Speaker 1: Welcome to Chopping It Up.
Speaker 2: I'm your host, Mike Allen, the senior restaurant and food
Speaker 2: Service analyst at Bloomberg Intelligence. Today we're joined by Brandon Guthrie,
Speaker 2: general partner and co founder of CHATRNGE Capital Partners. I'm
Speaker 2: pumped to finally get you on here. Thanks for doing this, Brandon.
Speaker 3: Yeah, of course, I'm excited to be here.
Speaker 2: So what's up man, any recent prs in the squad clean?
Speaker 2: I saw you on LinkedIn throwing around two hundred and
Speaker 2: seventy five pounds.
Speaker 1: That's a lot of weight, my friend. Yeah, that's impressive.
Speaker 3: That's my PR so hopefully my back and my knees
Speaker 3: hold out. So no, recently. I think my big lift
Speaker 3: that I was happy about as I the two hundred
Speaker 3: club for at least in kg. So that's what four
Speaker 3: hundred and sixty five pounds on the deadlift. So that's
Speaker 3: for a desk jockey. That's not so bad. Definitely have
Speaker 3: some room to improve, dude.
Speaker 1: That's awesome. Yeah, that's awesome. Yeah. I hurt my back
Speaker 1: with doing deadlifts. I was doing.
Speaker 2: CrossFit for for a few years and I bought a
Speaker 2: reverse hyper changed my life. You might even be able
Speaker 2: to see I guess can see it, but you could
Speaker 2: see it in the background. It's a it's a game changer.
Speaker 2: So when did you start CrossFit?
Speaker 3: I started CrossFit actually during during COVID, so here in Dubai,
Speaker 3: the lockdowns were actually really really strict, so you couldn't
Speaker 3: leave your house for about a month. So rather than
Speaker 3: going stir crazy, the gym close to us was doing
Speaker 3: virtual classes, so we signed up for those, and so
Speaker 3: I just kind of pushed out all the furniture out
Speaker 3: of the living room and every morning would would beat
Speaker 3: myself silly doing CrossFit in the living room. And then yeah,
Speaker 3: when when lockdown ended, I was hooked, so I kept
Speaker 3: going back. So a lot of different ways to hurt
Speaker 3: your back during CrossFit though, so that's a good I
Speaker 3: think that's all they do is to come up with
Speaker 3: different ways.
Speaker 1: Yeah, the shoulders ended up getting me.
Speaker 2: I had bad shoulders from football, and then all the
Speaker 2: gymnastics stuff and the overhead lifts just.
Speaker 1: Kind of did me in.
Speaker 2: But I loved it when I was doing it, man,
Speaker 2: So yeah, yeah, keep it up, man, Thanks good stuff,
Speaker 2: thank you. All right, So you have extensive experience in
Speaker 2: international markets, whyn't you tell the audience about your career
Speaker 2: background before CHATRANJ.
Speaker 3: Yeah, of course, So I spent my entire career in
Speaker 3: essentially international consumer retail. So prior to Chatron's Capital Partners,
Speaker 3: I was with the head of finance for Wendy's for
Speaker 3: the Asia, Pacific, Middle East and Africa region, so based
Speaker 3: here here in Dubai, and I was responsible for all
Speaker 3: of our markets essentially east of Dubai. So hopefully I'm
Speaker 3: taking the record for longest distance from them from you
Speaker 3: guys for the pod cast. Definitely want to hold that
Speaker 3: for a while. And with that, just gained a really
Speaker 3: broad international background. Prior to prior to Wendy's and them
Speaker 3: shipping me out here, I was with L Brands again
Speaker 3: in their international division with Victoria's Secret and Bath and
Speaker 3: body Works supporting franchisees in the Middle East, in the UK,
Speaker 3: and before them, I was with a consumer package good
Speaker 3: company that also focused on international, but primarily Asia. So
Speaker 3: my entire career has been focused on international in some
Speaker 3: format of another and really found my passion specifically in
Speaker 3: F and B in the food and beverage industry. As
Speaker 3: a lot of people do you kind of I don't
Speaker 3: know if you necessarily seek it out, but once you
Speaker 3: find the industry, it's just it's just too much fun
Speaker 3: to leave. And so even with Chatrone Capital Partners when
Speaker 3: we started the fund that ended up being a sector
Speaker 3: focused private ACA be fund on food and beverage focused
Speaker 3: here in the GCC in the Middle East. So it's
Speaker 3: it's just a lot of it's a lot of fun
Speaker 3: to be in this industry and to work with people. Ultimately,
Speaker 3: food is just such an intimate thing and you can
Speaker 3: never take yourself too serious if you're working in restaurants,
Speaker 3: and so it's always good to remind yourself that, specifically
Speaker 3: with Wendy's, right, you're serving burger and fries. It's supposed
Speaker 3: to be fun, and so it's a good reality check
Speaker 3: and it keeps you waking up and doing something fun
Speaker 3: every day.
Speaker 1: Yeah, it's fun and humbling of course. Time. Yeah, and
Speaker 1: you had mentioned to me in the.
Speaker 2: Past that a previous podcast of ours, Bob Wright had
Speaker 2: been the one who had sent you overseas at Wendy's exactly.
Speaker 3: So in we were in Salt Paula at the time,
Speaker 3: in the back of the taxi and Bob pitched this
Speaker 3: crazy idea of me moving my family out to Dubai
Speaker 3: in the Middle East. So we had a really long
Speaker 3: taxi ride if you've ever been in Salt Paolo traffic,
Speaker 3: and so Bob had a lot time to convince me
Speaker 3: that this was a good idea. No, I wanted to
Speaker 3: do it. I mean, I was International has been my
Speaker 3: passion since since I started my career. It was always
Speaker 3: going to be something I was going to do. And
Speaker 3: so yeah, when the opportunity came to come out here
Speaker 3: to Dubai, I was working with Bob, who's very much
Speaker 3: Assault of the Earth guy, and he was the president
Speaker 3: of International Chief Operations Officer for Wendy's at the time.
Speaker 3: And then we made the move and that was ten
Speaker 3: years ago, so it's been it's been a whirlwind ever since.
Speaker 1: Very cold.
Speaker 2: So why don't you tell the audience what Chatran Capital
Speaker 2: Partners does and what inspired you to start the firm.
Speaker 3: Yeah, so Chatrnge Capital Partners. It's a sector focused private
Speaker 3: equity fund. Like I mentioned just a little bit ago.
Speaker 3: It's the sector that we focus on is food and beverage,
Speaker 3: specifically QSR and fast casual restaurants, and then geographically we
Speaker 3: focus on the GCC here in the Middle East, so
Speaker 3: the GCC being Kingdom of Saudi Arabia, United Arab Memorates, Oman, Kuwait, Bahrain,
Speaker 3: and Qatar, and then we also look at Turkey and
Speaker 3: Egypt as kind of secondaries to those markets, but our
Speaker 3: primary focus being here on the GCC, and we ended
Speaker 3: up we just saw so much opportunity here in the region.
Speaker 3: Iconic brands are no stranger to this part of the world,
Speaker 3: but what is a little bit different is the ability
Speaker 3: to properly grow those brands and scale them. There's a
Speaker 3: lot of opportunity with investments happening in Saudi Arabia and
Speaker 3: obviously here in the United Arab Emirates. And so this
Speaker 3: was a financial vehicle that we felt that provided a
Speaker 3: lot of liquidity into a part of the market that
Speaker 3: was underdeveloped. You know, private equity is a specifically sector focused.
Speaker 3: Private equity is relatively untapped. And then with us, we
Speaker 3: took a little bit of a different approach. We took
Speaker 3: it to as a operations first private equity vehicle. So
Speaker 3: rather than kind of a bunch of private equity guys
Speaker 3: coming together and making agnostic investments, we're actually primarily a
Speaker 3: group of restauranteurs people that have worked in the industry.
Speaker 3: Our advisors are people that have led global brands across
Speaker 3: the world, and this was going to be we brought
Speaker 3: our operations first kind of value creation levers to the
Speaker 3: fund and then utilize private equity as a vehicle to
Speaker 3: properly deploy capital quickly and efficiently, which solves some of
Speaker 3: the problems when you're commercializing markets. So it was really
Speaker 3: kind of a reverse engineering approach. We saw an opportunity
Speaker 3: here in the region. We leveraged our experience of how
Speaker 3: we've seen businesses grow efficiently across the world and establishing
Speaker 3: restaurant brands and started on that journey. And that was
Speaker 3: a year and a half ago.
Speaker 1: Cole, And do you have any updates on the funds
Speaker 1: first capital race.
Speaker 3: We're constantly raising capital. We have about one hundred million
Speaker 3: in pipeline ready to deploy, and so we're just finalizing
Speaker 3: those investments and hopefully we get working on that sooner
Speaker 3: rather than later.
Speaker 1: Good stuff.
Speaker 2: And and can you talk about maybe some of the
Speaker 2: you know, the five thousand foot view, what what's kind
Speaker 2: of created some of the opportunities that you're seeing there
Speaker 2: in the GCC.
Speaker 3: Here in the GCC, I think like I said, there's
Speaker 3: there's never been a You have a couple of large
Speaker 3: players that have been here for a while, but largely
Speaker 3: there's there's a lot of money here and there's a
Speaker 3: lot of family groups or privately owned groups. Private equity
Speaker 3: is a vehicle and as a as a financial instrument,
Speaker 3: it hasn't been around for very long, and it's it's
Speaker 3: really underpenetrated here in the region compared to the West.
Speaker 3: And so what what's happened is you have people that
Speaker 3: experience brands, that love brands, either when they're going to
Speaker 3: school or traveling into into the US or Europe. They
Speaker 3: they're well capitalized, and they bring those brands back to
Speaker 3: the region working with franchisors and then it's a part
Speaker 3: of a family group that it's kind of the sixth
Speaker 3: arm of their company's expansion. It's and it's just it
Speaker 3: ends up being not more difficult than they expected, I
Speaker 3: guess would be a good way to say. And so
Speaker 3: where in the West, there, like I said, private equity exists,
Speaker 3: or there's this middle market where you're able to drive
Speaker 3: some efficiencies and these groups would typically just offload them
Speaker 3: or shut down. These brands are still very emotional and
Speaker 3: highly regarded because they're iconic global brands, and so rather
Speaker 3: than kind of losing face or just shutting them down,
Speaker 3: typically they just hold on to them. And so similar
Speaker 3: how you kind of have zombie companies, you kind of
Speaker 3: end up with some zombie brands. And there's a lot
Speaker 3: of examples here of major major brands, global brands almost
Speaker 3: everywhere else in the world that would be successful, that
Speaker 3: are definitely in default of the development agreements. They've been
Speaker 3: stagnant for far too long, and you end up getting
Speaker 3: frustration on both sides of the equation. Frustrations with the
Speaker 3: franchise ease because they're they're a little bit frustrated with
Speaker 3: the support potentially they're getting from the franchise oors that
Speaker 3: don't understand this part of the world, and obviously frustration
Speaker 3: with the franchise ors that see all the amazing things
Speaker 3: that are happening here in Saudi Arabia and UAE and
Speaker 3: all the investment that's happening and the population growth and
Speaker 3: the strong economy, and then your restaurants aren't moving, and
Speaker 3: so you end up with kind of frustration on both ends,
Speaker 3: and that just causes a lot of a lot of friction,
Speaker 3: and so we our goal is to be the utility
Speaker 3: that comes in and unsticks that right, that releases that friction.
Speaker 3: We understand the West, We understand how governance and transparency
Speaker 3: and all those things need to be established for franchise
Speaker 3: oors and for investors. But we also understand the franchise's
Speaker 3: point of view and kind of the boots on the
Speaker 3: ground perspective, and the restaurant industry. So I think those
Speaker 3: two those things coupled together create a unique proposition for people.
Speaker 1: Yeah, for sure, it's interesting.
Speaker 2: So are you looking to be a franchise or a
Speaker 2: subfranchise e or is it going to depend on the
Speaker 2: situation and what sized deals are.
Speaker 1: You and your partners interested in.
Speaker 3: Yeah, I think at first, master franchise e is it
Speaker 3: tends to be the opportunity that exists here. The most
Speaker 3: most brands that exist here, if we're involved in buyout situations,
Speaker 3: have master rights for multiple countries. They may be in
Speaker 3: default of those rights, but they still have the rights.
Speaker 3: So any buyout acquisition would come with the entire territory
Speaker 3: most usually the GCC as a whole, maybe some additional
Speaker 3: shoulder markets, but with a platform company like that there's
Speaker 3: also opportunity to bring in iconic brands who have yet
Speaker 3: to make the jump into the region and plug them
Speaker 3: into an existing portfolio that is leveraging your supply chain
Speaker 3: efficiencies and some of the challenges that come with establishing
Speaker 3: a market from zero. You can do that much better
Speaker 3: in a portfolio company, and then you get the transparency
Speaker 3: and an EESG that comes with Western back private equity
Speaker 3: compared to partnering with a local group which will run
Speaker 3: like a local company and come with some of those
Speaker 3: frustrations and frictions compared to what people might be used
Speaker 3: to in doing business in the West.
Speaker 1: Do you have any deals lined up right now?
Speaker 3: There? We have about one hundred million I think it's
Speaker 3: five different groups, about one hundred million, between one hundred,
Speaker 3: one hundred and fifty million, depending on how many groups
Speaker 3: we look at of groups that are either through diligence
Speaker 3: or in process of diligence. So to be honest, it's
Speaker 3: a little overwhelming. Like I said, there's a strong lack
Speaker 3: of liquidity in this market, so there's actually quite a
Speaker 3: bit of room to come in and evaluate different groups,
Speaker 3: and so there's a lot of people who are wanting
Speaker 3: to work with us and who want us to take
Speaker 3: a look at their businesses, and so it's more a
Speaker 3: matter of getting through all those groups versus having a
Speaker 3: you know, needing to find deals, which is a good
Speaker 3: problem to have, but it is a little bit overwhelming.
Speaker 1: Yeah, high class problem.
Speaker 3: Ye, I'll take it. I'll take it.
Speaker 1: Good. Yeah, good stuff. And you had mentioned, you know, fast,
Speaker 1: casual and quick service. Does casual dining work in that region?
Speaker 3: A casual dining works, It depends on It's a really
Speaker 3: diverse region, so I think it's a little It differs
Speaker 3: a little bit depending on your market. So if you
Speaker 3: look at UAE, casual dining actually works pretty well generally,
Speaker 3: at least with the data that I see, sales sales
Speaker 3: are up, sales are strong with casual dining. In Saudi Arabia,
Speaker 3: for example, sales are down, they're trending downwards. So it
Speaker 3: really depends you have different and when you look at
Speaker 3: the dynamics of that. Your your infrastructure is very different
Speaker 3: in the UAE compared to a developing infrastructure in Saudi Arabia.
Speaker 3: Traffic patterns are very different in Saudi compared to to
Speaker 3: other parts of the world. So I think your casual
Speaker 3: dining is under pressure, and generally what I see at
Speaker 3: least is where you have more of an ability to
Speaker 3: leave the house not get stuck in traffic for a
Speaker 3: long time. There's actually some interesting cost pressures that I
Speaker 3: think are favorable to casual dining at the moment if
Speaker 3: everything lines up like that, compared to Fast Casual or QSR.
Speaker 3: But ultimately QSR and Fast Casual delivers very well. And
Speaker 3: so here in this region, delivery has always been really,
Speaker 3: really big. Even before delivery got big in the US,
Speaker 3: delivery was thirty or forty percent of sales for restaurants
Speaker 3: here in the region, and before the aggregators came in,
Speaker 3: everybody had their own call centers and their own bikes
Speaker 3: as part of franchise e systems. So delivery is part
Speaker 3: of this region and it's just something you have.
Speaker 1: To work through. Yeah, all right.
Speaker 2: So when I analyze international strategy for the companies that
Speaker 2: I can cover, I prefer to see franchisors target the
Speaker 2: best market possible for their brand and then find the
Speaker 2: best partner. So let me know if I'm off base,
Speaker 2: because you know, I'm willing to take criticism, you know,
Speaker 2: Am I thinking about this correctly? And as a franchise e.
Speaker 2: You know, how are you identifying your targets?
Speaker 3: Yeah? Yeah, so I think you're one hundred percent thinking
Speaker 3: about it correctly. Ideally, you I think where brands get
Speaker 3: into trouble when they begin their international expansion journey is
Speaker 3: that generally the thing that starts them on that path
Speaker 3: is is an opportunistic point of view rather than a
Speaker 3: strategic one. And so you might have a partner that
Speaker 3: comes in or potential franchise e again with a big
Speaker 3: check or a lot of interest, and it you just
Speaker 3: convince the brand that this is the time you need
Speaker 3: to go international, and so the brand decides to do that. Generally,
Speaker 3: that's a recipe for disaster because the brand will lack
Speaker 3: the support that it needs to support that franchise e.
Speaker 3: They're not necessarily ready to take that jump. And having
Speaker 3: a strategy, having a plan, having the infrastructure from a
Speaker 3: people perspective, those things are really really important when you're
Speaker 3: setting up your first international expansion plan. So there definitely
Speaker 3: is a place where you need to be taking advantage
Speaker 3: of opportunistic things that come across, Like if there's a
Speaker 3: great potential partner who has a strong track record, well
Speaker 3: capitalized and is wanting to expand your brand. There's cases
Speaker 3: where you would want to look at that more heavily
Speaker 3: and maybe leapfrog that market over another one that you
Speaker 3: had strategically planned. But in my mind, ideally you would
Speaker 3: tier out your markets and say this is the part
Speaker 3: of the world, or these are the group of markets
Speaker 3: that we're looking for, and this is where we think
Speaker 3: fits best, and then you go try to find the
Speaker 3: best partners that are in that tier one set of
Speaker 3: markets and then partner with those and so that order
Speaker 3: in that tier one sector might change a little bit,
Speaker 3: but ideally you're not taking somebody from a tier three
Speaker 3: because an opportunity came up and leapfrogging them up to
Speaker 3: your tier one sector. And if you don't have a strategy,
Speaker 3: you're not going to know that, and you just kind
Speaker 3: of go wherever the windblows and causes quite a bit
Speaker 3: of problems.
Speaker 2: Okay, cool, and so yeah, and so how are you
Speaker 2: identifying as the master franchise, How are you identifying your targets?
Speaker 2: How are you ranking your potential targets in the marketplace.
Speaker 3: So we look at I think there's two ways, and
Speaker 3: we have the benefit at least with private with the fund,
Speaker 3: So we're looking at potential acquisitions which we're ranking and
Speaker 3: looking at from in terms of iconic. But then with
Speaker 3: our experience, and I think we're in a unique position
Speaker 3: compared to other franchisees and other other funds in the world.
Speaker 3: With our industry experience, we also get to rank the
Speaker 3: franchise oors. So we actually have a pretty good idea
Speaker 3: of what we're looking for when we're evaluating franchise oors.
Speaker 3: And part of that we you know, we want to
Speaker 3: fly in and meet the team just like we would
Speaker 3: with a franchise e when we were on the franchise
Speaker 3: or side. We want to see what the support is,
Speaker 3: we want to see what the international infrastructure look like.
Speaker 3: We want to make sure that they understand the challenges
Speaker 3: and opportunities that come with international and the people that
Speaker 3: we're going to be working with. And so I think
Speaker 3: sitting across the table from the leadership teams of the
Speaker 3: brands that we're talking to, you get a really good
Speaker 3: sense for brands that would be a good fit for international,
Speaker 3: whether they've expanded or not. Sometimes even if they haven't
Speaker 3: expanded yet, and they have the right leadership team and
Speaker 3: the right mindset and positioning. It can still be a
Speaker 3: good fit. But I think more often than not, you
Speaker 3: see some of those red flags and you say, Okay,
Speaker 3: this is a great brand, it's working really well in
Speaker 3: the US. They're not ready for international expansion in our
Speaker 3: mind and we don't necessarily want to be the first
Speaker 3: ones to go through that learning curve with them. So
Speaker 3: obviously they're welcome to expand anywhere they want and potentially
Speaker 3: even in the same region with somebody else. But ultimately,
Speaker 3: these are very very long term relationships, specifically with international
Speaker 3: master franchising. Generally, the master franchise e is investing a
Speaker 3: significant amount of their capital into developing these markets for
Speaker 3: the long term, and so you really want to make
Speaker 3: sure it's it's a good long term partnership and doing
Speaker 3: all that due diligence upfront is really really important in
Speaker 3: our eyes. So I think we're uniquely positioned. Not too
Speaker 3: often I think you get groups like it that are
Speaker 3: that are franchisees that are doing as much diligence and
Speaker 3: interviewing of the franchise oors as we do. But ultimately
Speaker 3: we come from a franchise or background. You know, we're
Speaker 3: used to doing this with potential partners that we were
Speaker 3: looking at expanding with as franchisees. It's only fair to
Speaker 3: do that in reverse.
Speaker 1: So yeah, yeah, that's great.
Speaker 2: All right, So several years ago, I'm going to start
Speaker 2: asking you about some of my question my companies. Now,
Speaker 2: you know, they don't don't give us a much much
Speaker 2: information as we'd like about international since I have.
Speaker 3: You here, that's fair.
Speaker 2: Several years ago, restaurant brands they tried the supercharger international
Speaker 2: growth by pairing some big PE groups with with operators.
Speaker 2: How how is that? You know, what do you think
Speaker 2: about that model? How is that done over the last
Speaker 2: handful of years?
Speaker 3: Yeah, yeah, I think I think the model works well.
Speaker 3: There's actually there's obviously some some significant benefits that private
Speaker 3: equity solves as a financial instrument for international expansions, specifically
Speaker 3: for brands. One of those being, you know, the efficient
Speaker 3: deployment of capital. So that really solves your scale issue
Speaker 3: and your scale challenge very effectively. You know, private equity
Speaker 3: groups are incentivized to deploy capital quickly, efficiently, and generally
Speaker 3: by definition they're they're well capitalized, so that really solves
Speaker 3: that issue. When you look at it as an example,
Speaker 3: you know, I think Burger King got to entered India,
Speaker 3: you know, the same time as Wendy's. The main difference
Speaker 3: there was they entered with a joint venture with Everstone Capital,
Speaker 3: which was a private equity group. Wendy's entered with a
Speaker 3: franchise with a master franchise e. And so if you
Speaker 3: look about, you know, three to five years in, you know,
Speaker 3: Burger King had over two hundred restaurants and growing, Wendy's
Speaker 3: was still stuck at the five restaurant mark. That's expanded
Speaker 3: since they've partnered with different people and different partners post COVID,
Speaker 3: but it still highlights the expansion potential with private equity,
Speaker 3: you know. On another positive example, you look at what
Speaker 3: we did, and this is something that I was involved
Speaker 3: in and led with Wendy's, is we partnered in Japan
Speaker 3: with a private equity group called Long Reach, led by
Speaker 3: Mark Chiba and Tomoya Sujimoto, so both excellent, excellent human
Speaker 3: beings and mentors of mine, and we worked with them
Speaker 3: to acquire a legacy business called First Kitchen. It was
Speaker 3: owned by Sun Torri, which is the Mega Ridge conglomerate
Speaker 3: mostly known for whiskey, and they had created that business
Speaker 3: First Kitchen to compete with McDonald's, and they had about
Speaker 3: one hundred and sixty restaurants. McDonald's, though in Japan, has
Speaker 3: three thousand restaurants, and so this was just an afterthought
Speaker 3: for them and something they wanted to divest of, and
Speaker 3: so we worked with private equity to acquire that business
Speaker 3: and then merge the two brands, not co branded like
Speaker 3: they're merged Wendy's First Kitchen, so one menu, some products
Speaker 3: from the first Kitchen line, some products from Wendy's. So
Speaker 3: it's a bit unique of a situation. And once we
Speaker 3: finalized that acquisition, we were able to rapidly scale within
Speaker 3: two or three years to seventy restaurants and growing. And
Speaker 3: so private equity definitely serves a very very useful purpose
Speaker 3: for brands expanding internationally and like you said, kind of
Speaker 3: supercharge the growth. One of the things to watch out for,
Speaker 3: and just generally it's a thing more involved with communication
Speaker 3: is private equity kind of by definition has a shorter
Speaker 3: timeline on whatever they're working with. And there's options now
Speaker 3: as the industry kind of evolves with food and beverage
Speaker 3: to maybe roll over into a future fund or hold
Speaker 3: a little bit longer than they typically would, but ultimately
Speaker 3: they have a shorter term vision for what their exit
Speaker 3: is going to look like, whereas hopefully one of the
Speaker 3: partners generally the brand has a longer term vision and
Speaker 3: so those that communication is really important on the roles
Speaker 3: that get played. If both brands end up having a
Speaker 3: shorter term vision, then you start to run into challenges
Speaker 3: with perspective and what each group is trying to look
Speaker 3: for in terms of what they need for their investors
Speaker 3: or their shareholders. And so knowing what you're working with
Speaker 3: and why, I think is important. Knowing the exit, knowing
Speaker 3: the long term vision is really important, but it serves
Speaker 3: its use for sure.
Speaker 1: Great.
Speaker 2: You know, Wendy's has hit some bumps in the road
Speaker 2: with his international expansion. I think that's part of the
Speaker 2: reason why they brought in Kirktan to lead the business.
Speaker 2: What do you hearn about its UK business?
Speaker 1: You know?
Speaker 2: I thought it was like interesting that that they decided
Speaker 2: to go to the UK and operate those stores as
Speaker 2: opposed to franchising them off the bat.
Speaker 3: So I have a I have a mentor of mine
Speaker 3: as somebody I used to work for by the name
Speaker 3: of John Payne. So he's former former young executive marketing
Speaker 3: guru extraordinary and he was also the the MD of
Speaker 3: Wendy's APMEA for a time, so I had the chance
Speaker 3: before he kind of retired to really learn from him
Speaker 3: and work with him closely. And he taught me a
Speaker 3: lot about international and particularly franchise management. And he's he's British,
Speaker 3: he's from the UK, and so there was there was me,
Speaker 3: this relatively young American guy working with with John and
Speaker 3: he would we constantly had us saying divided by a
Speaker 3: common language, because there were just be times where he
Speaker 3: would say, John, I understood every word that you said,
Speaker 3: but I don't know what you're talking about. And he
Speaker 3: would say the same thing about me. And so I
Speaker 3: think you run into this issue of context, right, there's
Speaker 3: so much familiarity between the two, between the two markets,
Speaker 3: and sometimes I think that gets us into trouble, not
Speaker 3: just for Wendy's in this example, but any brand looking
Speaker 3: to make the jump into the UK, because you might
Speaker 3: make the mistake that it's so similar to your own
Speaker 3: market that it's kind of a copy past approach, or
Speaker 3: it's going to be you know, something that you can
Speaker 3: just run from the US and in reality those little
Speaker 3: differences end up not being so little. They become even
Speaker 3: more stark in how a market operates. And so in
Speaker 3: the instance of the UK, I think there's a lot
Speaker 3: of that. You don't want to try to run something
Speaker 3: from the US for any brand. You know, Chick fil A,
Speaker 3: as an example, tried to enter really got beat up
Speaker 3: a bit on their first attempt when they were testing
Speaker 3: out the market. They've gone back. I think they're retooling
Speaker 3: on how that's going to work, and I've seen something
Speaker 3: that make me think they're changing their approach, which is great.
Speaker 3: But for Wendy specifically, I think if I had one
Speaker 3: critique is and we mentioned getting to scale quickly, it's
Speaker 3: just not moving. It's not moving fast enough with I
Speaker 3: think they've been in the market for four or five
Speaker 3: years now, if you exclude some of the reef kitchens
Speaker 3: which are kind of delivery only kitchens, I count around
Speaker 3: twenty restaurants. Really at this time, you should be at
Speaker 3: seventy restaurants and plus whether that's through franchising or your
Speaker 3: own restaurants. If you've ventured a market like that, you
Speaker 3: really need to double down and kind of push through
Speaker 3: that level of growth, because that's when you're going to
Speaker 3: see the synergies that happen from you know, four while
Speaker 3: ebit dot improvement on your supply chain and your food costs.
Speaker 3: That's when you have a decent marketing ad budget to
Speaker 3: go after consumers share of mind. And so I think
Speaker 3: if you get to that twenty restaurant level and you
Speaker 3: kind of freeze or you go too slow, all those
Speaker 3: things actually work in reverse against you. Your supply start
Speaker 3: getting angry because the restaurant counts that you promised them
Speaker 3: and the discounts that they were giving you because of
Speaker 3: what it was going to be start coming off. So
Speaker 3: your food cost actually gets worse and you just got
Speaker 3: a lot of headwinds that start coming your way. So
Speaker 3: I would really like to see Wendy's push through that,
Speaker 3: start franchising a little bit faster or opening more restaurants faster.
Speaker 3: But that's a challenge in the UK, Like you really
Speaker 3: need to push through that. It's like a rocket getting
Speaker 3: out of Earth's gravity. You can't stop at twenty. You
Speaker 3: can't stop otherwise it just comes back down to Earth.
Speaker 1: You got it.
Speaker 3: You got to push through. It might be a little
Speaker 3: bit painful, but the faster it goes, the better it gets,
Speaker 3: and you really need to get to that restaurant count
Speaker 3: of seventy. An example in the UK that I think
Speaker 3: they did it really well was five guys. You know,
Speaker 3: they opened really really aggressively. You know, it doesn't it
Speaker 3: doesn't mean that it was all sunshine and roses and
Speaker 3: that everything was there wasn't cost pressures along the way,
Speaker 3: but you know, they got to a really good scale
Speaker 3: and I think it's and it's a good example of
Speaker 3: of deploying and growing a market quickly to get to
Speaker 3: to get to a size where it's going to be
Speaker 3: feasible to continue to franchise and grow the business.
Speaker 2: Yeah, Chipotle is a chain that's had you know a
Speaker 2: few dozen international stores in Europe for years, and they
Speaker 2: finally made a switch with their strategy partnering with al Shaya.
Speaker 1: Any thoughts, I mean, I.
Speaker 3: Think I think it's the right strategy for the region
Speaker 3: in terms of master franchising the I believe it's their
Speaker 3: first franchise location anywhere, So a little bit of a
Speaker 3: concern I would have is just is there the franchising
Speaker 3: I think anybody in industry knows that franchising itself is
Speaker 3: its own muscle and skill set, and so I know
Speaker 3: a lot of different people from the industry that are
Speaker 3: in Chipotle that have have franchise experience, but having an
Speaker 3: organization that backs franches is something that's very different than
Speaker 3: just having people that know what franchising is like or
Speaker 3: having that experience. So I hope that they're building that
Speaker 3: out and if that's going to be a strategy going forward, again,
Speaker 3: I think it is the right strategy to master franchise
Speaker 3: in a high context market like the Middle East. On
Speaker 3: the flip side, from the boots on the ground here,
Speaker 3: there was a little bit of a red flag when
Speaker 3: the announcement came out that you know, they're partnering with Alshaia,
Speaker 3: which is a big group, but no restaurant counts announced, no,
Speaker 3: no strong commitment. It seemed very tentative for something that's
Speaker 3: iconic and global as Chipotle, so it raised a few questions.
Speaker 3: So it'll be interesting to see Alshaia as a group
Speaker 3: one of the major groups out here in the GCC
Speaker 3: and across MINA as a whole. But what a lot
Speaker 3: of people don't realize is ninety five percent of their
Speaker 3: F and B units are actually Starbucks which is under
Speaker 3: quite a bit of pressure at the moment. The other
Speaker 3: brands that Alshaya has like Raising Canes, Cheesecake Factory, shake Shack.
Speaker 3: You know, when it comes to QSRs like like our
Speaker 3: fast casual, like a Raising Canes, they're they're not there's
Speaker 3: there's very few. They're they're not growing at the level
Speaker 3: as we would want them to. I think they have
Speaker 3: some pricing differences with how the US and the primary
Speaker 3: brand prices their products. There's more Shakeshacks here than there
Speaker 3: are Raising Canes, which is crazy to me. So definitely
Speaker 3: over penetrated on some of the higher end of fast casual,
Speaker 3: and there's a lot of potential for getting the brand
Speaker 3: I think a little bit closer to the mark and
Speaker 3: the home brand and the core concept with with groups
Speaker 3: like Raising Canes and so with Chipotle, I think TBD,
Speaker 3: let's see, let's see how it comes out. They I
Speaker 3: think they announced their first location would be in Dubai
Speaker 3: and Kuwait, which again Kuwait wouldn't necessarily be where I
Speaker 3: would launch my first location. I would be looking at
Speaker 3: UEE in Saudi Arabia transparently, but you know, quait Is
Speaker 3: is the whole market of Alshaia. So I imagine that has a.
Speaker 1: Lot to do with it for sure.
Speaker 2: All Right, so let's get into that a little bit. Starbucks, right,
Speaker 2: McDonald's and Starbucks were two that really spoke about four
Speaker 2: Q sales weakness in the Middle East and other countries
Speaker 2: with large Muslim populations like Indonesia, Malaysia, France due to
Speaker 2: the Israel Hamas War. I guess two things you know
Speaker 2: is this mainly is this a bigger problem for McDonald's
Speaker 2: and Starbucks than it is maybe for young brands and
Speaker 2: Dominos because of some of the press that and some
Speaker 2: of the things that happened.
Speaker 1: And has there been any improvement thus far in one Q?
Speaker 3: Yeah, so I think yes. For the first answer is yes,
Speaker 3: I think it is a bigger problem for Starbucks and
Speaker 3: McDonald's compared to what I see with the with the
Speaker 3: other brands. Everybody got impacted, and this is something a
Speaker 3: lot of people don't realize, not just Western brands, Like
Speaker 3: everybody got impacted by the conflict post doc over seventh.
Speaker 3: So in general, you saw a big step down in
Speaker 3: sales in some markets. You saw more of a differentiation
Speaker 3: between Western brands or American brands and local brands, but
Speaker 3: overall everybody still took a step down. What we've seen
Speaker 3: to date is that gap between Western brands and local
Speaker 3: brands has actually has actually come together. So those trend
Speaker 3: lines are meeting, are just about to meet, and across
Speaker 3: those businesses there is a recovery line where you start
Speaker 3: to see a revision to the mean and potentially a
Speaker 3: return to standard sales. It's still going to take some time.
Speaker 3: I think from what I see, assuming the conflict ended today,
Speaker 3: which you know, God willing it does, you'd see a
Speaker 3: pretty rapid recovery back to standard sales, maybe even as
Speaker 3: early as early Q three or mid Q three for
Speaker 3: McDonald's and Starbuck specifically, though they've been impacted significantly more,
Speaker 3: they also have a presence that's a little bit more
Speaker 3: exposed to Egypt and Jordan and Morocco, which those are
Speaker 3: higher impact markets compared to the to the GCC, so
Speaker 3: that that we haven't been in the GCC, specifically Saudi Arabia, UAE,
Speaker 3: we haven't been affected as as significantly as those close
Speaker 3: those markets that are closer to the conflict. So uh,
Speaker 3: from what I've seen, I don't think you're going to
Speaker 3: see a recovery with McDonald's and Starbucks potentially until the
Speaker 3: end of the year. Just because they took it, they
Speaker 3: were a bigger step back. But everybody is on a
Speaker 3: trend line that's recovering. So I think you are starting
Speaker 3: to see a little bit of potential, you know, outrage
Speaker 3: fatigue with the consumer. So as long as there's not
Speaker 3: something that continues to you know, irritate or or make
Speaker 3: the situation worse, I think you'll see a continued recovery.
Speaker 2: All right, So let's let's go back to Wendy's real quick,
Speaker 2: because you had a great post on LinkedIn about dynamic pricing,
Speaker 2: and Wendy's your thoughts.
Speaker 3: Not a fan of dynamic pricing for QSR, Yeah, not
Speaker 3: a fan, And you know, in short, I just don't
Speaker 3: think it's a great fit for specifically for QSR and
Speaker 3: fast casual. I think it goes against the DNA of
Speaker 3: what what our industry in those two areas really stands for.
Speaker 3: Maybe places for fine dining, you know, where you can
Speaker 3: implement that. There's some instances where it is implemented. But
Speaker 3: I find the conversation really interesting, you know, even listening
Speaker 3: to your to the previous guest on the podcast. I
Speaker 3: think there's examples that a lot of people give in
Speaker 3: the industry where it's almost a little bit of gas
Speaker 3: lighting the consumer saying, well, you know, dynamic pricing is
Speaker 3: already in place because happy hour and discounts, and I
Speaker 3: think it's it's just a little bit disingenuous in my mind,
Speaker 3: because when you're defining dynamic pricing, dynamic pricing is by
Speaker 3: definition ever changing pricing. So really you're looking at a
Speaker 3: model that's much more similar to how airlines or airbnbs
Speaker 3: or hotels operating.
Speaker 2: That's surge prices, right, but that's that's those industries have
Speaker 2: a supply demand issue that the restaurants don't.
Speaker 3: Right exactly right. And where you get to dynamic pricing
Speaker 3: is where you have discounting strategies plus surge pricing, So
Speaker 3: those things too together is what we're talking about. Where
Speaker 3: where it's dynamic pricing, if you're just talking about happy
Speaker 3: hour or something like that, that really is just a
Speaker 3: discounting strategy, which is everybody's correct, that has been in
Speaker 3: place for a long time. But consumers are smart, so
Speaker 3: they realize that this is this is something different, and
Speaker 3: as you pointed out, and as a lot of people
Speaker 3: pointed out the difference between our industry and other industries
Speaker 3: that are currently implementing dynamic pricing is there's not a
Speaker 3: supply constraint component, right, so more or less you have
Speaker 3: infinite supply with restaurants, you know, we're not. We're we
Speaker 3: go through a lot of work to make sure we
Speaker 3: don't run out of food and that we can that
Speaker 3: we can serve consumers. So you don't have that supply constraint.
Speaker 3: So then really what you're looking at is just you're
Speaker 3: maximizing the demand constraint and that doesn't make sense to consumers.
Speaker 3: And so you get to this point where you know,
Speaker 3: to wax poetic QSRs are meant to be affordable, consistent,
Speaker 3: and fast. And so if you're losing face and trust
Speaker 3: with the consumer that you're not affordable or consistent anymore
Speaker 3: and they've lost that trust, then you really need to
Speaker 3: change your strategy fast. And so I really don't think
Speaker 3: the juice is worth the squeeze in the industry. I
Speaker 3: would recommend and promote to brands that really, rather than
Speaker 3: trying to justify the reaction or to explain it away,
Speaker 3: you look at the consumer reaction for what it is.
Speaker 3: And you modify your strategies based on that. Specifically for
Speaker 3: QSR and fast catual, I think there's a lot of
Speaker 3: benefit for people to have consistency to understand what the
Speaker 3: static price is going to be on the menu. And
Speaker 3: you know, at the end of the day, we're a
Speaker 3: price sensitive consumer that you know, people they're going to QSRs,
Speaker 3: they want to know what the price is. And they've
Speaker 3: given plenty of opportunities for everybody to raise their prices,
Speaker 3: you know, that's been built in. I don't I don't
Speaker 3: think dynamic pricing, especially now, is a good strategy.
Speaker 2: So especially now, is right, man? I mean we've seen
Speaker 2: thirty forty percent price increases at some of these chains, yeah,
Speaker 2: you know, and so yeah, and people are pissed. We
Speaker 2: see all these articles now cropping up and people complain
Speaker 2: about the eighteen dollars big Mac meal, the the five guys,
Speaker 2: you know, twenty four dollars meal or twenty three dollars
Speaker 2: meal or whatever it was.
Speaker 1: So yeah, yeah, the timing was tough for sure.
Speaker 3: Yeah, when when QSR pricing is starting to approach casual
Speaker 3: dining basket size, that's a bit of a red flag.
Speaker 3: And like I said, consumers are smart. Everybody needs to
Speaker 3: realize consumers are smart. I think ultimately, you know, people
Speaker 3: in the boardroom know this, but I think sometimes it
Speaker 3: gets forgotten, and you know, you might be able to
Speaker 3: pull a fast one over one or two times. But
Speaker 3: like I said, I if I'm in the drive through
Speaker 3: and I see my price changing all over the place,
Speaker 3: I'll give a brand one or two shots before I
Speaker 3: just change. And then with our industry, there's a lot
Speaker 3: of competition, right, there's a lot of alternatives, So there's
Speaker 3: a lot of reasons why we're different and why the
Speaker 3: strategy should be different for QSR compared to airlines or hotels.
Speaker 2: So yeah, good stuff, man. I really appreciate you for
Speaker 2: coming on. This was a great discussion.
Speaker 3: My pleasure.
Speaker 1: Where can the audience go to find more out about
Speaker 1: Chatron Capital Parts.
Speaker 3: So we're very active on LinkedIn, Chatrons Capital Partners. We're
Speaker 3: also on Chatroncapital dot Com, so lots of ways to
Speaker 3: get in contact with us. And then me personally always
Speaker 3: feel to reach out doctor Brandon Guthrie on LinkedIn and
Speaker 3: then Idaho Boy meets World on Instagram, so little just formal.
Speaker 2: Yeah, good stuff, man, good luck, and I look forward
Speaker 2: to you know, continuing to follow the story.
Speaker 1: And I wish you good luck.
Speaker 3: Yeah.
Speaker 1: Perfect, yeah.
Speaker 2: And I also want to thank the audience for tuning in.
Speaker 2: If you liked the episode, please share it with your
Speaker 2: friends and colleagues. Check back soon for a discussion with
Speaker 2: Jeff Henry, president of the America's at gang Cha Global