WEBVTT - Restaurant M&A Slows on Private Equity Headwinds 0:00:12.039 --> 0:00:14.800 Welcome to Chopping it Up. I'm your host, Mike Hallin, 0:00:14.840 --> 0:00:18.920 Senior Restaurant and Food Service Analyst at Bloomberg Intelligence. I'm 0:00:18.960 --> 0:00:21.439 excited to introduce my guests, Mike gott Leeb. He's the 0:00:21.480 --> 0:00:26.439 managing director National Hospitality Advisory at khne Resnick. Thanks for 0:00:26.480 --> 0:00:30.160 doing this, Mike, Thank you for having me. Mike, you 0:00:30.320 --> 0:00:32.560 used to being introduced as a member of cone Resnick. 0:00:32.640 --> 0:00:36.400 Yet it's it's syncing in and it's it's hitting the 0:00:36.440 --> 0:00:40.080 ground running, and it's been a fun transition and a 0:00:40.080 --> 0:00:43.200 lot of excitement around it. I've I've really enjoyed the transition, 0:00:44.159 --> 0:00:46.280 very cool. How long has it been now? So I 0:00:46.320 --> 0:00:50.560 started with kne Resnick in November as a as a 0:00:50.720 --> 0:00:55.880 conference circuit, started with Restaurant Finance and Development, and I 0:00:55.920 --> 0:00:59.320 was initiated into kone Resnick by being given a cape 0:01:00.040 --> 0:01:02.600 that has cone resinck on it. And I was told 0:01:02.600 --> 0:01:05.440 that I was a superhero coming on to kone Resin 0:01:05.880 --> 0:01:10.080 and stepping out into new territory. So I had my 0:01:10.200 --> 0:01:15.679 capeon at Restaurant Finance and we are firmly in grain 0:01:15.800 --> 0:01:19.360 now within the restaurant industry that I am with kne Resinic. 0:01:19.640 --> 0:01:24.560 No longer an auDA partner focused on advisory and helping 0:01:24.600 --> 0:01:29.760 restaurants in their growth and strategic initiatives and really enjoying it. 0:01:29.800 --> 0:01:33.280 So it's it's been a great transition. Yeah, it's exciting. 0:01:33.720 --> 0:01:37.680 You are a superhero and you're joining a great team. 0:01:38.280 --> 0:01:41.400 Gary and Cindy are are great. I'm very close to 0:01:41.440 --> 0:01:43.520 both of them, and so I think this is a 0:01:43.520 --> 0:01:46.759 great fit for both, for both you and the team. 0:01:46.760 --> 0:01:50.280 And I'm excited for you guys. Yeah, I am too. 0:01:50.280 --> 0:01:52.279 It really it really brings me back to my roots 0:01:52.320 --> 0:01:55.680 back in the days that I started with Ey, you know, 0:01:55.800 --> 0:01:59.840 working with emerging growth restaurant companies, those that are looking 0:02:00.040 --> 0:02:03.200 to either grow in units, grow in concept or in 0:02:03.280 --> 0:02:08.120 geographic location, or marching towards a strategic transaction. When when 0:02:08.160 --> 0:02:11.200 I was younger in my career with Ernst and Young, 0:02:11.600 --> 0:02:13.960 I've worked with restaurants that are four or five six 0:02:14.120 --> 0:02:17.360 units and help them grow to a level to where 0:02:17.360 --> 0:02:20.440 they can first do a private equity transaction and then 0:02:20.600 --> 0:02:23.000 and then assist them and in their initial public offering. 0:02:23.440 --> 0:02:25.800 So it's it's very similar to that. You know, Cone 0:02:25.840 --> 0:02:29.360 Resinic has over six hundred restaurant clients, which I found 0:02:29.520 --> 0:02:33.239 very surprising and interesting because I didn't realize they had 0:02:33.280 --> 0:02:37.120 that breadth within the restaurant industry. But it really is impressive. 0:02:37.160 --> 0:02:40.200 And when you talk to folks within the restaurant industry, 0:02:41.040 --> 0:02:44.440 most of not all know Cone Resnic well for sure. 0:02:45.480 --> 0:02:47.959 They definitely have been good partners to me and to 0:02:48.080 --> 0:02:53.040 Bloomergant Intelligence. M All right, so let's let's dive in here. Man, 0:02:53.120 --> 0:02:55.520 what can you give us an update on the M 0:02:55.560 --> 0:02:58.680 and A market for US restaurants. How does the twenty 0:02:58.720 --> 0:03:01.640 twenty three deal flow stack up to last year? Yeah, 0:03:01.639 --> 0:03:04.760 as has been evident in the marketplace, the deal flow 0:03:04.880 --> 0:03:09.280 is significantly down from from last year. There's been some 0:03:09.360 --> 0:03:12.080 deals that have taken place, but it's it's not very many, 0:03:12.560 --> 0:03:17.520 and they've been mostly smaller restaurant companies tuck ins and 0:03:17.639 --> 0:03:22.840 add ons as opposed to larger transactions. As far as 0:03:22.960 --> 0:03:27.519 in the strategic marketplace, there have been you know, there's 0:03:27.520 --> 0:03:30.000 a number of players now that have multiple concepts, and 0:03:30.040 --> 0:03:32.960 there's a number that have indicated that they're looking at 0:03:33.560 --> 0:03:38.160 perhaps another transaction to add on to their existing brand. 0:03:38.280 --> 0:03:41.480 So it's going to be interesting because that that marketplace 0:03:41.520 --> 0:03:45.360 seems like that's a more likely area where there could 0:03:45.360 --> 0:03:48.960 be transactions when when you look at the overall economic 0:03:49.120 --> 0:03:54.400 environment today, you see higher interest rates, the bank crisis 0:03:54.480 --> 0:03:58.000 which we are currently going through, and all of those 0:03:58.120 --> 0:04:00.440 items point to it being more difficult vote for a 0:04:00.480 --> 0:04:05.200 private equity firm to be able to obtain appropriate financing 0:04:05.240 --> 0:04:08.800 and return on a deal. So that allows the strategics 0:04:08.800 --> 0:04:11.480 that may have cash on their balance sheet to invest 0:04:11.560 --> 0:04:16.000 that cash without having to incur significant debt, which which 0:04:16.160 --> 0:04:19.839 you know would would result in a better pricing model 0:04:19.920 --> 0:04:23.680 for the strategic and also for the target. So it's uh, 0:04:23.960 --> 0:04:27.200 it's it's rough seas and it's uh, I think going 0:04:27.279 --> 0:04:29.560 to continue a little bit longer because of the financial 0:04:29.800 --> 0:04:33.600 crisis that that um, we just have that we're going 0:04:33.640 --> 0:04:37.479 through at this point. Yeah. Um. And it's interesting with 0:04:37.520 --> 0:04:41.640 the strategics, right, you make a great point, um, the 0:04:41.680 --> 0:04:43.960 fact that that this may enable to give them more 0:04:44.000 --> 0:04:47.760 opportunities with private equity more on the sidelines. But valuations 0:04:47.760 --> 0:04:51.400 are still pretty high for restaurants stocks, so it makes 0:04:51.600 --> 0:04:55.039 for for a unique situation. Yeah, it really does. I 0:04:55.080 --> 0:04:59.040 mean it's restaurants have held up pretty well, um as 0:04:59.080 --> 0:05:02.520 it relates to their value as um and and you know, 0:05:02.680 --> 0:05:06.560 entering this uncertain time go forward where um, some believe 0:05:06.600 --> 0:05:08.800 it's going to be recessionary, and it's a matter of 0:05:08.800 --> 0:05:11.640 how recessionary is it going to be. What's that impact 0:05:11.720 --> 0:05:13.640 going to have on restaurants and what's that going to 0:05:13.720 --> 0:05:17.760 have on on valuations? But but certainly it is an 0:05:17.760 --> 0:05:21.040 interesting time when you see the valuations out there, and 0:05:21.160 --> 0:05:24.679 if if those types of acquisitions where the strategics take place, 0:05:25.040 --> 0:05:27.839 the pricing is going to be going to be quite interesting. Yeah, 0:05:27.920 --> 0:05:30.640 for sure. UM. You know, let's talk a little bit 0:05:30.880 --> 0:05:33.200 about you know, some of the companies that are looking 0:05:33.200 --> 0:05:35.600 to get an IPO done right Like, it's no secret 0:05:35.640 --> 0:05:37.680 that Full with the shown and CoV are looking to 0:05:38.279 --> 0:05:41.200 get something done. Are there other companies waiting in the 0:05:41.200 --> 0:05:44.640 wings right now? Yeah, there are several companies that are 0:05:44.640 --> 0:05:48.000 waiting in the wings where we've got a number of 0:05:48.000 --> 0:05:50.520 them that we're working with. UM. I would say somewhere 0:05:50.520 --> 0:05:53.320 in the five to seven company range. Are they're all 0:05:53.360 --> 0:05:56.600 looking rightfully so at a dual path right there. They're 0:05:56.600 --> 0:05:59.240 looking at setting themselves up to be ready to go 0:05:59.360 --> 0:06:02.719 public of the markets open, but they're also looking at 0:06:03.320 --> 0:06:06.919 having private equity and strategics come in and and uh, 0:06:07.279 --> 0:06:13.560 provide whatever opportunity they may have. So UM, the challenges 0:06:13.680 --> 0:06:17.719 and your right Kabbat and fog Chaw are both UM 0:06:17.720 --> 0:06:22.200 sitting there and they both have fantastic results, and that's 0:06:22.200 --> 0:06:25.080 what you need in this public market. However, with with 0:06:25.120 --> 0:06:28.200 the financial crisis, I think that put us back some. 0:06:28.400 --> 0:06:30.680 I was thinking that the markets were going to open 0:06:30.760 --> 0:06:34.000 up closer to the second quarter. Uh. Don't think that's 0:06:34.040 --> 0:06:36.240 probably going to be the case. But but you know, 0:06:36.360 --> 0:06:38.760 all it's going to take is one to come out. 0:06:38.880 --> 0:06:43.440 I'm I'm of a strong view that UM, once one 0:06:43.520 --> 0:06:45.719 brick gets taken out of the dam and that water 0:06:45.839 --> 0:06:48.720 starts flowing, I think the pressure of that water and 0:06:49.160 --> 0:06:52.240 the concepts that are out there that are strong concepts, 0:06:52.360 --> 0:06:55.000 and I think you know that that we could see 0:06:55.400 --> 0:06:57.560 some activities still this year, but but I think it's 0:06:57.560 --> 0:07:01.320 gonna be later in the year than it was. Um. 0:07:00.920 --> 0:07:04.719 Uh it originally projected to be. Also the most recent 0:07:04.760 --> 0:07:07.479 IPOs it took place a couple three years ago. You know, 0:07:07.520 --> 0:07:10.760 their valuations aren't as good, so everybody kind of looks 0:07:10.760 --> 0:07:14.559 to that as most recent activity and that that as 0:07:14.720 --> 0:07:18.120 additional angst to UM whether companies are able to come 0:07:18.120 --> 0:07:22.200 out during this unsettling time frame. Yeah. Sorry, Are you 0:07:22.240 --> 0:07:25.600 seeing maybe a different type of company in terms of 0:07:25.640 --> 0:07:28.520 maybe maturity and size versus some of the things that 0:07:28.560 --> 0:07:30.800 we saw called public a few years ago. Yeah, I 0:07:31.120 --> 0:07:34.720 think you certainly have to have more maturity, more size, 0:07:35.640 --> 0:07:39.480 demonstrate that you've had the opportunity and success opening in 0:07:39.560 --> 0:07:43.920 new markets on a fairly consistent basis UM, and that 0:07:44.040 --> 0:07:46.240 your your numbers, you're you're hitting it out out of 0:07:46.280 --> 0:07:48.320 the park as it relates to your numbers and having 0:07:48.320 --> 0:07:51.720 some good trends. So it's it's UM. It's definitely a 0:07:51.760 --> 0:07:56.320 different UM market now and a different expectation from the 0:07:56.360 --> 0:08:00.160 public markets for sure. So what what can some the 0:08:00.160 --> 0:08:03.040 companies that you're you're speaking to some of your clients, 0:08:03.080 --> 0:08:04.960 what can they do to prepare so they're ready when 0:08:05.000 --> 0:08:08.000 transactions do pick up? Yeah? I think that's that's the 0:08:08.080 --> 0:08:12.120 key right now, is that the preparation, because there's a 0:08:12.160 --> 0:08:15.560 little bit of a lull, you really need to I 0:08:15.600 --> 0:08:19.040 would say preparing what i'd call two broad mega areas. 0:08:19.520 --> 0:08:22.400 One is focused on your operations. You know, figure out 0:08:22.720 --> 0:08:24.960 how you're going to drive sales, figure out how you're 0:08:25.000 --> 0:08:28.360 going to cut costs, and really be able to find 0:08:28.440 --> 0:08:31.320 tune your operations and be able to put up the 0:08:31.400 --> 0:08:34.960 numbers that you would would need to do for a 0:08:34.960 --> 0:08:38.439 public offering. You need to act like a public company, 0:08:38.520 --> 0:08:41.280 so you need to close your books on a quarterly basis. 0:08:41.679 --> 0:08:44.280 You need to be able to do the things that 0:08:44.320 --> 0:08:47.200 a public company would do almost in a dry run. 0:08:47.360 --> 0:08:49.280 So those would be the ones that are on the 0:08:49.320 --> 0:08:52.560 sidelines right now that are ready to go. They've been, 0:08:52.800 --> 0:08:56.199 you know, thinking about doing an offering for probably twelve 0:08:56.280 --> 0:08:58.719 to twenty four months, so they've done a lot of 0:08:58.760 --> 0:09:02.280 the blocking and tackling. So the other restaurant companies, once 0:09:02.320 --> 0:09:05.400 the market opens up a little bit, you know, they 0:09:05.440 --> 0:09:07.680 need to take advantage of making sure that they are 0:09:07.720 --> 0:09:11.040 ready to become a public company. So make sure your 0:09:11.080 --> 0:09:14.839 financial statements are all on a gap basis, and make 0:09:14.880 --> 0:09:20.040 sure that you have the appropriate capital structure and corporate 0:09:20.080 --> 0:09:24.280 structure to go forward as a public company. That means 0:09:24.320 --> 0:09:26.439 looking at your people, making sure you have the right 0:09:26.520 --> 0:09:30.320 people on board from all different disciplines, whether it's in 0:09:30.400 --> 0:09:34.080 the finance accounting team to the IT group to the 0:09:34.280 --> 0:09:37.840 HR make sure you have those people that are that 0:09:37.880 --> 0:09:41.080 are going to be able to take you into a 0:09:41.160 --> 0:09:44.720 public arena. Make sure that you have your technology and 0:09:44.760 --> 0:09:48.240 your processes are all in good working order to be 0:09:48.280 --> 0:09:52.560 able to sustain growth and produce the results, produce the 0:09:52.640 --> 0:09:55.680 numbers on a timely basis, and that you have good 0:09:55.679 --> 0:09:59.640 controls in place to be able to ensure that there's 0:09:59.640 --> 0:10:02.280 not going to be a hiccup because the market's not 0:10:02.360 --> 0:10:05.560 forgiving if if if you miss earnings or if you 0:10:05.679 --> 0:10:08.920 are not able to produce the information and timely basis. 0:10:09.000 --> 0:10:10.880 And you know, it takes some time to do that. 0:10:10.960 --> 0:10:13.600 So I think this is the ample time to really 0:10:13.640 --> 0:10:18.200 make those investments into the organization that are necessary in 0:10:18.280 --> 0:10:22.120 order to have a successful offering. That's great, and you 0:10:22.200 --> 0:10:25.320 mentioned you know, it's time for these companies, emerging brands, 0:10:25.440 --> 0:10:27.760 people that want to go public to to really focus 0:10:27.760 --> 0:10:31.360 on improving their operations and cutting their costs. So is 0:10:31.360 --> 0:10:36.120 there any types of technology maybe that that um, you know, 0:10:36.200 --> 0:10:40.000 you're you're suggesting your clients maybe invest in to kind 0:10:40.000 --> 0:10:43.199 of help them along that path. Yeah, as we've seen 0:10:43.400 --> 0:10:46.680 as a result of COVID, the restaurant industry is finally 0:10:47.000 --> 0:10:51.240 investing into technology. Yeah, you know, restaurants are not one 0:10:51.320 --> 0:10:53.840 to be on the cutting edge on the front end, 0:10:53.920 --> 0:10:57.400 but they were, you know, very very late bloomers to 0:10:57.600 --> 0:11:02.200 invest in COVID really cause the restaurant industry to take 0:11:02.280 --> 0:11:06.440 note and invest in technology. I've always been a big believer, 0:11:06.679 --> 0:11:09.160 and I think the restaurant industry has demonstrated this that 0:11:09.600 --> 0:11:11.480 you've got to look outside of the four walls of 0:11:11.520 --> 0:11:15.360 your industry and look at what other industries have done 0:11:16.040 --> 0:11:19.840 to be successful embracing technology, and certainly as it relates 0:11:19.880 --> 0:11:23.520 to digital, restaurants have looked at the airline industry the 0:11:23.600 --> 0:11:27.720 hotel industry to be able to look at how they've 0:11:27.760 --> 0:11:32.120 done as it relates to digital. Loyalty programs certainly are 0:11:32.440 --> 0:11:36.320 prolific within the airline and hotel and now we're starting 0:11:36.360 --> 0:11:38.480 to see or not starting to see, but we're seeing 0:11:38.520 --> 0:11:43.479 much more robust loyalty programs with restaurants. But embracing technology 0:11:43.640 --> 0:11:48.480 to maximize the customer's experience, that's key these days. The 0:11:48.520 --> 0:11:51.400 customer really expects that and in order to grow your 0:11:51.440 --> 0:11:54.400 top line, whether that be when you walk into a restaurant, 0:11:54.720 --> 0:11:58.480 embracing technology as it relates to ordering, or if it's 0:11:58.559 --> 0:12:02.160 related to payment, if it's related to looking at the 0:12:02.200 --> 0:12:05.400 menu and offerings. There's a number of things that you 0:12:05.440 --> 0:12:10.400 could do from a technology standpoint to enhance and maximize 0:12:10.400 --> 0:12:14.840 that customer's experience. And because of the no touch and 0:12:15.920 --> 0:12:19.040 COVID rules that were put into place, a lot of 0:12:19.040 --> 0:12:23.200 that now is common. Course. Then you look at technology 0:12:23.280 --> 0:12:24.800 that you can have in the back of the house, 0:12:24.920 --> 0:12:27.680 and I think that a lot of that technology can 0:12:27.760 --> 0:12:31.720 help with improving your employees experience. So you can automate 0:12:31.760 --> 0:12:34.480 a number of the functions back of the house that 0:12:34.480 --> 0:12:38.920 will allow a employee that's doing a mundane task not 0:12:39.040 --> 0:12:42.040 do that task, but have technology do it and put 0:12:42.080 --> 0:12:45.320 that employee doing something that would be more interesting. So 0:12:45.440 --> 0:12:50.080 you're improving your labor there, and you're also can embrace 0:12:50.240 --> 0:12:54.240 technology as it relates to your labor scheduling, laboral staffing 0:12:54.920 --> 0:12:59.680 to be able to best maximize the technology to minimize 0:12:59.679 --> 0:13:03.760 your So I think technology can both you know, expand 0:13:03.840 --> 0:13:07.400 on the customer's experience and improve on your employees morale 0:13:07.679 --> 0:13:12.120 and retention. Yeah, which is so important right now. Obviously 0:13:12.160 --> 0:13:14.680 with with you know, the issues a lot of the 0:13:14.720 --> 0:13:18.280 restaurants have faced in terms of staffing. Obviously it's improved, 0:13:18.320 --> 0:13:21.560 but there are still parts of the day, especially late night, 0:13:21.640 --> 0:13:26.520 that um chains are struggling to you know, find employees 0:13:26.520 --> 0:13:30.320 for Yeah, yeah, it's and the employee you know, labor 0:13:30.440 --> 0:13:34.080 is is the largest line on a restaurant's P and L. 0:13:34.679 --> 0:13:37.320 And as we all know, restaurants are the second largest 0:13:37.320 --> 0:13:40.559 employer behind the US government. So it's it's a it's 0:13:40.600 --> 0:13:44.480 a big number and um it's it's had its challenges 0:13:44.520 --> 0:13:48.200 of recent times, but um, I think it's it's leveling 0:13:48.280 --> 0:13:50.600 lawf a little bit. I think that labor is now 0:13:50.760 --> 0:13:53.880 finally you know, leveled off. It's it's not climbing like 0:13:53.960 --> 0:13:56.400 it has been, which has really been a challenge, and 0:13:56.440 --> 0:14:01.240 that's resulted in significant menu pricing increases. So we've you know, 0:14:01.280 --> 0:14:03.920 we've seen the costs are wed, we've seen the menu 0:14:03.960 --> 0:14:08.079 prices go up. I think we've we've hit some elasticity 0:14:08.120 --> 0:14:12.120 within the environment where consumers are not willing to continue 0:14:12.120 --> 0:14:14.720 to pay more and more. But at least labor is 0:14:14.840 --> 0:14:18.400 leveling off a bit. And also costs are from a 0:14:18.559 --> 0:14:22.360 from a food cost standpoint, are are leveled off a 0:14:22.360 --> 0:14:25.480 bit and expected to reduce throughout the remainder of the year. 0:14:25.560 --> 0:14:28.080 So there's been two big tail winds that have really 0:14:28.120 --> 0:14:31.880 been pressing the restaurant industry, and those are lightning up 0:14:31.920 --> 0:14:34.440 a little bit now. Granted they're much more, they're much 0:14:34.520 --> 0:14:37.840 higher than they have been, and inflations cause to go up, 0:14:37.920 --> 0:14:40.280 but I think there's going to be at least, you know, 0:14:40.360 --> 0:14:44.600 some reprieve there, and hopefully that will allow restaurant companies 0:14:44.640 --> 0:14:47.120 to be able to focus on those costs, managing them 0:14:47.120 --> 0:14:48.920 a little bit better with things that will be in 0:14:48.960 --> 0:14:52.640 their control. Yeah, for sure that the inflations expected to 0:14:52.680 --> 0:14:55.960 be more like mid single digits um for both commodity 0:14:55.960 --> 0:14:58.880 and labor this year versus you know, high single digits 0:14:58.880 --> 0:15:01.400 and low teams last year year. So it'll give them 0:15:01.400 --> 0:15:04.800 a chance to close that gap, right because they haven't 0:15:04.840 --> 0:15:06.720 been able to there's a gap between how much they've 0:15:06.760 --> 0:15:09.680 raised prices and how much inflation they've seen for the 0:15:09.760 --> 0:15:12.240 last couple of years. So they'll be able to close 0:15:12.280 --> 0:15:14.960 that gap, hopefully a little bit this year and help 0:15:15.000 --> 0:15:21.080 those margins that were hit pretty good in twenty twenty two. Yeah, yep, yep. 0:15:21.200 --> 0:15:23.120 You know, one of the things that I tell our 0:15:23.160 --> 0:15:26.520 restaurant clients all the time, especially in this environment, is 0:15:26.640 --> 0:15:30.120 you've got to crush the basics, you know, crush the basics, 0:15:30.200 --> 0:15:33.680 just focus on the key items that are your basics 0:15:33.680 --> 0:15:36.560 of operation, and during this time you've just got to 0:15:36.640 --> 0:15:39.840 nail it because if you don't, then then you're not 0:15:39.880 --> 0:15:42.160 going to be able to do it during more difficult 0:15:42.200 --> 0:15:45.960 times come forward. So I think this time, where where 0:15:46.000 --> 0:15:49.240 markets are a little bit slower as it rates to transactions, 0:15:49.480 --> 0:15:53.520 you really just need to focus on your basics. Yeah, 0:15:53.560 --> 0:15:57.440 it's great advice. And to your point about labor, Yeah, 0:15:57.480 --> 0:16:01.360 we've seen some loosening up of the labor market here. 0:16:01.360 --> 0:16:03.560 For the restaurant companies recover. We get some data from 0:16:03.600 --> 0:16:06.400 black Box Intelligence and a year over year there was 0:16:06.440 --> 0:16:10.760 pretty significant improvement in management and non management turnover for 0:16:10.800 --> 0:16:14.640 the casual dining chains in their index, But would um 0:16:15.320 --> 0:16:17.960 not so much for Quick Service, which was interesting. Quick 0:16:18.000 --> 0:16:21.120 Service continues to struggle a little bit more. And my 0:16:21.280 --> 0:16:23.640 guess that that part of that is that late night, 0:16:24.400 --> 0:16:27.960 part day part that Quick Service tends to compete in 0:16:28.000 --> 0:16:31.840 a lot more heavily. Yeah. I think that's that's right. 0:16:31.920 --> 0:16:35.520 And it's also for whatever reason, you know, when when 0:16:35.560 --> 0:16:39.640 all the stimuluts was provided to to a number of people, 0:16:41.400 --> 0:16:44.400 the employees that were in Quick Service, they didn't want 0:16:44.400 --> 0:16:46.880 to go back to Quick Service they they didn't feel 0:16:46.880 --> 0:16:48.960 that that was the position that they wanted to be in. 0:16:49.040 --> 0:16:52.320 So it was it was difficult to find employees to 0:16:52.400 --> 0:16:55.040 be able to fill those spots because there wasn't the 0:16:55.040 --> 0:16:58.520 demand that used to be there for those people working 0:16:58.560 --> 0:17:01.200 in those types of position. So I think we're still 0:17:01.240 --> 0:17:04.719 struggling a little bit and have the um the hangover 0:17:04.760 --> 0:17:08.800 effect of the stimulus impact on quick service. Yeah, for sure, 0:17:08.920 --> 0:17:13.840 it's um. It looks like it's stimulus is coming to 0:17:13.920 --> 0:17:15.879 an end though, right, I mean, we have a we 0:17:15.920 --> 0:17:18.240 have a split Congress now. I guess one of the 0:17:18.359 --> 0:17:24.840 final stimulus UM policies was the halting of the student 0:17:24.840 --> 0:17:28.160 loan payments, right, and I think that's that's ending next month. 0:17:28.280 --> 0:17:32.600 So um, you know, with without all the stimulus that 0:17:32.600 --> 0:17:35.359 that you know, us consumers have had over the last 0:17:35.400 --> 0:17:38.359 few years, you know, it could be a bad omen 0:17:38.480 --> 0:17:42.640 for restaurant spending here in twenty twenty three. Your thoughts, Yeah, 0:17:42.760 --> 0:17:46.159 I think that it's going to be challenging with without 0:17:46.200 --> 0:17:50.560 a doubt, just uh, we're seeing, you know, there being 0:17:50.600 --> 0:17:54.240 a number of consumers that are stepping down, uh to 0:17:54.359 --> 0:17:58.240 the next level that the consumers spending. The concern over 0:17:58.320 --> 0:18:02.879 inflation and the concern over was sessionary times go forward. Um, 0:18:03.000 --> 0:18:06.280 people are are spending less, not only with restaurants, but 0:18:06.400 --> 0:18:09.119 you know throughout the economy, and I think that trend's 0:18:09.119 --> 0:18:11.479 going to continue. So I think, you know, the winners 0:18:11.480 --> 0:18:14.840 are certainly going to be fast casual and QSR because 0:18:14.880 --> 0:18:18.720 you'll get those that are in upper casual or casual 0:18:18.760 --> 0:18:23.040 stepping down too Fast casual and QSRUM. So it's it's 0:18:23.080 --> 0:18:24.879 it's going to be you know, top line is going 0:18:24.920 --> 0:18:28.119 to be going to be more challenging. That's why, you know, 0:18:28.600 --> 0:18:30.760 like I said, getting back to the basics and crushing 0:18:30.800 --> 0:18:34.400 the basics, to really focus on costs and make sure 0:18:34.440 --> 0:18:40.000 you're looking at your cost structure and especially discretionary costs. 0:18:40.040 --> 0:18:43.160 I think those are going to be difficult to fund prospectively. 0:18:43.280 --> 0:18:47.080 Going to have to really focus on the key areas maybe, um, 0:18:47.160 --> 0:18:49.359 you know, look at look at the operations, pull the 0:18:49.400 --> 0:18:52.480 operations in a little bit. Don't expand your menu, but 0:18:52.560 --> 0:18:55.760 contract your menu. Focus on the right products that are 0:18:55.760 --> 0:18:59.240 providing the right return. Making sure you've got your supplier 0:18:59.280 --> 0:19:02.560 network and in place to ensure that you're going to 0:19:02.600 --> 0:19:05.760 get adequate supply at the appropriate cost. So you know, 0:19:05.800 --> 0:19:09.000 a lot of things that the restaurant industry focused on 0:19:09.119 --> 0:19:11.359 during COVID, I think are things that need to be 0:19:11.400 --> 0:19:16.320 focused on here and go forward in this future economic times. Yeah, 0:19:16.320 --> 0:19:18.480 that makes a lot of sense. You know, there's been 0:19:18.520 --> 0:19:21.879 some restructuring in the news recently. McDonald's and Wendy's are 0:19:22.000 --> 0:19:24.919 two of the names that have been in the news 0:19:25.200 --> 0:19:28.560 McDonald's this week. What do you think is motivating these 0:19:28.640 --> 0:19:31.280 moves and could we see more companies do the same, 0:19:31.359 --> 0:19:35.960 maybe lay off some employees. It seems like maybe now 0:19:36.040 --> 0:19:38.600 is the time for them because they have cover, right 0:19:38.680 --> 0:19:40.760 do we have as a lot of other tech companies 0:19:40.760 --> 0:19:42.639 and different companies like that in the news that are 0:19:42.720 --> 0:19:46.600 laying off employees. And so even though McDonald's sales haven't 0:19:46.640 --> 0:19:49.280 fall fell off yet, maybe they're seeing this as an 0:19:49.280 --> 0:19:54.040 opportunity because there's cover. Yeah, I mean, this is kind 0:19:54.080 --> 0:19:56.680 of what has been predicted that there was going to 0:19:56.760 --> 0:19:59.560 be some some some layoffs. We saw it first in 0:19:59.640 --> 0:20:03.440 tech than in financial services and UM and restaurants usually 0:20:03.440 --> 0:20:06.840 aren't on the forefront of that. They're usually the tailwind. 0:20:06.920 --> 0:20:09.200 And I think that's where we're at now, and that's 0:20:09.240 --> 0:20:11.880 what you're seeing with McDonald's and Windy's and I think 0:20:11.880 --> 0:20:14.200 you're going to see that with others. I think when 0:20:14.200 --> 0:20:16.560 they look out and the future and look at what 0:20:16.600 --> 0:20:19.119 their demand is and what their sales are going to 0:20:19.160 --> 0:20:23.440 be and what their cost structure is, UM, there's certainly 0:20:23.440 --> 0:20:25.680 going to be more more layoffs and it's going to 0:20:25.760 --> 0:20:28.080 be UM. You know. I don't think it's going to 0:20:28.119 --> 0:20:29.720 be as deep as it has been in the past, 0:20:29.800 --> 0:20:32.359 but I think it's gonna, you know, certainly make the 0:20:32.400 --> 0:20:35.439 news because again, we're the second largest employer. So if 0:20:35.520 --> 0:20:38.680 layoffs are happening in other industries and across the country, 0:20:38.680 --> 0:20:41.080 and you're starting to see a little bit less consumer 0:20:41.160 --> 0:20:46.400 demand for uh, for products and for restaurants, you're you're 0:20:46.440 --> 0:20:49.000 going to have a little bit of a blip. Yeah. 0:20:49.080 --> 0:20:53.480 So outside of the economic slowdown and a potential recession, 0:20:53.600 --> 0:20:57.920 what's what are your clients most worried about right now? Uh, Well, 0:20:57.960 --> 0:21:00.800 they're just worried about making sure that they're able to 0:21:01.920 --> 0:21:05.600 drive margins. I think that's where their focus is, UM 0:21:05.600 --> 0:21:08.720 trying to drive sales because their constructures aren't going to 0:21:09.000 --> 0:21:12.000 come down a lot. So it's it's it's really UM 0:21:12.080 --> 0:21:15.960 driving sales. Depending on where what sector they're in I think, 0:21:16.040 --> 0:21:19.720 you know, more of the fine dining, the the casual 0:21:19.760 --> 0:21:23.680 sectors are more concerned than quick service and fast casual, 0:21:24.400 --> 0:21:26.520 just because of that trade down element that I had 0:21:26.520 --> 0:21:30.280 mentioned earlier, and um, you know, just just trying to 0:21:30.359 --> 0:21:33.520 make it through what I think most believe could be, 0:21:33.680 --> 0:21:36.760 you know, not a not a severe recession, but more 0:21:36.800 --> 0:21:40.400 of a mild recession and a shorter term recession. So 0:21:40.800 --> 0:21:44.760 get through those those those difficult times and getting back 0:21:44.800 --> 0:21:48.720 into growth mode. Most restaurant companies aren't aren't growing, They're 0:21:48.720 --> 0:21:51.240 not opening up nearly the number of stores that they 0:21:51.280 --> 0:21:53.679 had before. So there's some of the discretionary spend that 0:21:54.040 --> 0:21:56.800 I had mentioned that they have to keep an eye on, um, 0:21:56.840 --> 0:21:59.960 but it's really you know, trying to, like I said earlier, 0:22:00.080 --> 0:22:03.600 maximize a customer's experience so they get the return visits 0:22:03.680 --> 0:22:07.040 and keep the sales lineup. So sales I think is 0:22:07.119 --> 0:22:09.399 key today, not that that it is in other times, 0:22:09.800 --> 0:22:14.280 but I think it outweighs costs containment now because costs 0:22:14.280 --> 0:22:17.480 are starting to level off a little bit. Yeah, for sure. 0:22:17.520 --> 0:22:20.560 And it's interesting with the development piece, right, you mentioned 0:22:20.560 --> 0:22:23.199 that some companies are pulling back. You know, we have 0:22:23.280 --> 0:22:25.639 also companies that are going full steam ahead. But I 0:22:25.680 --> 0:22:30.439 think that the increased amount of telecommuting has kind of 0:22:30.480 --> 0:22:33.880 made that difficult, right, because we don't know, we still 0:22:33.880 --> 0:22:37.000 don't know what the long term run rate for these 0:22:37.040 --> 0:22:40.919 stores in you know, urban business center locations are going 0:22:40.960 --> 0:22:44.120 to be moving forward, right, and we're not really sure 0:22:44.400 --> 0:22:46.920 where these suburban stores are going to settle out right. 0:22:46.920 --> 0:22:49.080 They had the huge spike during COVID, and now they're 0:22:49.160 --> 0:22:52.840 kind of you know, sales or they're losing some sales 0:22:52.880 --> 0:22:57.920 back to maybe urban locations. But that that part has 0:22:57.960 --> 0:23:02.680 made development very difficult and interesting to watch. I think, yeah, 0:23:03.080 --> 0:23:06.639 it really has. Because now that there's the ability to 0:23:06.960 --> 0:23:10.240 work remotely, even if it's a couple of days a week, 0:23:10.280 --> 0:23:11.840 that's a couple of days a week, you don't have 0:23:12.920 --> 0:23:15.639