speaker 3: can kind of sit back and relax and take royalty.
Speaker 3: The problem is with that, though, is the cash on
Speaker 3: cash on some of these brands is so high. Why
Speaker 3: would you Why would you push that off to the
Speaker 3: franchise Z If you, as a corporate owner have such
Speaker 3: good returns and you have good build costs, you have
Speaker 3: no problem staffing your stores, you have the hype, you're
Speaker 3: in the right flavor segment. I actually believe that there's
Speaker 3: buyers for all types of brands in all different I
Speaker 3: would say chapters of their growth, and they don't always
Speaker 3: all have to be franchise or franchise y relationships. I
Speaker 3: also think that a lot of the amazing brands, and
Speaker 3: we've seen this too, Mike, there's been a lot of
Speaker 3: amazing brands where they have really screwed up their business
Speaker 3: because they went franchising too soon and they didn't really
Speaker 3: have a very good under belly or undercaracter foundation, whatever
Speaker 3: you want to call it, to their main business, the hub.
Speaker 3: And so for me, I always feel like, no matter
Speaker 3: if you go franchise or not, Like, we franchised a
Speaker 3: brand that we've been involved with for many years and
Speaker 3: we still own a significant majority of Swig drinks, and
Speaker 3: Swig you know, went out, we built fifty five sixty
Speaker 3: corporate stores, had this unbelievable cash flowing business. We were
Speaker 3: in the game, we were operators, and then we flipped
Speaker 3: the switch to say, well, let's start franchising to kind
Speaker 3: of protect our turf and still be the leader in
Speaker 3: dirty Sodas because it's the original concept creator of dirty Sodas.
Speaker 3: And we sold five hundred and fifty franchises and we're
Speaker 3: still adding twenty five units in corporate a year to
Speaker 3: be in the game with the franchise ese. But the
Speaker 3: franchisees that we got were like, well, since you know
Speaker 3: what it takes to be a you know, a store operator,
Speaker 3: an owner and operator of this business, we believe you more.
Speaker 3: We trust you, We're going to be in this together.
Speaker 3: And the other thing is we don't depend on them
Speaker 3: for franchise fees and royalty fees. I think that there's
Speaker 3: a disconnect between you and me, Mike. If you're the
Speaker 3: franchise O or I'm the franchise e, you have no thing,
Speaker 3: but I'm paying you every single month, and you're so
Speaker 3: dependent on it. You don't really care about my success.
Speaker 3: You just need my franchise fees and my royalty. Yes,
Speaker 3: So that for us, we just we don't think it's
Speaker 3: wrong to franchise. We have franchise businesses. It's just when
Speaker 3: do you franchise? Is really the position that we take.
Speaker 2: Yeah, it's interesting, you know, we think it's very important
Speaker 2: to have skin in the game for a franchise or
Speaker 2: for sure, and the most successful growth franchise or as
Speaker 2: we've seen Popeyes, is one that really comes to mind,
Speaker 2: or ones that care about their franchisees and have a
Speaker 2: good enough relationship that the franchises will share the P
Speaker 2: and L data and the franchisors will actually you know,
Speaker 2: help them make more money.
Speaker 3: Right, do something about it, right, Like I think that
Speaker 3: people that are enfranchising sometimes fail to understand you're not
Speaker 3: selling them something. They're not paying you for something, and
Speaker 3: for how great you are. There is a partnership. So
Speaker 3: it's just like getting an LLC document and signing it
Speaker 3: to get other. In my mind, you're both in bed together.
Speaker 3: Now you're partners. You're married for a period of at
Speaker 3: least ten years. On these franchise agreements. How would you
Speaker 3: treat your partner and how would you treat your spouse? Sir?
Speaker 3: How you want to treat your franchisees the same way.
Speaker 3: You want to be in partnership with them. And if
Speaker 3: they're not successful, you're not going to be successful. So
Speaker 3: we you know, within the Savory platform we have we
Speaker 3: have twelve brands, and within those brands, we have two
Speaker 3: of them franchising and others that are right on the
Speaker 3: verge of potentially franchising. But across the board, Savory will
Speaker 3: always have skin in the game. We will always have
Speaker 3: a foundational corporate body of stores to pay for team,
Speaker 3: to pay for innovation, to pay for technology, to pay
Speaker 3: for support, and not have the dependency on franchisees to
Speaker 3: do that for me. I want to do that for them.
Speaker 3: I don't want them to do it for me.
Speaker 1: Awesome.
Speaker 2: Any thoughts on cosmics, you know, cosmics interesting?
Speaker 3: Listen. I'm from Chicago and so I was born and
Speaker 3: bred in the Golden arch, you know days, And I
Speaker 3: think that the thing about mcdonn well that none of
Speaker 3: us can ever say anything about is how I think
Speaker 3: transformational their brand really is. I mean, they've gone through
Speaker 3: so many evolutions as that brand, and you know, they
Speaker 3: have some smart people over there. The thing I like
Speaker 3: about it is they've kept thinkings simple at McDonald's. Of
Speaker 3: course they add things in and out, but you know,
Speaker 3: I still eat the same freaking meal if I go
Speaker 3: to McDonald's as I did when I was a kid. Right, So,
Speaker 3: when I saw them spin out and do cosmics, I
Speaker 3: in my mind, I thought, man, that seems in my
Speaker 3: mind like a little bit of an offshoot. And it's
Speaker 3: also they're grasping for straws. In my mind, I think
Speaker 3: you should just stick with what you are as golden
Speaker 3: arches and introduce some things on your menu there. I
Speaker 3: think Cosmics is something that's interesting because it's also paving
Speaker 3: the road for new innovation within the segment of Hey,
Speaker 3: I just want to quick treat and I want to
Speaker 3: go grab something real quick, and I don't want to
Speaker 3: have a full menu. But I think Cosmics has got
Speaker 3: too big of a menu. I think that they should go,
Speaker 3: you know, more simple. It's hard to stay simple, Mike,
Speaker 3: and he says that several times in this industry, simple
Speaker 3: is hard. I mean, look at in and out how
Speaker 3: simple they've been all these years, and they crushed it.
Speaker 3: It's been hard for them to stick with X. They've
Speaker 3: been putting, you know, put pressure has been put on
Speaker 3: them to add things over the years, and they just haven't.
Speaker 3: And so I think simple is hard, and I think
Speaker 3: Cosmics not too simple. But I'll tell you this right now.
Speaker 3: It's impressive that they're going for it, and I actually
Speaker 3: think it'll be a success. But they have a long
Speaker 3: way to go to figure out what that's going to
Speaker 3: be and what it will look like across the country
Speaker 3: if they decide to do that.
Speaker 2: Yeah, for sure. I have a question about site selection.
Speaker 2: Is it difficult.
Speaker 1: For some of these hot emerging brands.
Speaker 2: You know, I'm sure there's there's a pretty significant competition
Speaker 2: for sites.
Speaker 1: I know what there is in the fast casual side, right.
Speaker 3: Yeah. Let me tell you why it's hard, though. I
Speaker 3: think it's probably a little different than what other people think.
Speaker 3: That that is, first and foremost, I've built I don't know,
Speaker 3: hundreds of millions of dollars of real estate from ground up.
Speaker 3: So I've bought land, built the buildings, put my concepts
Speaker 3: in them. I've also ground least take the land, I'll
Speaker 3: put all the improvements and put a building on it.
Speaker 3: I don't own it, but now the landlord does. I've
Speaker 3: also just done regular TI build out. I will say that,
Speaker 3: you know, since I've been in the industry the sixteen
Speaker 3: years that I have been, I came into it kind
Speaker 3: of during a recession, you know, in two thousand and eight,
Speaker 3: two thousand and nine, I've gone through kind of the
Speaker 3: pole years. We kind of hit the epidemic or pandemic,
Speaker 3: which slowed everything down. And then now we've kind of
Speaker 3: been in this new evolution of the industry of well,
Speaker 3: what's next. And I think that people don't really know
Speaker 3: what's next. And when I say that, as far as
Speaker 3: on the real estate, there's a lot of new product
Speaker 3: coming where people are going, which is the sprawl areas,
Speaker 3: the suburbs, where there's new people coming in in droves
Speaker 3: because they're living certain geographies and they're going to new
Speaker 3: geographies like Dallas and Houston and others that are just exploding,
Speaker 3: and so there's new product coming out of the ground.
Speaker 3: But what has made real estate super super hard over
Speaker 3: the last three years is one cost of construction and
Speaker 3: supply shortage. That was a huge, huge problem twenty twenty two,
Speaker 3: twenty twenty three, and I think everybody felt it cost
Speaker 3: to build something was up forty to fifty sixty sometimes
Speaker 3: one hundred percent, which is ridiculous. So you just can't
Speaker 3: make investment decisions that make sound, you know, return earns
Speaker 3: with that cost increase, and so I think it slowed
Speaker 3: everybody down from building new buildings, so there's not new
Speaker 3: product coming out of the ground. And then it's made
Speaker 3: people kind of overpriced or gouge people that are looking
Speaker 3: for land. So where you're trying to ground lease, you
Speaker 3: could use the ground lease something for sixty seventy eighty
Speaker 3: thousand to put a swig on it, and now everybody thinks, well,
Speaker 3: it's worth one hundred and twenty five hundred and forty
Speaker 3: five hundred and fifty a year, and I don't think
Speaker 3: that the landlords understand that's not sustainable. And so I
Speaker 3: think we're going to go through kind of a cycle
Speaker 3: right now where you're going to see a lot of
Speaker 3: people growing fast and then a lot of stuff coming
Speaker 3: back on market to flip it to someone else to
Speaker 3: sublet or take it off their hands because you just
Speaker 3: can't sustain those prices. So it's it's I think there's
Speaker 3: a big shake up right now in real estate. There
Speaker 3: is product out there, it's either old or dilapidated, and
Speaker 3: you have to regentrify it. Ground leases are very very expensive,
Speaker 3: and so we're just being disciplined and not overpain because
Speaker 3: we think that people are going to turn around and
Speaker 3: try to release it because they can't make money at
Speaker 3: those prices. And then construction costs have finally come down,
Speaker 3: mic so we're starting to see new projects that have
Speaker 3: been mothballed for the last couple of years start up again,
Speaker 3: and so we think that the next eighteen months there
Speaker 3: will be new projects to actually start negotiating on. But
Speaker 3: you're right, if there's a building, there's five, six, seven,
Speaker 3: eight lois that are in that, you know that owner's
Speaker 3: hands and he can play us all off of each
Speaker 3: other and try to get the best price, and kudos
Speaker 3: to him, you can do it. I would just say
Speaker 3: to all my counterparts in this industry, mic, stop screwing
Speaker 3: each other by, you know, raising the prices more and
Speaker 3: more and more. Let's just all be disciplined and say
Speaker 3: this is what works for us, and let's keep the
Speaker 3: prices down because we're doing it to ourselves.
Speaker 1: Yeah, that's really interesting.
Speaker 2: You know, what we're hearing is that some of these
Speaker 2: public chains are really driving up the prices of real
Speaker 2: estate because they're you know, public, and we're again in
Speaker 2: that Wall Street pressure to grow at you know, mid
Speaker 2: to high single digits every year. You know, obviously that's
Speaker 2: impacting the prices.
Speaker 3: You know.
Speaker 2: I guess one of the benefits, you know, of being
Speaker 2: a private company is that you don't have that quite
Speaker 2: that pressure and you can be a little bit more
Speaker 2: patient with the real estate, right.
Speaker 3: Yeah, you can. And I sometimes I wonder, I mean
Speaker 3: I own a lot of that stock in some of
Speaker 3: these public companies because I'm intrigued with them. I think
Speaker 3: they're doing an incredible job. But as I sit there,
Speaker 3: even as a shareholder and read everything that's going on,
Speaker 3: I think, are we, as investors or the public, let's
Speaker 3: just say, the street, do we care more about the
Speaker 3: unit count or the quality of the units? So is
Speaker 3: it quality over quantity, right? Or is it quantity over quality?
Speaker 3: And I think the problem is is that we we
Speaker 3: lean more on growth of units, so get more roofs
Speaker 3: out there built, And in my mind, I think that
Speaker 3: we're all backwards on that. Having you know, some of
Speaker 3: the greatest brands out there that have done incredible work
Speaker 3: over the last five ten years, the Sweet Greens, the Caavas,
Speaker 3: the Chipotles, you know, any of them. There's a certain
Speaker 3: point in time you have to make money. You got
Speaker 3: to make really good money too. And I can say
Speaker 3: that because we've made really, really good money on our brands,
Speaker 3: and I'm never hesitant to say I'm going to pause
Speaker 3: and perfect and get my profits up versus adding more roofs.
Speaker 3: And I think that the street mic as you know,
Speaker 3: they're like, well, you need to grow a twenty five
Speaker 3: or thirty five percent clip a year with more and
Speaker 3: more roofs. I wish the rhetoric would be and the
Speaker 3: interviews would be, how are you doing and have you
Speaker 3: increased profits and have you got a better customer sentiment
Speaker 3: so that you're a stabilized business. Instead it's just how
Speaker 3: many more units always every year? And it's like stupid
Speaker 3: because they are they're driving up the cost. You know,
Speaker 3: I go to a couple centers in Boston and I'm
Speaker 3: trying to say this because you're you're up in those
Speaker 3: neck of the woods. Love Boston. Boston's amazing, right, and
Speaker 3: there's so many beautiful places that we would love to grow.
Speaker 3: One of our brands in the DMV called South Block
Speaker 3: that's doing just an incredible job in the DMB, And
Speaker 3: I thought the DMB was expensive. You up to Boston,
Speaker 3: You're like, you know, yeah, the rents one hundred and
Speaker 3: fIF they're two hundred foot there. I'm like two hundred foot,
Speaker 3: Like Gucci can't afford that, Like what are you talking about?
Speaker 3: So yeah, I think that we're kind of lost our
Speaker 3: damn minds on what we think is realistic, and then
Speaker 3: people are pissed off when they have to spend ten
Speaker 3: dollars on a drink. It's like I the rent is
Speaker 3: you know, ridiculous, and so if we don't cool it,
Speaker 3: we're all going to be paying for it anyway. All right.
Speaker 2: Industry traffic has been an issue amid all the price
Speaker 2: increases that have been implemented. You know, customers are becoming
Speaker 2: more discerning with their dollars, the spreads widening between winners
Speaker 2: and losers. What can brands do to retain the customers
Speaker 2: that they have and help increase traffic in this environment?
Speaker 3: Yeah, this, and we're not immune to it. Savory is
Speaker 3: dealing with the same thing. I don't think anybody can
Speaker 3: say that they're immune to it. We have, you know,
Speaker 3: a portfolio of a dozen brands, like I told you,
Speaker 3: and we have some that are down in traffic, some
Speaker 3: that are flatten, some that are up. The thing that
Speaker 3: we're realizing we're trying to get the other ones that
Speaker 3: are down in traffic up. Of course, like everybody is
Speaker 3: that the consumer is fairly fit. And I think that
Speaker 3: with the consumer, they're not as loyal as they used
Speaker 3: to be. They're putting dollars where they feel they're getting
Speaker 3: the most value for their money, and they're dumping the
Speaker 3: brands that they feel like they're getting gouged. What we
Speaker 3: see is with one of our brands, you know, getting
Speaker 3: a good value and getting a lot of food. Let's
Speaker 3: just say weight to your dollar.
Speaker 1: Is more than one way to measure value.
Speaker 3: Absolutely there is that. I think there's this perceived value
Speaker 3: of I got a lot more from my money, so
Speaker 3: IM going to come back. And so I think the
Speaker 3: indulgent brands are winning right now for us, and I
Speaker 3: think for others as well. Where it's it can still
Speaker 3: be a larger price for a didem that they're buying,
Speaker 3: but still the perceived value is still higher for what
Speaker 3: you're getting. But indulgent brands, habitual brands and brands that
Speaker 3: are repetitive brands, you can eat a lot of it
Speaker 3: and you don't feel like it's something that's you know,
Speaker 3: for special occasions only. Those are the ones that are
Speaker 3: getting the traffic. It's just the bottom line. So I
Speaker 3: think it's going to come back, yes, But I do
Speaker 3: think that the American dollar is getting squeezed right in
Speaker 3: everybody's pocket. And because it's getting s these people are
Speaker 3: looking for value or they're putting it in the indulgence.
Speaker 3: So a snack in the afternoon. For right now, a
Speaker 3: lot of people are saying, well, I'm just grabbing a
Speaker 3: drink and a snack and that's their lunch. And so
Speaker 3: we're losing traffic to lunch because there's snack options out
Speaker 3: there now too. That when I say snack, not sugary
Speaker 3: like you know, unhealthy snacks. It can be a healthy
Speaker 3: snack with a you know, a flavored drink. But at
Speaker 3: the end of the day, I think people are substituting
Speaker 3: eating out like they used to with indulgent snack times
Speaker 3: and then value plays. That's just what they're doing.
Speaker 2: Yeah, And you know what's interesting and right now is
Speaker 2: everybody's trying to court those you know, gen Y and
Speaker 2: gen Z customers, and they tend to be very fickle
Speaker 2: and not very loyal.
Speaker 3: Right They're not loyal, and I think that we're all
Speaker 3: pushing for someone that is going to be loyal. The
Speaker 3: loyalty programs help quite a bit because we can watch
Speaker 3: what they're doing. But I will say the loyalty programs,
Speaker 3: where those fickle customers respond is when you actually offer
Speaker 3: them up some sort of a deal, right Like, if
Speaker 3: you come and do this, it's a bugo on this day,
Speaker 3: or if you come on this day, it's a fifty
Speaker 3: percent off, or they're using the old programs to actually
Speaker 3: go places to get value, right. So if you do
Speaker 3: that too much, then you're going to devalue your brand.
Speaker 3: Then you're just hurting your margins in the bottom line anyway.
Speaker 3: So you got to be really careful not to coop
Speaker 3: on the hell out of your brand, and you want
Speaker 3: to be very very careful to not just give away
Speaker 3: your profit because then you're working for nothing.
Speaker 1: Yeah. Yeah, we talk about it all the time.
Speaker 2: We saw that in the Great Recession, the chains that
Speaker 2: we're doing a lot of couponing train their customers that
Speaker 2: the food wasn't worth the price on the menu, and
Speaker 2: they would only come with a coupon in hand, whereas
Speaker 2: like a chain that had everyday value tend to do
Speaker 2: a lot better in the short and the long term.
Speaker 3: That's right, short and long term. And I think that
Speaker 3: there's some brands that I'm like man Man that is
Speaker 3: actually a fairly expensive burger, that's a really expensive bowl
Speaker 3: of food or whatever, they don't discount, and today they're
Speaker 3: some of the better brands out there. I mean, people
Speaker 3: know that they're going to get a good value and
Speaker 3: it's good quality, and I would just be very careful
Speaker 3: about overcooponing your business.
Speaker 2: Yeah, speaking of everyday value, Brinker's done a good job
Speaker 2: at Chili's right, they're ten ninety nine to three for
Speaker 2: me and throwing shade at the fast food chains for
Speaker 2: how expensive their value meals have become.
Speaker 3: It's been incredible. And like I said, people think always
Speaker 3: that casual dining is kind of like the dining breed.
Speaker 3: It's such a large segment of this industry, as you know, Mike,
Speaker 3: and how many of us don't go to sit downs.
Speaker 3: I mean, I don't think there's Americans that don't go
Speaker 3: sit down, have a table side server from time to
Speaker 3: time and eat a meal there. So I just think
Speaker 3: that people can't write that off. We definitely are looking
Speaker 3: at that market to make new investments, Mike. Is the
Speaker 3: casual dining now? Is it going to be defined dining
Speaker 3: where the papa is seventy five and one hundred dollars
Speaker 3: a person? No, But I do think Americans want to
Speaker 3: go out and still have a nice meal at Chili's, right,
Speaker 3: Like they still want to go sit down and have
Speaker 3: that experience.
Speaker 2: Yeah, and there's a lot of relevant emerging chains too,
Speaker 2: Like Lazy Dog comes to mind.
Speaker 3: Right, Lazy Dog has done a great job. Right.
Speaker 2: So on a previous life, you're a tech CEO and
Speaker 2: using your restaurant experience, what do you think are some
Speaker 2: of the most exciting new restaurant technologies out there? What
Speaker 2: needs do restaurants really have that you think can be
Speaker 2: filled with new and up and coming restaurant technologies.
Speaker 3: It's really interesting you say that, because we are approached
Speaker 3: a lot of times by technology, of course, because they
Speaker 3: want to sell to one of our brands and then
Speaker 3: get all of our brands because it's we're growing them all.
Speaker 3: So I think it's pretty interesting for them to get
Speaker 3: Savory and so we have a kind of a front
Speaker 3: seat that a lot of the different technologies that are
Speaker 3: coming out. And I feel like there's been so much tech.
Speaker 3: I remember when we when I got into this industry,
Speaker 3: like sixteen years ago. I remember getting our catering orders
Speaker 3: if you call it, or your daily orders on a
Speaker 3: fax machine. Like I can't even believe that was within
Speaker 3: my lifetime within the food and beverage industry. And I
Speaker 3: have people I know in this industry They've been in
Speaker 3: this industry industry for thirty years, and I'm like, holy crap.
Speaker 3: If I was getting them on fax machines, what were
Speaker 3: you guys were getting them on like scrolls, Like what
Speaker 3: the hell? It's just crazy to know how fast, you know,
Speaker 3: things have evolved in chas in this industry. Of course,
Speaker 3: the pandemic pushed more technology in this segment, food and
Speaker 3: beverage segment than ever before. We had this slide that
Speaker 3: was presented to us the other day of all the
Speaker 3: new tech in the industry and had hundreds and hundreds
Speaker 3: and hundreds of logos right on this sheet. And the
Speaker 3: problem for us as operators and the food and beverage
Speaker 3: segment is it's overwhelming. You don't even know which ones
Speaker 3: are going to help you, which ones are going to
Speaker 3: actually fine tune the business, make it more profitable, bring
Speaker 3: more business, make your customers more happy. So I do
Speaker 3: think that there's got to be a Darwinian shakeout also
Speaker 3: within the tech sector, within F and B, and I
Speaker 3: think that it will happen. I think it's already starting
Speaker 3: to happen. Because the tech industry is underwater right now,
Speaker 3: they're all swinging for it. I feel like it's a
Speaker 3: knife fight for all of them right now to raise
Speaker 3: money to continue. I think several of them that probably
Speaker 3: couldn't really get customer matching will probably fall out, and
Speaker 3: that's okay, I mean that's just what happens. But I
Speaker 3: will say that the ones that we're most interested in
Speaker 3: are the things that we have to do that a
Speaker 3: technology can simplify and reduce cost out of and reduce
Speaker 3: human intervention. So do I think AI is really intriguing
Speaker 3: in this industry, Yes, but we've been looking at AI
Speaker 3: every day. I feel like talked about AI this year
Speaker 3: like it's a new thing. AI has been talked about
Speaker 3: for years, right, Mike, and I think that AI has
Speaker 3: got a long way to go on how it's going
Speaker 3: to work to help our industry because it's such a
Speaker 3: touch point hospital it's hospitality, so there's so much high
Speaker 3: touch with our customers and within the restaurant that I
Speaker 3: don't think AI is going to take us out of
Speaker 3: this industry or take our consumers away from brick and mortar.
Speaker 3: But I do think AI is going to be interesting.
Speaker 3: And I think that robotics have a place, but they're
Speaker 3: just so far from from where we need them to
Speaker 3: be they're so expensive, and I don't think that they've
Speaker 3: nailed it yet. We're looking at a couple right now
Speaker 3: that we're very intrigued with, but it's just not there yet.
Speaker 3: So I think that some are too early still, and
Speaker 3: I think early adopters are testing it, and I think
Speaker 3: we'll wait for them to do that. I think AI
Speaker 3: is interesting, but I think it's also early adopting, and
Speaker 3: there's a lot of technology that is just on the
Speaker 3: base of chat, GPT and others that it's like, well,
Speaker 3: you really don't have anything unique in AI. It's just
Speaker 3: you're using chat GPT to do what you're doing. So
Speaker 3: I think there's going to be a shakeout. I think
Speaker 3: that their technology arena is still a little early in
Speaker 3: F and B, but we are still very very interested
Speaker 3: in using a lot of it where it's going to
Speaker 3: replace maybe some human intervention and reduce cost of other things.
Speaker 3: One example would be that we use and we actually
Speaker 3: invested into as well as eighty six repairs.
Speaker 1: You know, your.
Speaker 3: FMM or your FM costs and a business are so
Speaker 3: high that if you can do things to track, manage
Speaker 3: dispatch and get costs down on your facilities and maintenance costs.
Speaker 3: That's something we all have to do. It's a sucky
Speaker 3: thing you have to do in this industry, but you
Speaker 3: have to do with all of your brick and mortar locations,
Speaker 3: and CAPEX is expensive, and so using a technology like
Speaker 3: that has reduced our costs on facility management. And we're
Speaker 3: going to look at technologies to do things like that
Speaker 3: within every single line out. I'm in the middle of
Speaker 3: our P and L because technology should make a lot
Speaker 3: of those things better.
Speaker 2: Okay, good stuff, And I can't I can't end this
Speaker 2: until I talk to you about Detroit Stop Pizza because
Speaker 2: I'm a huge fan. Every time I go to Vegas,
Speaker 2: I visit Pizza Rock. I don't know if you oh
Speaker 2: yeah pizza. Oh my god, it's so good.
Speaker 3: And when you go in there in the semi staring
Speaker 3: you in your face, you kind of feel like you're
Speaker 3: a rock star. Right yeah.
Speaker 2: So one of your one of your investment companies, right
Speaker 2: via three one three Yes, sells Detroit Stop Pizza, Right yeah.
Speaker 3: It was. It's cool because I gotta be very careful
Speaker 3: because I'm from Chicago, mic so I'm an impost buying
Speaker 3: in troyt Hell pizza company. I gotta be honest, man,
Speaker 3: it is so damn good. I was a consumer, honestly.
Speaker 3: I was in I was in Austin, and whenever we're
Speaker 3: in a city, we always asked locals, Hey, where do
Speaker 3: you go with, where's the best pizza, where's the best
Speaker 3: Indian food, or where. So we always want to find
Speaker 3: out if we're looking at different flavor segments. And they said, oh,
Speaker 3: my gosh, you got to go to Via three one three,
Speaker 3: And the cool thing was is VIA three one three.
Speaker 3: I speak Spanish too, I'm bilingual, and so I heard
Speaker 3: VIA and I'm like, oh, that's by the way of
Speaker 3: And three one three is the area code over from Chicago,
Speaker 3: which is three one two. And I'm like, oh, it's
Speaker 3: by the Way of Detroit. And I'm like, it's Detroit
Speaker 3: style pizza. So I knew what it was, but most
Speaker 3: people don't understand that it's the area code of Detroit
Speaker 3: and it's by the Way of Detroit. My partners, Brandon
Speaker 3: and Zane Hunt, two brothers that lived and grew up
Speaker 3: in Detroit. We're done in Austin. They both had different
Speaker 3: jobs and they're like, there's not pizza like this here,
Speaker 3: and so they started out of the trailer and when
Speaker 3: they were serving the square pizza with the sauce on
Speaker 3: top and explaining what you know, Detroit Stale pizza was,
Speaker 3: people said, well, what is this and they said, well,
Speaker 3: it's Detroit style pizza. And they did that, Mike, fourteen
Speaker 3: years ago, thirteen years ago, Detroit style pizza was not
Speaker 3: really a phrase. When you were in Chicago, you just
Speaker 3: called it pizza. Yeah, And when you're in Detroit, you
Speaker 3: just call it pizza. You don't call it Detroit stell pizza.
Speaker 3: In Detroit, they were really the ones that coined the
Speaker 3: phrase Detroit stele pizza and they're actually identified as that
Speaker 3: and they're looked at as kind of the pioneers of
Speaker 3: Detroit Stell Pizza. So we made an investment a couple
Speaker 3: of years back. We're opening up stores twenty one to
Speaker 3: twenty five this year. We already opened up a couple
Speaker 3: this year and so we're getting close. Man, it's it's
Speaker 3: fun to it's fun to see that one grow because
Speaker 3: it's an unbelievable product, unbelievable story, and we're just honored
Speaker 3: to be working on that one with Brendan and Zane Hunt.
Speaker 3: Very cool.
Speaker 2: Yeah, that's dope, man. I mean, I my buddy introduced
Speaker 2: me to the Pizza Rock. I'm thinking it was probably
Speaker 2: right before the pandemic, you know, And to think in
Speaker 2: just a few years now, Pizza Hut is selling Detroit.
Speaker 3: Crazy, right. I remember when they came out with it,
Speaker 3: there was the you know, the promo for it, and
Speaker 3: I was with Brendan and Sane and we're like, well,
Speaker 3: we should go get some and see if it's good.
Speaker 3: I mean, we like pizza. And when we go eat
Speaker 3: other pizza to another Detroit style, if it's good, we're like,
Speaker 3: you guys, phenomenal job. I mean, we can't serve everybody.
Speaker 3: I mean, there's so many damn people on the earth.
Speaker 3: And so we go and try other people and we compliment.
Speaker 3: And the cool thing we've run it and saying is
Speaker 3: they're so pro everybody winning. I just love how they
Speaker 3: view everybody. And so we went and got Pizza Hut.
Speaker 3: We sat in my office and Savory and we all
Speaker 3: ate a piece and we all kind of looked at
Speaker 3: each other and a couple of people were like, well
Speaker 3: it's pretty okay, and there's like I don't really like it,
Speaker 3: and so it's just fun because yeah, pizza comes out
Speaker 3: with it's like Detroit style. It's like you're grasping.
Speaker 1: For sure, man, And it's awesome.
Speaker 2: And you know, you know to the point you made
Speaker 2: about everybody winning, and you know it is such a
Speaker 2: fragmented business and you know you don't you're not. It
Speaker 2: doesn't have to be a knife fight with every restaurant
Speaker 2: on the plot, all right. And I think that's what's
Speaker 2: beautiful about this industry. And I'm sure that's part of
Speaker 2: the reason why you've been drawn away from tech and
Speaker 2: into restaurants. Man, it's just filled with a lot of
Speaker 2: great people.
Speaker 3: It is, you know, tech. I always told people, they're like,
Speaker 3: why did you come from tech to food. I'm like,
Speaker 3: I don't know. I think that I'm going to my
Speaker 3: career and food and beverage. I've loved it so much.
Speaker 3: And you know, in tech, you all hold your cards
Speaker 3: so tight, right, and you're like, well, what are you
Speaker 3: working on? And they or I can't tell you. I'm like,
Speaker 3: I'm not even building the same type of tech as you.
Speaker 3: And in this industry it's so different because it's like, like,
Speaker 3: what are you doing? You tell me the brand you're
Speaker 3: doing and the food and it's amazing, and I'll share
Speaker 3: you what I'm doing, and I'm telling you how well
Speaker 3: I'm doing and where I'm successful and where I'm not.
Speaker 3: It just is so open and free flowing. It's one
Speaker 3: of the reasons why six years ago I started the
Speaker 3: Restaurantology Conference, my own conference where we put it on.
Speaker 3: We pay for everything. We don't have anybody there pitching anything,
Speaker 3: or any vendors or nothing. We have six hundred operators
Speaker 3: come and we just tell them everything we're doing. We
Speaker 3: have no secrets because I care that everybody wins, even
Speaker 3: there's people that compete with some of my brands are there.
Speaker 3: And then after in the hallway and during lunch when
Speaker 3: we feed everybody, they're all talking to each other and
Speaker 3: sharing what's working and what's not working. In my mind,
Speaker 3: nothing there has hurt anybody's business. It's only helped each
Speaker 3: other's business because we only learn from each other and
Speaker 3: we all want to improve. Can't feed everybody, you know,
Speaker 3: none of us can. So I agree, that's why I
Speaker 3: really have enjoyed this industry. I guess I'm going to
Speaker 3: stay in at my good stuff. Man.
Speaker 2: Well, listen, we're lucky to be in the industry, and
Speaker 2: the industry is lucky to have you, man.
Speaker 3: I appreciate that very much. Thank you, Mike.
Speaker 1: Be sure thing all right?
Speaker 2: So where can our listeners go to find out more
Speaker 2: about Savory Fund and find your podcast?
Speaker 3: Yeah, so Savory fund dot com is pretty easy. And
Speaker 3: then Restaurantology podcast is just on Apple, Spotify, everything else.
Speaker 3: And you know what I'm doing on that one is
Speaker 3: I'm just talking to some of our founders and telling
Speaker 3: the story. We're talking to some of our team and
Speaker 3: sharing things that we talk about at Restaurantology, tips and tricks,
Speaker 3: what was working for us, what's not. We have nothing
Speaker 3: to hide. We're telling everybody what we're doing. We want
Speaker 3: everybody to win. So unfortunately people can believe that if
Speaker 3: they want, but truly I want everybody to win.
Speaker 2: Good stuff and the big thanks to the audience for
Speaker 2: tuning in. If you liked the episode, please subscribe and
Speaker 2: leave a review. Check back soon for a conversation with
Speaker 2: Jeff Chandler, the CEO of Hop Dottie
Speaker 3: Stan