WEBVTT - FAT Brands’ Wiederhorn on Growth, Debt Paydown 0:00:13.400 --> 0:00:16.079 Welcome to Chopping It Up. I'm your host, Mike Allen, 0:00:16.120 --> 0:00:19.160 the senior Restaurant and food service analyst at Bloomberg Intelligence. 0:00:19.920 --> 0:00:22.560 Our research and that of bi's five hundred analysts around 0:00:22.600 --> 0:00:25.280 the globe can be found exclusively on the Bloomberg terminal. 0:00:25.800 --> 0:00:27.720 If you enjoy the pod, I'd really love it if 0:00:27.720 --> 0:00:30.040 you could leave us a review on Apple or Spotify. 0:00:30.280 --> 0:00:32.960 Today we're joined by Andy Wiederhorn, the founder and chairman 0:00:33.000 --> 0:00:36.600 of Fat Brands. Fat Brands is ninety two percent franchised. 0:00:37.000 --> 0:00:40.479 It's a multi brand restaurant company with about twenty three 0:00:40.560 --> 0:00:43.720 hundred units across sixteen chains and trades on the NASDAQ 0:00:43.800 --> 0:00:48.440 with the ticker fat Fat. Welcome to the pod, Andy. 0:00:48.280 --> 0:00:49.120 Thanks for having me. 0:00:49.720 --> 0:00:52.319 I'd like to start with Twin Peaks. Many of your 0:00:52.320 --> 0:00:55.040 listeners probably know that the chain was spun out in 0:00:55.080 --> 0:00:58.320 an IPO earlier this year. What percentage of the company 0:00:58.360 --> 0:01:01.639 to Fat Brands retained and what were the proceeds used 0:01:01.640 --> 0:01:01.880 for it. 0:01:02.280 --> 0:01:04.640 Yeah, so we spun it out just at the beginning 0:01:04.680 --> 0:01:07.560 of the year, divid ending five percent of the company 0:01:07.600 --> 0:01:11.920 to the Fat shareholders and retaining a ninety five percent interest. 0:01:11.959 --> 0:01:16.360 But after management gets some options and bondholders got some options. 0:01:16.400 --> 0:01:19.160 It's probably in the low nineties at this time. 0:01:20.000 --> 0:01:22.400 We planned to do an equity offering at some point 0:01:22.840 --> 0:01:25.080 before the end of the year when the equity markets 0:01:25.080 --> 0:01:28.080 opened up a little bit for restaurants, and then we'll 0:01:28.080 --> 0:01:31.880 have new proceeds raised to build more restaurants, pay down debt. 0:01:32.200 --> 0:01:34.520 Those are our primary focuses today. 0:01:35.200 --> 0:01:38.360 I read that you found your next leader of that brand, so. 0:01:38.319 --> 0:01:42.199 We hired a dynamic new CEO named Kim Boima, who 0:01:42.319 --> 0:01:45.120 has a lot of experience thirty or forty years of 0:01:45.160 --> 0:01:49.360 experience at Texas Roadhouse, California Pizza Kitchen, and a number 0:01:49.360 --> 0:01:52.360 of other brands, a lot of bar experience from Texas Roadhouse, 0:01:52.440 --> 0:01:55.320 so he's a rock star. We're delighted to have him 0:01:55.320 --> 0:01:59.800 on board. He started maybe four weeks ago and is 0:02:00.000 --> 0:02:03.040 really settled into the position already and is focused on 0:02:03.840 --> 0:02:09.200 franchise profitability, corporate store restaurant level margin, and unit development. 0:02:09.240 --> 0:02:11.400 We have a very big pipeline of another one hundred 0:02:11.400 --> 0:02:15.440 stores for Twin to build out over the next few years, 0:02:15.480 --> 0:02:17.560 and we're really focused on getting those stores open. 0:02:17.600 --> 0:02:20.120 Great and Smoky Bones was included in the IPO. I 0:02:20.120 --> 0:02:22.760 think you expect to confert about half of the Smoky 0:02:22.800 --> 0:02:26.440 Bones restaurants to Twin Peaks. How much will the conversions 0:02:26.520 --> 0:02:28.920 cost compared to a new build, and what kind of 0:02:29.040 --> 0:02:31.239 auv uplift are you seeing. 0:02:31.840 --> 0:02:34.880 It's a really interesting story, this conversion of half the 0:02:34.919 --> 0:02:38.000 Smoky Bones. There are about sixty one Smoky Bones at 0:02:38.040 --> 0:02:41.000 the time of our acquisition eighteen months ago. About half 0:02:41.080 --> 0:02:46.120 of them are convertible into Twin Peaks. The other half isn't, 0:02:46.240 --> 0:02:49.359 either because it's a trade area that's no longer attractive 0:02:49.360 --> 0:02:51.560 to Twin Peaks, or it just doesn't qualify in the 0:02:51.680 --> 0:02:54.480 lease with a landlord because of the percentage of alcohol 0:02:54.760 --> 0:02:57.200 or some other restriction. We may have a Twin Peaks 0:02:57.240 --> 0:03:01.080 already nearby. So of those thirty ish stores that are 0:03:01.080 --> 0:03:03.880 going to convert, at least ten will be corporate, tann 0:03:03.880 --> 0:03:06.120 will be franchised, and the other ten are in between 0:03:06.160 --> 0:03:08.480 a corporate or franchise market. So we'll figure that out 0:03:08.960 --> 0:03:12.880 along the way. We're seeing almost a doubling in sales 0:03:12.919 --> 0:03:17.440 when we convert, like we converted the first store in Lakeland, Florida, 0:03:18.360 --> 0:03:22.080 back in the fall of twenty twenty four, I was 0:03:22.120 --> 0:03:25.359 doing three point six million as a Smoky Bones and 0:03:25.440 --> 0:03:28.040 it opened up doing eight million plus as a Twin 0:03:28.080 --> 0:03:30.639 Peaks will probably settle in right around seven or eight million. 0:03:30.919 --> 0:03:34.520 Then we opened brand in Florida as well, just in 0:03:34.560 --> 0:03:36.800 the spring here in February or the end of the winter, 0:03:36.920 --> 0:03:40.080 and we're seeing a doubling again. So we really think 0:03:40.120 --> 0:03:42.480 that Darden did a great job years ago picking the 0:03:42.520 --> 0:03:44.640 real estate for these locations when they were the original 0:03:44.760 --> 0:03:48.280 owner of Smoky Bones, and we're taking advantage of that now. 0:03:48.280 --> 0:03:53.400 We'll still end up with somewhere between twenty and twenty two, 0:03:53.520 --> 0:03:57.240 I think Smoky Bones that are freestanding, like we talked about, 0:03:57.280 --> 0:04:00.280 and we'll continue to operate those for the foreseeable future 0:04:00.280 --> 0:04:02.640 and probably grow that brand a little bit. It's about 0:04:02.760 --> 0:04:04.720 eight or nine that will close just because it's end 0:04:04.720 --> 0:04:06.560 of lease and it doesn't make sense to convert. 0:04:06.360 --> 0:04:10.240 Them, okay, and so in the near term the store 0:04:10.240 --> 0:04:13.680 conversions and closures are kind of weighing on your revenue 0:04:13.720 --> 0:04:16.799 and margins. When do you expect that headwind to become 0:04:16.839 --> 0:04:17.400 a tailwind? 0:04:18.080 --> 0:04:21.560 Good question. That should end this year. We should finish 0:04:21.560 --> 0:04:24.679 the full integration of Smoky Bones into the Twin Peaks team. 0:04:25.120 --> 0:04:27.920 We'll save the business three or four million dollars of 0:04:28.000 --> 0:04:34.000 operate expense. We also will get two or three more 0:04:34.279 --> 0:04:37.599 conversions done in the next nine months or so, so 0:04:37.680 --> 0:04:40.320 either beginning of next year or end of this year, 0:04:40.640 --> 0:04:43.360 and that will ramp up the revenue because they're doing 0:04:43.400 --> 0:04:45.800 twice as much volume as a Twin Peaks as the 0:04:45.839 --> 0:04:49.400 Smokey Bones, and when they're temporarily closed for conversion, you're 0:04:49.400 --> 0:04:52.000 not getting revenue from either brand, so that gives you 0:04:52.000 --> 0:04:54.600 a little bit of a lag. Franchisees are also starting 0:04:54.640 --> 0:04:57.839 to develop their stores and that's going to accelerate here 0:04:58.040 --> 0:05:01.080 in the coming quarter or two. So very positive about it, 0:05:01.160 --> 0:05:04.840 very happy about it. You can't happen fast enough. From 0:05:04.880 --> 0:05:08.080 a cost perspective, it's three or four million dollars to 0:05:08.120 --> 0:05:10.160 get one of these conversion into a Twin Peaks from 0:05:10.160 --> 0:05:14.039 the Smoky Bones. But if you build a Twin Peaks 0:05:14.080 --> 0:05:15.920 from the ground up, you're going to spend two million 0:05:15.960 --> 0:05:18.720 on the land and another five or five and a 0:05:18.760 --> 0:05:19.719 half million. 0:05:19.960 --> 0:05:20.880 To build the building. 0:05:21.440 --> 0:05:23.480 They may do a sale lease back and pull out 0:05:23.520 --> 0:05:26.120 some of that, but it's a significant investment. So here 0:05:26.120 --> 0:05:28.479 you're spending three or four million versus seven you know, 0:05:28.520 --> 0:05:30.200 seven or eight million, you know, give or take the 0:05:30.279 --> 0:05:33.520 real estate. So it's just another approach to make it interesting. 0:05:33.520 --> 0:05:35.719 And of course, well we do these conversions, we're getting 0:05:35.720 --> 0:05:37.320 a new lease with a lot of options and things 0:05:37.360 --> 0:05:39.960 like that, so it's a it's a pretty solid way 0:05:40.000 --> 0:05:40.159 to go. 0:05:40.920 --> 0:05:43.160 Yeah, I mean, it's a huge difference in auv it's 0:05:43.160 --> 0:05:48.520 a huge difference on investment costs. That's fantastic. How long 0:05:48.560 --> 0:05:49.560 do the conversions take? 0:05:50.360 --> 0:05:52.680 They take about nine months now ground up build of 0:05:52.839 --> 0:05:54.520 if you buy the land build a building, it's like 0:05:54.520 --> 0:05:55.920 two and a half years by the time you do 0:05:55.960 --> 0:05:58.040 in title months and get the restaurant built, so it 0:05:58.160 --> 0:06:02.400 significantly faster. It accelerates our new unit development. It's a 0:06:02.400 --> 0:06:05.159 good opportunity for you know, the franchise e to to 0:06:05.360 --> 0:06:07.800 move quicker on some of their development opportunities. They can 0:06:07.800 --> 0:06:10.160 get some financing for it, like equipment and things like that. 0:06:10.279 --> 0:06:14.000 So we think it'll you know, it'll really continue to 0:06:14.400 --> 0:06:16.000 lean into accelerating growth. 0:06:16.480 --> 0:06:19.320 Okay, And what's the alcohol mix and how our customers 0:06:19.400 --> 0:06:20.560 receiving the new bar menu? 0:06:21.360 --> 0:06:24.560 So we do about forty eight percent alcohol, which is 0:06:24.600 --> 0:06:26.840 really you know, really you know, cutting edge. It's a lot, 0:06:26.960 --> 0:06:29.880 it's a and it's a Barbelle system where you can 0:06:29.960 --> 0:06:34.160 have five dollars beers or thirty five dollars fancy tequila 0:06:34.240 --> 0:06:38.599 or whiskey, you know, whiskey shots or or on a 0:06:38.600 --> 0:06:41.040 big ice cube. So you know, there's a there's a 0:06:41.040 --> 0:06:44.200 big range there in the bar business, and there's there's 0:06:44.360 --> 0:06:45.839 we're trying to refine that a little bit and just 0:06:45.839 --> 0:06:47.840 make sure we're taking advantage of the margin with forty 0:06:47.839 --> 0:06:51.440 eight percent alcohol. On the menu side of things, there's 0:06:51.440 --> 0:06:53.520 also a little bit of streamlining going on. We've got 0:06:53.720 --> 0:06:56.920 a very good scratch kitchen menu and you can come 0:06:56.960 --> 0:07:00.400 into the restaurant and you can eat a steak or fish, 0:07:00.520 --> 0:07:02.640 or you can have bar food and you know, you 0:07:02.680 --> 0:07:04.760 pick whether you want an entree or all kinds of appetizers. 0:07:04.760 --> 0:07:08.279 And that's really made it a well rounded menu offering 0:07:08.760 --> 0:07:12.600 twenty five percent of the customers are female, and so 0:07:12.640 --> 0:07:14.560 you've got to have a well rounded menu to make 0:07:14.560 --> 0:07:15.760 sure you've got enough for everybody. 0:07:15.800 --> 0:07:16.640 Salad things like that. 0:07:17.080 --> 0:07:19.800 Of the other fifteen brands in the portfolio, which ones 0:07:19.800 --> 0:07:22.040 have the best growth profiles. 0:07:21.600 --> 0:07:25.520 Well, about seven of them are high growth. So that's Faberger, 0:07:25.720 --> 0:07:30.080 Johnny Rockets Round Table Pizza, Fizzoli's Twin Peaks we just 0:07:30.120 --> 0:07:33.000 spoke of, and then our cookies and ice cream brand, 0:07:33.600 --> 0:07:36.280 Marble Slab Creamery and Great American Cookie. Those were all 0:07:36.480 --> 0:07:39.560 with a thousand store pipeline across all of that brands. 0:07:39.560 --> 0:07:42.320 So in addition to the twenty three hundred restaurants open 0:07:42.400 --> 0:07:44.880 or under construction, there's another one thousand that have been 0:07:44.880 --> 0:07:48.000 paid for and signed up by the franchisees to build, 0:07:48.520 --> 0:07:51.720 and they'll build somewhere one hundred to one hundred and 0:07:51.760 --> 0:07:54.600 twenty a year going forward, and hopefully we can accelerate 0:07:54.600 --> 0:07:55.320 that even more. 0:07:55.760 --> 0:07:55.960 So. 0:07:56.160 --> 0:07:59.760 It's a very solid source of organic growth where we're 0:07:59.800 --> 0:08:02.560 not going out buying more brands for growth, but we're 0:08:02.600 --> 0:08:05.840 actually organically growing that at basically the zero cost. 0:08:06.440 --> 0:08:10.160 And you're exploring the refranchising of fifty seven Fasolis units, 0:08:10.400 --> 0:08:12.480 what kind of multiple do you expect to get on them, 0:08:12.560 --> 0:08:14.720 how much do you expect to raise and how much 0:08:14.840 --> 0:08:16.680 SG and A savings will you realize? 0:08:17.400 --> 0:08:18.000 Great question. 0:08:18.560 --> 0:08:22.120 Yeah, So when we convert the remaining company owned Fazoli 0:08:22.200 --> 0:08:25.120 stores to franchises will be one hundred percent franchised in 0:08:25.160 --> 0:08:27.920 that system. We expect it to be a single buyer, 0:08:28.800 --> 0:08:32.520 but you never know, you know, it could raise somewhere 0:08:33.000 --> 0:08:35.480 anywhere from fifteen to twenty five million dollars depending on 0:08:35.640 --> 0:08:39.320 you know, the transaction we end up negotiating, including the 0:08:39.480 --> 0:08:43.040 royalty percentage and things like that, but that'll all go 0:08:43.120 --> 0:08:46.560 to pay down debt. In the faciliti securitization, it'll say 0:08:46.640 --> 0:08:49.559 at least three million dollars of SG and A to FAT, 0:08:49.640 --> 0:08:52.679 So it makes us money that the amount of royalty 0:08:52.840 --> 0:08:57.000 will at least be equal to or exceed the earnings 0:08:57.040 --> 0:08:59.600 on those company owned stores. So it works, you know, 0:08:59.720 --> 0:09:02.720 plus we save the overhead. The multiple is somewhere in 0:09:02.720 --> 0:09:04.040 the four to six times rage. 0:09:04.320 --> 0:09:06.360 Okay, and I saw that you were looking into some 0:09:06.880 --> 0:09:11.599 duel or multiple branded store types. Can you talk a 0:09:11.640 --> 0:09:13.600 little bit about that and how those are doing. 0:09:14.080 --> 0:09:17.199 Yeah, we've been co branding for years, over a dozen years. 0:09:17.200 --> 0:09:20.520 We have Faburger and Buffaloes Express, which is a sort 0:09:20.520 --> 0:09:23.760 of a wing stop version of a chicken restaurant. So 0:09:23.840 --> 0:09:25.800 we have a number of those co branded, about one 0:09:25.840 --> 0:09:29.400 hundred of them where it's a Fatburger Buffaloes Express. And 0:09:29.440 --> 0:09:32.640 then we have some Johnny Rockets where they have hurricane 0:09:32.640 --> 0:09:36.120 wings in their restaurants. As well, and then we've done 0:09:36.120 --> 0:09:38.679 a try brand with Hotdog on a stick. We've done 0:09:38.679 --> 0:09:42.199 a try brand with round table pizza, Fatburger and one 0:09:42.200 --> 0:09:46.240 of the other brand's chicken or wings like Hurricane or Buffaloes, 0:09:47.040 --> 0:09:49.400 and they've all been very interesting because you're just giving 0:09:49.400 --> 0:09:52.600 a broader menu appeal to your customers when they can 0:09:52.720 --> 0:09:56.880 come in and do that. And we have finally well 0:09:56.920 --> 0:10:00.240 over one hundred of the Marble Slab ice Cream Great 0:10:00.280 --> 0:10:02.800 American Cookies units that are co branded, so you know, 0:10:02.840 --> 0:10:04.960 of course cookies and ice cream go together well, and 0:10:05.040 --> 0:10:06.439 if you're going to open one, you might as well 0:10:06.480 --> 0:10:08.040 open both and take advantage of that. 0:10:08.800 --> 0:10:10.840 Yeah, you took the words right out of my mouth. 0:10:10.840 --> 0:10:13.679 That seems like a natural pairing for the brands that 0:10:13.720 --> 0:10:17.640 you're co branding. Are you careful about the menu size, 0:10:17.679 --> 0:10:20.640 because you know, we were reading about the dining brand's 0:10:20.640 --> 0:10:25.800 attempts to merge Applebee's and ihop, and there's some talk 0:10:25.880 --> 0:10:29.079 about the two menus kind of being too too big 0:10:29.120 --> 0:10:33.040 and too too much for employees to learn up front. 0:10:33.480 --> 0:10:36.200 It's pretty easy for us on the co branding side 0:10:36.240 --> 0:10:39.560 because they're different brands, and so if you're doing the 0:10:39.600 --> 0:10:43.560 burger brands and you add wings, it's it's you know, 0:10:43.559 --> 0:10:45.480 it's wings and tenders things like that with. 0:10:45.440 --> 0:10:47.400 A bunch of sauces. It's nothing complicated. 0:10:48.800 --> 0:10:51.600 What's more complicated is if you're doing a fat burger 0:10:51.679 --> 0:10:53.400 a round table pizza, because the each have their own 0:10:53.440 --> 0:10:55.240 menus and then you you know, you add something else, 0:10:55.280 --> 0:10:58.360 whether it's dessert or you know, pretzel maker or something 0:10:58.360 --> 0:11:01.280 to it, which is pretty simple. So you really those 0:11:01.320 --> 0:11:04.520 big Try brands are really sort of two separate restaurants 0:11:04.559 --> 0:11:07.800 with one kitchen, but they're they're fully different menus. And 0:11:07.800 --> 0:11:10.000 then you know, clickies and ice cream is easy. That 0:11:09.760 --> 0:11:12.439 that is what it is. So it's not too difficult. 0:11:13.640 --> 0:11:16.720 Nothing crazy like two casual dining, you know, restaurant menus 0:11:16.720 --> 0:11:18.000 in one that that would. 0:11:17.840 --> 0:11:20.880 Be tough for sure. Let's talk about your franchise ease. 0:11:20.960 --> 0:11:23.800 How is access to capital and availability of quality real 0:11:23.880 --> 0:11:24.560 estate right now? 0:11:25.920 --> 0:11:28.120 Well, it's been you know, it's been a challenge for 0:11:28.200 --> 0:11:30.760 the last couple of years as you saw inflation raise 0:11:31.240 --> 0:11:35.720 the cost of building new restaurants significantly, and you know, 0:11:35.760 --> 0:11:38.880 financing became more expensive, so franchises were dragging their feet 0:11:38.880 --> 0:11:43.040 a little bit to build stores and where we optimistically 0:11:43.040 --> 0:11:44.880 had hopes of opening between one hundred and twenty one 0:11:44.920 --> 0:11:47.160 hundred and fifty units a year. The last couple of 0:11:47.200 --> 0:11:50.800 years we've been around one hundred. Still great new store openings, 0:11:50.840 --> 0:11:54.959 but that's all that is. Franchise is walking slower. Making sure. 0:11:56.080 --> 0:12:00.440 You know, this most recent tariff interruption sort of a 0:12:00.480 --> 0:12:03.240 non event, but definitely had franchises worried about our equipment 0:12:03.280 --> 0:12:04.959 price is going to go up yet again because there's 0:12:05.000 --> 0:12:07.720 all kinds of important equipment fryers, grills, things like that. 0:12:08.480 --> 0:12:11.280 Not so much the construction cost, but more like the 0:12:11.480 --> 0:12:16.080 important equipment. So we seem to have a calm sense 0:12:16.160 --> 0:12:19.400 of let's move forward again at full speed coming from 0:12:19.440 --> 0:12:22.760 the franchise system. So we're hearing them all step up 0:12:22.800 --> 0:12:25.320 with their development plans, come in for plan approval, things 0:12:25.360 --> 0:12:28.840 like that at a much faster pace. So I'm optimistic 0:12:28.840 --> 0:12:32.600 that will not only get there's one hundred stores open 0:12:32.679 --> 0:12:35.120 this year, but it'll lean into a higher number in 0:12:35.240 --> 0:12:36.560 the in the hopper for next year. 0:12:36.640 --> 0:12:39.360 It's good to hear the company reduced SG and A 0:12:39.480 --> 0:12:43.080 spending by five million a year. Where were those cuts made? 0:12:43.240 --> 0:12:46.320 You know, there's some at the senior level where you know, 0:12:46.360 --> 0:12:48.640 we haven't been as inquisitive, so we don't need quite 0:12:48.679 --> 0:12:52.520 as much finance team experience there. And then there's just 0:12:52.600 --> 0:12:55.480 some operating efficiencies on legal department things like that, where 0:12:55.480 --> 0:12:57.160 we've you know, we've sort of been able to automate 0:12:57.200 --> 0:12:59.839 some things and it's helped us reduce cost work. 0:13:00.040 --> 0:13:00.760 Anyone to look at that. 0:13:00.800 --> 0:13:03.240 I think that over time and the and the merger 0:13:03.440 --> 0:13:06.960 of Smoky Bones into Twin Peaks, and then fis always 0:13:06.960 --> 0:13:09.559 converting to refranchise stores, you know, that'll that'll be upwards 0:13:09.600 --> 0:13:09.839 of a. 0:13:09.760 --> 0:13:12.079 Ten million dollars savings on a consolidated basis. 0:13:12.080 --> 0:13:15.840 Interesting. Yeah, I think chat GPT may be helping everybody 0:13:15.840 --> 0:13:17.360 save money on legal expenses too. 0:13:17.400 --> 0:13:17.520 Man. 0:13:17.600 --> 0:13:20.120 You can you can ask it to create an fd 0:13:20.360 --> 0:13:24.480 D for you know, a restaurant concept, and it comes 0:13:24.480 --> 0:13:26.480 out with some pretty interesting stuff. 0:13:26.520 --> 0:13:30.160 Man, love that. Got to try that for sure. 0:13:30.160 --> 0:13:30.880 Liking at all. 0:13:33.520 --> 0:13:37.640 For sure. Speaking of lawyers, litigation expense jumped in the quarter. 0:13:38.360 --> 0:13:40.319 How much longer will that continue to be? Ahead wind 0:13:40.360 --> 0:13:41.200 to the P and L. 0:13:41.520 --> 0:13:46.640 We think that the majority of the litigation expense goes 0:13:46.679 --> 0:13:47.920 away this year. 0:13:49.040 --> 0:13:49.800 One way or the other. 0:13:50.040 --> 0:13:52.800 These cases will come to an end through settlement or 0:13:53.559 --> 0:13:56.480 other means, trials, whatever, but it'll all be over this year. 0:13:57.440 --> 0:14:02.760 Goodness utilization at the key production facility is kind of 0:14:02.800 --> 0:14:05.960 low right now, and that forty to forty five percent range. 0:14:06.160 --> 0:14:08.080 How long will it take to get to your near 0:14:08.160 --> 0:14:11.760 term goal of sixty to seventy percent and how do 0:14:11.800 --> 0:14:12.760 you plan to get there? 0:14:13.080 --> 0:14:16.640 Yeah, we have two programs that are in the works 0:14:16.679 --> 0:14:20.040 right now and rolling out right now. One is a 0:14:20.080 --> 0:14:24.760 test program of seven eleven where they're taking our cookies 0:14:24.760 --> 0:14:27.840 and selling them in the stores and there's an option 0:14:27.960 --> 0:14:31.560 to freshly bake them in the stores, and that has 0:14:31.680 --> 0:14:34.200 legs to it that will give us a lot of 0:14:34.280 --> 0:14:37.040 production and I think it'll go very well and the 0:14:37.040 --> 0:14:39.560 customers will really will like those freshly baked cookies in 0:14:39.560 --> 0:14:43.160 the stores with an oven that they put in and 0:14:43.200 --> 0:14:45.600 they use our fresh dough and bacon in the oven 0:14:45.640 --> 0:14:47.680 on the spot. It's called easy Bake and it's really 0:14:47.720 --> 0:14:51.000 a great program. And then we also have a number 0:14:51.000 --> 0:14:52.760 of other chains. Chuck E Cheese is one that we're 0:14:52.800 --> 0:14:55.600 rolling out now where they're taking the Great American cookies 0:14:55.640 --> 0:14:57.640 and selling them in the restaurants. And again that's a 0:14:57.640 --> 0:15:01.400 branded product, and you know, branded products just sell better 0:15:01.880 --> 0:15:05.120 in restaurants than unbranded products. So rather than every chain 0:15:05.440 --> 0:15:08.360 having their own cookie named you know whatever, it is, 0:15:09.200 --> 0:15:11.680 using a great American cookie, which is a recognized name 0:15:11.720 --> 0:15:14.920 that's been around for years, gives people lift and traction 0:15:15.080 --> 0:15:17.640 and helps move the product. And so you know, that's 0:15:17.680 --> 0:15:21.080 been our that's been our focus, and that will soak 0:15:21.160 --> 0:15:25.480 up quite a bit of excess capacity as it gets 0:15:25.560 --> 0:15:26.320 rolled out. 0:15:26.640 --> 0:15:31.000 That's really interesting. What kind of lift the chains typically say. 0:15:31.960 --> 0:15:34.320 Well, I mean it depends on your dessert mix to 0:15:34.360 --> 0:15:35.960 start with, but you know you can if you can 0:15:35.960 --> 0:15:37.160 get five percent of sales. 0:15:36.880 --> 0:15:37.320 You're happy. 0:15:37.360 --> 0:15:40.040 You're very happy right with you know that kind of target. 0:15:40.080 --> 0:15:42.080 So that's anywhere from two to five is what they're 0:15:42.080 --> 0:15:44.080 looking for. But it's also a good margin product, so 0:15:44.560 --> 0:15:46.640 I think it has a sort of a win win 0:15:46.720 --> 0:15:47.280 for everyone. 0:15:47.880 --> 0:15:50.360 And do you expect to see more vertical integration in 0:15:50.400 --> 0:15:53.440 the restaurant industry? You know some of the you know, 0:15:54.040 --> 0:15:57.720 there's been articles out about lemon squeezing robots, Chick fil 0:15:57.760 --> 0:16:03.040 A and you know, salad and has been implementing you know, 0:16:03.120 --> 0:16:06.080 commissaries for a while. Do you do you see more 0:16:06.160 --> 0:16:08.960 vertical integration in this inflationary environment? 0:16:09.520 --> 0:16:11.400 Well, you're always going to try to be efficient. You're 0:16:11.400 --> 0:16:13.240 always going to look at things that make you efficient. 0:16:13.280 --> 0:16:16.440 But this is still a hospitality space, and guests want 0:16:16.440 --> 0:16:18.800 to interact with someone and want to see their food 0:16:18.840 --> 0:16:21.360 being made, and you know, you start to worry when 0:16:21.400 --> 0:16:23.120 you don't see anything and it's all behind a wall 0:16:23.160 --> 0:16:24.600 and it gets passed out to you. And you know, 0:16:24.920 --> 0:16:27.800 in the age of you know, making things healthier here, 0:16:27.920 --> 0:16:30.680 I think everyone wants transparency and so I mean there's 0:16:30.680 --> 0:16:32.160 always a little bit of it, and you know, some 0:16:32.240 --> 0:16:34.440 of that can help and save the margin and all 0:16:34.480 --> 0:16:38.040 of that. But we're still in the hospitality business. We're 0:16:38.040 --> 0:16:40.800 still going to make burger shakes and fries and in 0:16:40.800 --> 0:16:42.800 front of people and pass them across the counter. 0:16:42.640 --> 0:16:44.760 Or deliver them to their table, and you know, that's 0:16:44.840 --> 0:16:45.640 part of the experience. 0:16:47.240 --> 0:16:49.680 What are you seeing from the US consumer across your 0:16:49.680 --> 0:16:52.960 brands because you're operating in you know, pretty much every 0:16:53.000 --> 0:16:55.720 segment of the market, you know, fast casual, criick service, 0:16:55.760 --> 0:16:59.000 casual dining, polished casual. So what are you seeing. Are 0:16:59.000 --> 0:17:03.520 you seeing any movement in terms of you know, spending 0:17:03.520 --> 0:17:06.879 by low income consumers, middle income consumers. What are you 0:17:06.920 --> 0:17:07.840 seeing from your brands. 0:17:08.119 --> 0:17:10.560 We're very happy that we're not in fine dining these 0:17:10.640 --> 0:17:13.199 days because find dining, you know, it's really tricky in 0:17:13.240 --> 0:17:15.680 terms of consumer confidence and how much they're going to spend. 0:17:15.720 --> 0:17:18.439 And then you have inflation creep where you know, to 0:17:18.480 --> 0:17:20.400 go out to dinner and find dining restaurant the price 0:17:20.440 --> 0:17:24.040 is almost doubled over the last five years, and you 0:17:24.119 --> 0:17:28.520 that sticker shock beyond belief right in At the lower 0:17:28.560 --> 0:17:31.880 tiered brands QSR, fast casual, et cetera. You've seen people 0:17:31.880 --> 0:17:34.760 trade down. They've traded to the left, So a fast 0:17:34.840 --> 0:17:37.159 casual might have gone to a QSR and so on. 0:17:37.400 --> 0:17:40.960 Casual dining may have traded a fast casual. We're seeing 0:17:40.960 --> 0:17:46.520 a resurgence in casual dining today. It's definitely positive. Wings brands, 0:17:46.680 --> 0:17:50.600 you know, polished casual as well coming back nicely. QSR, 0:17:51.280 --> 0:17:52.920 you know, has an issue if you can't really trade 0:17:52.960 --> 0:17:55.920 down for it. So there's all kinds of value propositions 0:17:55.960 --> 0:17:59.159 out there, and I think that at a high level 0:17:59.359 --> 0:18:03.280 in all of the categories, what operators need to be 0:18:03.400 --> 0:18:06.000 focused on is the guest experience. What I'm going to 0:18:06.080 --> 0:18:08.600 call the value proposition, and I don't mean the value 0:18:08.640 --> 0:18:10.600 meal where you get a burger for a dollar or 0:18:10.680 --> 0:18:12.840 three dollars or whatever. I mean, if you're going to 0:18:12.920 --> 0:18:15.159 charge somebody six dollars for a cup of coffee, it 0:18:15.200 --> 0:18:17.440 better be a great experience, right, Or you're going to 0:18:17.520 --> 0:18:20.359 charge them twenty dollars for a burger, shakes and fries, 0:18:20.800 --> 0:18:23.160 it better be a great experience and a great product 0:18:23.800 --> 0:18:27.440 and be seamless. And I think that's the value proposition 0:18:27.520 --> 0:18:31.520 today is people understand that there's inflation, there's been a 0:18:31.560 --> 0:18:34.480 price increase, but it's got to be seamless. You can't 0:18:34.520 --> 0:18:36.359 have a bad experience in charge a high price. 0:18:36.960 --> 0:18:39.080 So on the last episode, we had been talking a 0:18:39.119 --> 0:18:41.840 little bit about the resurgence of casual dining and some 0:18:41.920 --> 0:18:44.560 of the things that came up where you like, QSR 0:18:44.680 --> 0:18:46.600 was able to raise prices for about a year and 0:18:46.640 --> 0:18:49.840 a half while while casual dining chains were largely closed 0:18:49.880 --> 0:18:53.480 and the supply, demand and balance has kind of shifted 0:18:53.520 --> 0:18:57.919 to because there's been a lot of closures in full service, 0:18:57.960 --> 0:19:02.640 but quick service has gone on. And it's interesting too 0:19:02.680 --> 0:19:06.320 that there's a shift towards what you get for what 0:19:06.359 --> 0:19:08.240 you pay, and I guess part of that is people 0:19:08.240 --> 0:19:11.200 are still employed, right it's. 0:19:11.000 --> 0:19:15.239 Definitely the consumer demanding that they get what they pay for. 0:19:15.880 --> 0:19:19.360 Like I've never seen before, there's very much a focus 0:19:19.400 --> 0:19:22.200 on if I'm going to pay twenty dollars for a meal, 0:19:23.680 --> 0:19:25.119 it needs to be a great experience. I need to 0:19:25.119 --> 0:19:27.119 know what I'm getting and it's got to satisfy me. 0:19:28.040 --> 0:19:30.760 And conversely, if I'm going to pay five dollars for 0:19:30.800 --> 0:19:33.359 a meal, that's great, it's a great value, it works 0:19:33.359 --> 0:19:34.000 in my budget. 0:19:34.040 --> 0:19:36.520 It's qsr Fazolies is a perfect. 0:19:36.280 --> 0:19:37.960 Example of that, where we have a number of items 0:19:37.960 --> 0:19:40.760 that are five dollars or less and you can it'll 0:19:40.800 --> 0:19:42.280 fill you up and you'll get through it and you 0:19:42.320 --> 0:19:44.280 know you're not emptying your wallet out just to grab 0:19:44.359 --> 0:19:46.399 a quick bite. So I think you have to be 0:19:46.520 --> 0:19:49.520