Speaker 1: Welcome to Chopping It Up. I'm your host Michael Hanlon,
Speaker 1: the senior restaurant and food service analyst at Bloomberg Intelligence.
Speaker 1: Today we're joined by Ralph Bauer, CEO of The Melt.
Speaker 1: Thanks for doing this, Ralph.
Speaker 2: Thank you, Michael.
Speaker 3: I really appreciate getting a chance to talk to you.
Speaker 1: Yeah, I've been looking forward to this one for our listeners.
Speaker 1: The two of us first cross pass about a decade
Speaker 1: ago when Ralph was the CEO and president at Popeyes.
Speaker 1: That was some run that you, Cheryl and the team had.
Speaker 1: What really sticks out to you about that experience and
Speaker 1: what were maybe some of the most important takeaways about
Speaker 1: building a successful brand.
Speaker 3: Yeah, so I grew up in New Orleans. I'm not
Speaker 3: sure if you knew that, but so for for a
Speaker 3: guy who grew up in New Orleans, Popeyes is like
Speaker 3: the pinnacle of fast food and so, uh, that was
Speaker 3: really a truly exciting time. And to be able to
Speaker 3: turn around an iconic brand like Popeyes was was really
Speaker 3: pretty exciting. But the other thing that made that time
Speaker 3: really meaningful to me is that we rebuilt that business
Speaker 3: on the premise of focusing on franchisees first, and the
Speaker 3: first half of my career in the restaurant industry was
Speaker 3: spent working with franchisees and so working with a brand
Speaker 3: that truly believed that, you know, our customer was the
Speaker 3: franchise e, and that if you served the franchise ese,
Speaker 3: that would be what builds the business. And I think
Speaker 3: that we I think that we proved that. And you know,
Speaker 3: we went into a brand that didn't have a great
Speaker 3: history of franchise or franchise relationship, and by building that relationship,
Speaker 3: we were really able to build a business. And you know,
Speaker 3: it's a it's just a totally different business today than
Speaker 3: it was back in and you know, two thousand and
Speaker 3: eight when when we started there.
Speaker 1: Yeah, that, uh, that was awesome. Man. I actually had
Speaker 1: a client yesterday asking me about restaurant brands. And I
Speaker 1: don't know if you're following the story, but Patrick Doyle
Speaker 1: is now the chairman of the board and he took
Speaker 1: a stake in the company. And I actually told this
Speaker 1: investor he should read Cheryl's book there to serve if
Speaker 1: he wants a good you know, inside scoop of how
Speaker 1: Patrick's looking at things, because all they've been talking about
Speaker 1: since since he joined on was on all the investor
Speaker 1: calls and on all the earnings calls, is UH store
Speaker 1: level profitability and serving the franchisees. And you know, to
Speaker 1: your point, I think I think you and the team
Speaker 1: really prove that out at Popeye's.
Speaker 3: Yeah, if you're going to be a great franchise brand,
Speaker 3: the way you do that is by serving the franchisees.
Speaker 3: And if your franchisees are happy and making great money,
Speaker 3: they're going to build more restaurants. And that's what builds
Speaker 3: your brand. When we started there, you know, if you
Speaker 3: look back to two thousand and eight, two thousand and nine,
Speaker 3: we were building about you know, twenty or thirty new restaurants.
Speaker 2: A year, and and.
Speaker 3: Most of those weren't very successful. And today, you know,
Speaker 3: they're they're Before I left in uh, you know, twenty
Speaker 3: and fourteen range, we were up to about you know,
Speaker 3: one hundred plus and.
Speaker 2: Now they're even higher than that.
Speaker 3: And and because of the franch if the franchise believe
Speaker 3: in you and believe in the leadership and they trust you,
Speaker 3: they're going to build more restaurants.
Speaker 2: And that's how you build that's how you build.
Speaker 4: A great brand.
Speaker 3: And when franchises make more money, they build more restaurants
Speaker 3: and and that that's what makes everybody successful for sure.
Speaker 1: All right, So where have you worked since Popeyes? And
Speaker 1: what attracted you to the Melt?
Speaker 3: Yeah, So after I left Popeyes, I went to UH
Speaker 3: Payway And I'm not sure if you're familiar with pay Away,
Speaker 3: but Payway is a fast casual brand about two hundred
Speaker 3: units that was started by Rick Federico at PF.
Speaker 2: Chang's and I went in there.
Speaker 3: With the attention of splitting that off into a into
Speaker 3: a standalone brand. Worked with that brand for for a
Speaker 3: couple of years, built there was there was actually no
Speaker 3: dedicated UH employees to the brand when when I got there,
Speaker 3: and so we built a whole standalone unit and UH.
Speaker 2: And then.
Speaker 3: I had family in the in the in the Bay Area.
Speaker 3: My son was year and I got a I got
Speaker 3: a call one day from a bunch of folks at
Speaker 3: the Melt and I was, you know, the Melt was
Speaker 3: a pretty pretty small brand.
Speaker 4: And it was funny.
Speaker 3: I had had a I had a conversation with my
Speaker 3: wife prior and I said, you know, I'm not sure
Speaker 3: about grilled cheese brands. I'm not sure if grilled cheese
Speaker 3: is enough to sustain a restaurant brand. And then sure enough,
Speaker 3: I get a call a couple of weeks later from
Speaker 3: the investors at the Melt.
Speaker 2: And at the time, they had they had.
Speaker 3: Eighteen restaurants spread across three states, Texas, Colorado, and California,
Speaker 3: and they were struggling, and they they asked me to
Speaker 3: come in and take a look and see what I thought.
Speaker 4: And I was really impressed with the.
Speaker 3: Board and the group of investors was a bunch of
Speaker 3: really smart people. Ron Johnson who kind of created the Apple.
Speaker 2: Store and was you know at J. C. Penny and Target, and.
Speaker 3: Michael Marx who was who's a venture a tech venture capital.
Speaker 2: Guy, and I, you know, I talked.
Speaker 3: To these guys and they were just, you know, a
Speaker 3: pretty exciting group. And I decided decided to come out
Speaker 3: to California and sell Girl cheese sandwiches.
Speaker 1: So, so, how many restaurants at the Melt as a
Speaker 1: company owns as a franchise?
Speaker 2: Yeah?
Speaker 1: So, and can you talk about the service model a
Speaker 1: little bit.
Speaker 3: Yeah, So we're we're a fast casual brand. It's it's
Speaker 3: been an adventure really. So when I got here, we
Speaker 3: had eighteen restaurants, as I mentioned in three States. But
Speaker 3: one of the first things I did was closed everything
Speaker 3: outside of California. And when we started, I think that
Speaker 3: we got a little ahead of ourselves. We were founded
Speaker 3: in twenty eleven and with a lot of fanfare.
Speaker 4: And.
Speaker 3: From day one, when we opened our first restaurant, we
Speaker 3: said we were going to have five hundred restaurants in
Speaker 3: five years, and before we really had a brand yet,
Speaker 3: we were already planning the five hundred restaurants, and we
Speaker 3: kind of put the cart before the horse. So when
Speaker 3: I came in in twenty sixteen, what my idea was ist,
Speaker 3: let's focus on California. Let's get California right, Let's build
Speaker 3: a great brand, and then we'll start expanding again. And
Speaker 3: that's what we're doing today. So we got down to
Speaker 3: as low as seven restaurants. Today we have twelve, with
Speaker 3: four more under construction and five more in the pipeline
Speaker 3: for next year. And during the pandemic, we bought a
Speaker 3: second brand, home Room, which is a macaroni and cheese
Speaker 3: brand out of Oakland, and they had two restaurants a
Speaker 3: block apart. One is a.
Speaker 4: Full service.
Speaker 3: Small, full service sit down restaurant and the other one
Speaker 3: is a block away. It does sit down or rather
Speaker 3: does carry out and delivery only. And carry out and
Speaker 3: delivery only we did over four million dollars last year
Speaker 3: and in macaroni and cheese, So it's a good good
Speaker 3: business travels well, it travels well, and we have the
Speaker 3: best mac and cheese you'll ever have in your life.
Speaker 3: So it's a it's a good it's a good brand.
Speaker 3: We just built our third we opened up our third
Speaker 3: home room in Berkeley a couple of months ago, and
Speaker 3: so we're just starting to take a look at that
Speaker 3: brand and its possibilities for expansion.
Speaker 1: Awesome. And so all the new stores this year and
Speaker 1: next are going to be in California as well.
Speaker 3: Next year we will open our first restaurants outside of California,
Speaker 3: which will be in uh which will be in Phoenix.
Speaker 3: So we'll get we'll get one or two open in
Speaker 3: Phoenix next year.
Speaker 1: Nice. And are are most of the new restaurants going
Speaker 1: to be staffed by existing general managers or you're going
Speaker 1: to have to go outside of the system maybe to
Speaker 1: to hire some.
Speaker 4: Yeah, that's a great question. I think that.
Speaker 2: Whenever a brand.
Speaker 3: Goes outside of its its you know, traditional area, you
Speaker 3: got to be very very careful, and I think the
Speaker 3: best thing you can do is to convince folks who
Speaker 3: are in your core group of restaurants to relocate. And
Speaker 3: uh so that's that's our plan and is to get
Speaker 3: folks to relocate. But I think we're also going to
Speaker 3: be hiring people in the you know, in the Phoenix area.
Speaker 3: We actually have one person in our system now who's
Speaker 3: from the Phoenix Scottsdale area that we relocated to San
Speaker 3: Diego and he's he's there now training and our intent
Speaker 3: is once we open Phoenix that he'll, uh he'll move
Speaker 3: back there. But I think, I think that's super important,
Speaker 3: and I think that, uh a lot of brands make
Speaker 3: that mistake, is that when you start to expand outside
Speaker 3: of your your core area, if you try to do
Speaker 3: it with no new folks, a lot of times that
Speaker 3: culture doesn't move with you. And a big part of
Speaker 3: growing any any brand is being able to move that culture.
Speaker 3: One example I like to give is, I remember when
Speaker 3: Chick fil A was was just this little chicken brand
Speaker 3: in the in the southeast, and being the very knowledgeable
Speaker 3: person that I am, I told anybody who would listen,
Speaker 3: I'm not sure Chick fil A is ever going to
Speaker 3: be more than a regional player, because it's gonna be
Speaker 3: it's going to be so hard for them to uh
Speaker 3: they're so culture heavy, it's going to be so hard
Speaker 3: for them to uh create that culture all across the country.
Speaker 3: And kudos to them. Cheryl is on their board now
Speaker 3: as a matter of fact. But kudos to them because
Speaker 3: they showed, they showed it could be done.
Speaker 2: And you know that they have that same.
Speaker 3: It's my pleasure culture in California, as they have in Georgia,
Speaker 3: and that's what's allowed them to be successful every place
Speaker 3: they've gone.
Speaker 1: Yeah, in New Jersey as well. I Uh, once my
Speaker 1: son gets a little older, I'd love I'd love for
Speaker 1: him to work for Chick fil A.
Speaker 3: Yeah, it's a it's a great brand with a great culture.
Speaker 2: I agree with you, you can't you can't go wrong there.
Speaker 1: Yeah, all right, So the melt is had an incredible
Speaker 1: run since twenty twenty. You know, one of the best
Speaker 1: pandemic success stories that I've heard of, maybe you know
Speaker 1: the best out there. Can you talk about your experience
Speaker 1: during the pandemic, you know, I'm sure it wasn't easy
Speaker 1: at first, and maybe talk about the changes that enabled
Speaker 1: the chain to survive and then kind of grow AUVs
Speaker 1: the way it has.
Speaker 4: Yeah, so that's a great question.
Speaker 3: So I remember March fifteenth or so of twenty twenty,
Speaker 3: we celebrated one hundred consecutive weeks of positive comp sales
Speaker 3: and things were looking really good for our brand. On
Speaker 3: March eighteenth, three days later, they announced a shelter in
Speaker 3: place in San Francisco and then later in California. So
Speaker 3: we went from one hundred consecutive weeks of positive comps
Speaker 3: to negative eighty percent pretty much overnight, which goes to
Speaker 3: prove one of my favorite sayings that when when things
Speaker 3: are good, they're never.
Speaker 2: As good as they seem.
Speaker 3: And uh. But again, being very knowledgeable in these kind
Speaker 3: of things, I said to myself, this can't last longer
Speaker 3: than two or three weeks, and so I made some
Speaker 3: really good decisions based on really bad knowledge. So because
Speaker 3: I thought it would only last two or three weeks,
Speaker 3: I wanted to make sure that we didn't lose any
Speaker 3: employees while we were shut for this short period of time.
Speaker 3: And so I uh, I remember I went to work
Speaker 3: and a team member who'd been with us for a
Speaker 3: number of years, who I was very close to was
Speaker 3: really on the verge of tears and was worried about
Speaker 3: losing her job and how she was going to be
Speaker 3: able to feed her family. And I said, I said
Speaker 3: to her, look, you don't have to worry. You know,
Speaker 3: your your paycheck is safe while as long as this
Speaker 3: thing lasts.
Speaker 2: And uh, then you know, I.
Speaker 3: Was very fortunate that I had some investors who backed
Speaker 3: me on this.
Speaker 4: But I told all of my.
Speaker 3: Folks, look, we're gonna pay you whether you come to
Speaker 3: work or not. If you're not comfortable coming to work,
Speaker 3: don't come to work. But uh, you know we're gonna
Speaker 3: we're gonna pay you if you come in or don't
Speaker 3: come in. Now, I will say that most of the
Speaker 3: folks didn't believe me at first, and so they came
Speaker 3: to work anyway. But but we didn't We didn't really
Speaker 3: lose anybody. But the problem was, as I mentioned, our
Speaker 3: sales were there was basically nobody, especially in downtown San Francisco.
Speaker 3: And our office is above one of the restaurants on
Speaker 3: Market Street in the heart of the financial district in
Speaker 3: San Francisco. And and uh, about three or four days
Speaker 3: in to the shelter in place, I remember I looked
Speaker 3: over the balcony and there was almost nobody in the restaurant,
Speaker 3: and the only people in there were first responders, and
Speaker 3: there was some police officers who were at the counter ordering,
Speaker 3: and I just yelled over the railing I said, you know,
Speaker 3: don't charge them for their food, you just give it
Speaker 3: to them for free. Then I started thinking about it,
Speaker 3: and one of the things that I knew is I
Speaker 3: had people in every restaurant and they didn't really have
Speaker 3: anything to do, and they they didn't really feel like,
Speaker 3: you know, they were needed. And I thought, well, why
Speaker 3: don't we give all first responders their meals for free?
Speaker 3: And so within about twenty four hours, I told everybody, hey, look,
Speaker 3: if you have any first responders come in, just give.
Speaker 2: Them their meals for free.
Speaker 3: And the next thing, you know, that went viral. So
Speaker 3: within about a week, I have a couple of restaurants,
Speaker 3: one at Stanford in Palo Alto and one in La Jolla,
Speaker 3: where we had hospitals within walking distance of our restaurants,
Speaker 3: and so within about a week we started having people
Speaker 3: lining up in the morning and we would have lines
Speaker 3: out the door all day, open to close. I remember
Speaker 3: at Stanford we were doing about thirteen thousand or so
Speaker 3: a day, and twelve thousand of it it was free.
Speaker 3: And still I kept on thinking, well, this is only
Speaker 3: going to last a couple of weeks, and we're getting
Speaker 3: all this exposure.
Speaker 4: But as things started to.
Speaker 3: Move on, first of all, I couldn't handle all that business,
Speaker 3: especially at Stanford. It was I worked ended up working
Speaker 3: a Thursday and Friday myself open to close on the
Speaker 3: grill at Stanford because I had heard the crew was
Speaker 3: ready to mute. And at the end of the Friday,
Speaker 3: we actually ran out of food at about ten o'clock
Speaker 3: on Friday, and people were just worn out, and I said, man,
Speaker 3: I just don't know if I can do this anymore.
Speaker 4: And I was really.
Speaker 3: I was really worried because I knew I was going
Speaker 3: to have to cut it off because it was so
Speaker 3: hard on the team. But I couldn't figure out, you know,
Speaker 3: where I was going to go from there and how
Speaker 3: I would explain it to folks, And so I had
Speaker 3: to make a decision. Do I go to a fifty
Speaker 3: percent discount?
Speaker 2: What do I do?
Speaker 3: And so finally I just decided, you know, I'm just
Speaker 3: going to go cold Turkey and end it all together.
Speaker 3: And to my surprise, no backlash whatsoever, and all of
Speaker 3: a sudden we started to get a steady stream of people.
Speaker 3: And another interesting story was La Joya. So Stanford had
Speaker 3: always been our high volume restaurant, and at the time,
Speaker 3: you know, they were, you know, you know, maybe a
Speaker 3: two million dollar restaurant. I was just looking before the call.
Speaker 3: This same week in twenty eighteen, the week that we
Speaker 3: just finished, Stanford did was our highest volume restaurant, and
Speaker 3: they did a little bit under forty thousand, thirty eight thousand.
Speaker 3: Last week they did ninety five. And La Joya was
Speaker 3: the other restaurant. La Joya I had had opened for
Speaker 3: a couple of years and it wasn't a great performer,
Speaker 3: but they also had hospitals close by, and we were
Speaker 3: having people lining up, and you know, our our awareness
Speaker 3: in southern California wasn't as good as it was in
Speaker 3: Northern California where we were founded. So La Joya is
Speaker 3: a fascinating story. For two years, we had done about
Speaker 3: twenty thousand a week, plus or minus one thousand dollars
Speaker 3: every single week for two years, you know, nineteen to
Speaker 3: twenty one. It was pretty mediocre, and then overnight we
Speaker 3: went down to four or five thousand. But by April,
Speaker 3: so you know, Shelter Place was in March. By April
Speaker 3: things were starting to come back, and we went from
Speaker 3: four or five thousand to ten or fifteen thousand, and
Speaker 3: by the end of April we were back to the
Speaker 3: twenty thousand that we were doing pre COVID. In May
Speaker 3: we started doing record weeks and in June we did
Speaker 3: forty thousand, and in July we did fifty thousand and
Speaker 3: fifty thousand. We average fifty thousand a week, and I
Speaker 3: remember my manager saying, well, we want to beat Stanford.
Speaker 3: We want to do we want to do sixty thousand,
Speaker 3: and in August we did sixty thousand a week. In
Speaker 3: September we did seventy thousand a week. And last year
Speaker 3: that restaurant did four point three million, and so there
Speaker 3: was a couple of things at play. I think the
Speaker 3: first thing is is that we did get some We
Speaker 3: did build awareness with this free meals for first responders.
Speaker 3: We won a Jefferson Award for public service in San Francisco.
Speaker 3: You know, it kind of went viral that we were
Speaker 3: doing this, So that was a piece of it. But
Speaker 3: a bigger piece of it is when people came, we
Speaker 3: had really really good food and really really good service.
Speaker 3: And because we didn't lose any team members because we
Speaker 3: paid them whether they came to work or not. We
Speaker 3: actually had two months after the Shelter and Place started,
Speaker 3: So in June of twenty we had more employees than
Speaker 3: we had in March of twenty And so when folks came,
Speaker 3: we have never we have never really struggled to handle
Speaker 3: the business that came in. So when the business came,
Speaker 3: we were ready. The other thing is is that, you know,
Speaker 3: we were founded by tech entrepreneurs. Our founder, John Kaplan,
Speaker 3: who interestingly enough is the Ambassador to Singapore today, was
Speaker 3: the founder of the flip video phone that he sold
Speaker 3: to Cisco and so, and all of our investors were
Speaker 3: tech folks. And so we had a very good technology
Speaker 3: platform that we were able to build on. And when
Speaker 3: third party delivery became so prevalent during during COVID, no
Speaker 3: we went from you know, pre COVID we were eighteen
Speaker 3: to twenty percent delivery and during COVID we got up
Speaker 3: as high as eighty percent eighty percent delivery. But it
Speaker 3: didn't it wasn't it wasn't difficult to ramp up because
Speaker 3: we had the systems and I used to handle it.
Speaker 3: So so two things that were very important. We had
Speaker 3: the tech platforms in place to handle the business when
Speaker 3: it came, and we also had you know, the food
Speaker 3: and the service models where we deliver what we call
Speaker 3: and I love it here experience. And so when people
Speaker 3: came and had that I love it here experience, they
Speaker 3: told their friends and things, and things just snowballed. So
Speaker 3: actually twenty twenty, even with you know, horrible marches and
Speaker 3: March and April that were down. You know, I think
Speaker 3: March was down fifty percent and April was down sixty
Speaker 3: or seventy percent, twenty twenty ended up being a record
Speaker 3: year because of the amount of sales we did in
Speaker 3: the back half of the year. But the interesting thing
Speaker 3: is that our average unit volumes actually doubled during COVID.
Speaker 3: So I mentioned that Stanford was our highest volume restaurant.
Speaker 4: You know, pre.
Speaker 3: COVID, they were doing you know, thirty or forty a.
Speaker 2: Week, and you know, now they.
Speaker 3: Last year they did four point five and this year
Speaker 3: they're on pace to do over five million. Every restaurant
Speaker 3: we have has doubled their volume since the beginning of COVID,
Speaker 3: and you know, it's one thing you have to have.
Speaker 3: One of the not very complicated beliefs that I have
Speaker 3: is if you're going to be a great restaurant company,
Speaker 3: you need to run great restaurants. And you know that
Speaker 3: is the operator in me. But if people come to
Speaker 3: your restaurant and you don't run a great restaurant, it
Speaker 3: doesn't do you any good. Some of my team gets
Speaker 3: frustrated with me sometimes because I don't get excited about
Speaker 3: great sales. What I get excited about is great guest feedback.
Speaker 3: Because great sales are about what you did yesterday. Great
Speaker 3: guest feedback is the best indicator you have of what
Speaker 3: you're going to do tomorrow. And so I'm fanatical about
Speaker 3: guest feedback and tracking guest feedback and following guest feedback.
Speaker 3: And you know, if we have a great sales day
Speaker 3: and I don't feel like we delivered that, I love
Speaker 3: it here experience.
Speaker 4: I'm not happy.
Speaker 3: I really don't care if it was a record day,
Speaker 3: if we didn't deliver, I love it here, and but
Speaker 3: our number one goal is to deliver, and I love
Speaker 3: it here experienced every guest. And that's all about great
Speaker 3: restaurant operations. And I think, I really think in the
Speaker 3: restaurant people, in the restaurant business, people underestimate how important
Speaker 3: that is.
Speaker 1: I love that love it.
Speaker 4: Yeah, so I love it here.
Speaker 3: Right after I came on board in twenty sixteen, you know,
Speaker 3: the volumes of our average our volumes have grown from
Speaker 3: seven hundred thousand dollars annual, you know, average unit volumes
Speaker 3: to over three million dollar genid volume since twenty seventeen.
Speaker 3: And I don't know another restaurant story. I'm not sure
Speaker 3: that's ever happened before in the restaurant business.
Speaker 4: I don't know of a story.
Speaker 1: I haven't I haven't heard of it.
Speaker 3: And so, you know, we really did a couple of things.
Speaker 3: The first one is I was I was sitting in
Speaker 3: my office and about the end of my first year,
Speaker 3: and I got a review in from our Stanford restaurant
Speaker 3: where the guests started off and they said, I love
Speaker 3: it here, and they went on to explain why they
Speaker 3: loved it at the Stanford restaurant. And I asked myself, God,
Speaker 3: what would happen if every guest when they walked out
Speaker 3: the door could say I love it here. And so
Speaker 3: then I asked my restaurant support center team the same question.
Speaker 3: I said, read this review, what would happen if every
Speaker 3: guest said I love it here when they walked out
Speaker 3: the door. And I have a weekly call with my GMS,
Speaker 3: and I asked them the same thing as I said, Hey,
Speaker 3: look at this. What do you think would happen if
Speaker 3: every guest said I love it here when they walked
Speaker 3: out the door. And within a week, we had torn
Speaker 3: up every mission and vision statement we had in the company,
Speaker 3: and we had changed our mission to delivering and I
Speaker 3: love it here experienced every guest. And the thing I
Speaker 3: love about that is that our team members understand what
Speaker 3: it means to have an experience so good that you
Speaker 3: can say I love it here. And twice a day
Speaker 3: we do rallies, you know, before our lunch shift and
Speaker 3: our dinner shift, twice a day in every single restaurant,
Speaker 3: and the only purpose of the rally is everybody says,
Speaker 3: what's our number one goal?
Speaker 4: To deliver?
Speaker 3: And I love it here experience and them and they
Speaker 3: say what does that mean? And that's how we start
Speaker 3: the shift. And I don't actually tell people how to liver.
Speaker 4: And I love it to hear experience.
Speaker 3: I say Michael, what does it mean to you to
Speaker 3: have an I love it here experience? Deliver that to
Speaker 3: the guest.
Speaker 2: And that's been that's.
Speaker 3: Been tremendously successful, which is kind of nuts and bolts
Speaker 3: of running great restaurants. But the other thing is one
Speaker 3: of the things I learned at Popeyes was that you
Speaker 3: don't always have all the answers. And in the case
Speaker 3: of Popeyes, where we are a franchise organization, there isn't
Speaker 3: a problem that we have the franchisees don't already know
Speaker 3: the answer to. And in our case at MELT, there
Speaker 3: wasn't a problem that we had that our team members
Speaker 3: and our guests didn't know the answer to. And so
Speaker 3: when I came to MELT, I sent out a letter
Speaker 3: to everyone in our database that asked two questions. I said,
Speaker 3: I'm the new guy. I have two questions for you.
Speaker 3: What do you hope I change? And what do you
Speaker 3: hope I don't change? And I got eleven hundred responses back.
Speaker 2: And then I met with all of my.
Speaker 3: Internal team and my GMS, and I asked them the
Speaker 3: same two questions. We put all those answers into a
Speaker 3: spreadsheet grouped.
Speaker 4: Together by category.
Speaker 3: Then I did what they said to do, and our
Speaker 3: sales have quadrupled. So it hasn't been it hasn't been
Speaker 3: all that complicated. Do what your guests and your team
Speaker 3: tells you is smart and you can have great results.
Speaker 1: It's awesome, man, and the mission statement, the simplicity of
Speaker 1: it is great. I'd imagine the employees really appreciate the
Speaker 1: freedom that you're giving them to provide a great experience. No,
Speaker 1: all really smart stuff. I'd imagine your turnover levels are
Speaker 1: pretty low compared to the industry, right.
Speaker 4: They're pretty low.
Speaker 3: So if you look at management in the past four years,
Speaker 3: I've lost one GM and they went on to be
Speaker 3: a multi unit manager at another brand, and my team
Speaker 3: member turnover is under one hundred percent. So I think
Speaker 3: I think that's I think that's important. You know, we
Speaker 3: we try to listen to, we try to have, we
Speaker 3: try to be and I love it here place to work.
Speaker 3: So part of delivering and I love it here experience
Speaker 3: is being and I love it here place to work.
Speaker 3: I like to say that the guest experience is never
Speaker 3: going to exceed the team members experience. So if you
Speaker 3: want to deliver I love it here, you better have
Speaker 3: an I love it here place to work, and so
Speaker 3: we do our best.
Speaker 4: We do our best to do that.
Speaker 1: Cool. Is there any other unit economic data that you'd
Speaker 1: like to share?
Speaker 3: Yeah, so, as you can expect, when average unit volumes
Speaker 3: go from you know, seven or eight hundred thousand to
Speaker 3: three million, that unit economics.
Speaker 2: Improve improve greatly.
Speaker 4: You know.
Speaker 3: One of the things I was worried about when I
Speaker 3: came here is that our you know, our rents were
Speaker 3: so our rents were so high being California. But once
Speaker 3: you quadruple your average UNDT volumes, all of a sudden,
Speaker 3: your rents tend to get in line on a percentage basis.
Speaker 3: So now now our rents are you know, our rents
Speaker 3: are doing doing a lot better. So yeah, you know,
Speaker 3: we're in the We're in the high teens.
Speaker 2: I think that.
Speaker 3: With the supply chain issues the past couple of years,
Speaker 3: our food costs have gone up a bit. I've been
Speaker 3: fairly reluctant to take too many price increases.
Speaker 2: I tend to be pretty.
Speaker 3: Conservative when it comes to pricing. I have taken some
Speaker 3: probably not a probably I could take more, but that's
Speaker 3: a lever you can't push back. So I've been I've
Speaker 3: been pretty slow in that Yeah, are are We're in
Speaker 3: the high teens, which in California with the uh, you know,
Speaker 3: with the high costs, I'm I'm pretty pleased with cool.
Speaker 1: Are there any opportunities there for you to expand that margin?
Speaker 3: Yeah, I think that there is. I Like I said,
Speaker 3: I think that we do have some some pricing flexibility
Speaker 3: that that, you know, I think you could be aware of.
Speaker 4: I mean, one of the things, one of the things.
Speaker 3: That I think brands have to be careful with is
Speaker 3: their unit economics of delivery. Delivery is an interesting story
Speaker 3: for us. So this is another case where my team
Speaker 3: kind of proved that I don't know anything and they
Speaker 3: know everything. Is that my IT folks came to me
Speaker 3: in twenty seventeen and said, hey, you know, I think
Speaker 3: we should try a third party delivery And I said,
Speaker 3: no way. I have no interest in delivering.
Speaker 2: Bad food and.
Speaker 3: Charging and not making any money for it.
Speaker 4: Right is that? Why do I want?
Speaker 3: Why do I want people to have bad food and
Speaker 3: us not make any money.
Speaker 4: It makes no sense to me.
Speaker 3: And my IT folks said, you know, I really think
Speaker 3: that we had to put our toe in the water.
Speaker 2: On this, and.
Speaker 4: And so we did it in a couple.
Speaker 3: I said, all right, fine, you know, we'll do one
Speaker 3: delivery platform. I think we started off with with Uber
Speaker 3: Eats and and in two restaurants, and pretty quickly we
Speaker 3: got we were in high single digits and mix and
Speaker 3: I said, well, you know, high single digits and mixes.
Speaker 3: That's pretty good. Let's do it some more places. And
Speaker 3: then pretty quickly that went to well, I guess we
Speaker 3: ought to think about having more than one delivery service,
Speaker 3: you know, let's bring another one on. And by the
Speaker 3: time COVID hit, we had gradually grown from you know,
Speaker 3: zero percent delivery to you know, the first year we
Speaker 3: did delivery, we were probably eight or nine percent. Going
Speaker 3: into COVID, we were eighteen to twenty percent, and then,
Speaker 3: as I mentioned during COVID, we get up as high
Speaker 3: as eighty. But if I had had my way, we
Speaker 3: would have never done delivery and we wouldn't be the
Speaker 3: company that we are today.
Speaker 2: But luckily I have.
Speaker 3: Smarter people working for me than I am, and they
Speaker 3: told me that they thought this delivery.
Speaker 2: Would be a thing, and they were right.
Speaker 3: But one of the things I said from the very
Speaker 3: begetting is that if we're going to do delivery, we
Speaker 3: got to make money. I'm not going to have my
Speaker 3: people working their butts off, and so I charged a
Speaker 3: premium for delivery in order to make up for that
Speaker 3: margin loss that you have to pay to the third
Speaker 3: party providers. And I have found I get zer literally,
Speaker 3: I get virtually zero complaints from guests on pricing on delivery.
Speaker 3: I can remember going to some conventions and things and
Speaker 3: the biggest, the biggest groups of folks were meeting talking
Speaker 3: about how do you make money at delivery? And I
Speaker 3: was always standing in the back of the room, going, well,
Speaker 3: you gotta charge more, you know, if you want to
Speaker 3: make money. And that's worked for us. We we charge
Speaker 3: about a twenty percent our menu prices for delivery about
Speaker 3: twenty percent higher. There's way more price flexibility on delivery
Speaker 3: than there is dine in, and people are looking for
Speaker 3: the convenience. They're willing to pay for that convenience, and
Speaker 3: that's worked for us. So I would not do delivery
Speaker 3: if I couldn't charge a premium for it. There's one
Speaker 3: there's one third party service and I won't I won't
Speaker 3: say who it is, But for for a couple of years,
Speaker 3: they said we couldn't have different pricing on their platform
Speaker 3: than we had on our menus, and so I didn't
Speaker 3: use that. I didn't use that platform. And because it
Speaker 3: just doesn't make sense to do delivery unless.
Speaker 2: You're making money at it.
Speaker 3: And folks will make theoretical arguments about incremental profit and
Speaker 3: those incremental sales and how that's labored. In my experience,
Speaker 3: that's all blowning. You you got to make as much
Speaker 3: money on that third party delivery as you make on
Speaker 3: your instore transactions, or it just doesn't make sense to me.
Speaker 1: Yeah, that's only good way it's going to work for
Speaker 1: both parts. Yeah, I completely agree. You know, obviously if
Speaker 1: top line has grown a ton over the last few years,
Speaker 1: but do you still see some some opportunities for growth there.
Speaker 4: Yeah.
Speaker 3: So we've done very little menu expansion. One of the
Speaker 3: things that I really want to do is develop a
Speaker 3: great fried chicken sandwich. As you know, I have a
Speaker 3: pretty big fried chicken background and have a lot of
Speaker 3: passion for fried chicken and uh, and so we're working
Speaker 3: on a fried chicken sandwich, and I think that's the
Speaker 3: next logical extension. I've been very reluctant to our to
Speaker 3: expand our menu because I think that being great at
Speaker 3: a few things is better than being mediocre at many,
Speaker 3: and so I've, you know, I've tried to really focus on,
Speaker 3: you know, having I love it here food. You know,
Speaker 3: I love it here burgers, and I love it here
Speaker 3: grilled cheese sandwiches. And one of the things I didn't
Speaker 3: mention is that the other thing that has happened since
Speaker 3: twenty sixteen is that burgers have become the biggest part
Speaker 3: of our menu. And today we're about a sixty forty
Speaker 3: sixty forty mix of burgers, and we have a really
Speaker 3: super unique burger that's different from a burger that you
Speaker 3: get anywhere else. First, we use a blend of Angus
Speaker 3: and Wygo, and everybody who sells burgers is in love
Speaker 3: with their blend, but we're the only ones I know
Speaker 3: that uses Wygu in their blend, and so it makes
Speaker 3: that burger really juicy. But the other, the other cool
Speaker 3: thing that we do, there's a couple of things. One
Speaker 3: is we chop our burgers.
Speaker 2: So after we.
Speaker 4: Smash the burger.
Speaker 3: We chop it, and we do that so that cheese
Speaker 3: can get into every nook and cranny of the burger
Speaker 3: and make it kind of a unique burger.
Speaker 4: And with a brand like the.
Speaker 3: Melt, you want cheese to be a big part of
Speaker 3: the product. So I was actually touring restaurants in New York,
Speaker 3: and the bodegas in New York have a product called
Speaker 3: a chopped cheese, and a chopped cheese is kind of
Speaker 3: like a Philly cheese steak, but they make it with
Speaker 3: ground beef instead of cheese steak. And I thought, maybe
Speaker 3: this is what the Melt Melt burger should be. Maybe
Speaker 3: it should be a chopped cheese. This feels like something
Speaker 3: that we would serve at the Melt. And you know,
Speaker 3: I worked on it, and at the last minute I
Speaker 3: kind of chickened out, and I said, you know what,
Speaker 3: it's kind of hard to eat a chopped cheese every
Speaker 3: day of the week, but people eat burgers multiple times
Speaker 3: a week. Let me make it sort of like a
Speaker 3: chopped cheese, but more like a burger. And so instead
Speaker 3: of two standard deviations away from a burger, I went
Speaker 3: one standard.
Speaker 4: Deviation away from a burger.
Speaker 3: And so what we do is we take that burger,
Speaker 3: we chop it, and then we have a pickle jalapeno mix.
Speaker 3: It's kind of like chopped pickles and jalapenos.
Speaker 4: And we put that on.
Speaker 3: Then we use two slices of cheddar on top, and
Speaker 3: when you melt that cheddar, it gets into the nooks
Speaker 3: and crannies of the burger. That picklehallapino mix gets into
Speaker 3: the nooks and crannies of the burger.
Speaker 4: We have a super unique burger.
Speaker 3: I think that the key to any successful restaurant is
Speaker 3: your food has to be differentiated. And there's nobody who
Speaker 3: has a burger that's anything like our meltburger. And so
Speaker 3: today we sell more meltburgers than we sell grilled cheeses.
Speaker 3: Our grilled cheeses are fantastic and the best grilled cheeses
Speaker 3: you can get anywhere. But I'm pretty proud of our meltburger.
Speaker 3: It's something that we developed from scratch and is a
Speaker 3: is a pretty cool product.
Speaker 2: And today on all.
Speaker 3: Of our new restaurants, you know, seinage says the melt
Speaker 3: and then underneath our tagline is World's Meltiest Burger, and
Speaker 3: it's a it's a dang good burger. I have one
Speaker 3: for lunch just about every day.
Speaker 1: It sounds fantastic. You're making me hungry. So when I
Speaker 1: was in college in DC, there was a deli right
Speaker 1: near school called Wise Miller's and they did kind of
Speaker 1: a chopped burger thing called the Burger Madness. It was
Speaker 1: absolutely fantastic. So I'm going to have to get out
Speaker 1: to California and try a melt burger. Speaking of California,
Speaker 1: outside of you know, the high real estate costs, what
Speaker 1: are some of the other largest obstacles that you have
Speaker 1: to do in business there.
Speaker 3: Yeah, Look, it's no secret to anybody that California is
Speaker 3: a challenging place to run a restaurant company. And you
Speaker 3: have the legislative challenges, you have the team members challenges,
Speaker 3: you have our minimum wage challenges, you know, are my
Speaker 3: minimum wage at my minimum hourly wage at West Hollywood,
Speaker 3: which is one of my newest restaurants, is now nineteen
Speaker 3: oh six and so and every place that I operate
Speaker 3: today as a minimum wage is fifteen dollars or fifteen
Speaker 3: seventy five, I think are higher. So that's a challenge.
Speaker 3: But the other thing that California brings is, you know,
Speaker 3: it is a it is a huge economy, and there
Speaker 3: is the opportunity to still make money, and every everybody
Speaker 3: you compete against has the same challenges as you do.
Speaker 3: I don't. I don't find myself worrying too much about
Speaker 3: minimum wage, for example, because if everybody has to pay
Speaker 3: that same minimum wage, you're kind of on an on
Speaker 3: an even field.
Speaker 4: I think that it does.
Speaker 3: It does mean that the prices you have to charge
Speaker 3: in California have to be a little bit higher. That's
Speaker 3: one of the things that we'll have to figure out
Speaker 3: as we go to Arizona is does our pricing models
Speaker 3: stay the same or or are is that pricing in
Speaker 3: Arizona going to be different than it is in California.
Speaker 3: But there are challenges, but you just you just have
Speaker 3: to understand the understand the rules of the game, and
Speaker 3: and everybody's playing by the same set of rules. So
Speaker 3: that's you just got to make sure that again, if
Speaker 3: you can deliver I love it here food and I
Speaker 3: Love it here service, you're going to do well. It
Speaker 3: doesn't matter what state.
Speaker 2: You're in.
Speaker 1: For sure. So you know, speaking to California, it's some
Speaker 1: of the companies that I cover that have a lot
Speaker 1: of exposure to California. Jack in the Box and Chipotle
Speaker 1: are two of them. They're they're testing automation technology, uh
Speaker 1: in their kitchens, right, so they're they're further along that
Speaker 1: technology curve than a lot of chains that are maybe
Speaker 1: based in the South, where labor and real estate come
Speaker 1: a little cheaper. So are there any tech upgrades or
Speaker 1: automation or anything that you're implementing or testing or thinking
Speaker 1: about installing in your restaurants.
Speaker 2: Yeah.
Speaker 3: So we've always had really good technology. We've had Kios
Speaker 3: in our restaurant since we were founded in twenty eleven. Today,
Speaker 3: about twenty five percent of our orders are taken at
Speaker 3: the kiosk, and I I'm not I have to I
Speaker 3: have to tell you, I'm not sure that that necessarily
Speaker 3: leads to a labor savings though. The way I look
Speaker 3: at kios is everybody comes to your restaurant with a
Speaker 3: different expectation level of service. Some people like kios, some people.
Speaker 2: Want more one on one.
Speaker 3: In person service. Some people would rather use an app.
Speaker 4: And so.
Speaker 3: What I do is I have a really good app.
Speaker 3: And again we've had an app since twenty eleven.
Speaker 4: Also, we when I when I first when I.
Speaker 3: First got to Melt, we had you know, eighteen restaurants
Speaker 3: and sixteen I people and we were doing you know,
Speaker 3: so we had our own.
Speaker 4: App and our own kios and and uh.
Speaker 3: But so we have a great great apps, great kios
Speaker 3: great online and so I think that that does take
Speaker 3: some of the pressure off front, off the front. So
Speaker 3: I'm always looking at how technology. I look at how
Speaker 3: technology can make the experience better, both for team members
Speaker 3: and for guests. I haven't really looked at technology so
Speaker 3: much as decreasing the costs and uh, you know, we're
Speaker 3: a small brand and other people may be working working
Speaker 3: on that. But I think a big part of I
Speaker 3: love it here as team members who can deliver I
Speaker 3: love it here, and so I think that's always going
Speaker 3: to be a big, a big piece of our model.
Speaker 3: But I do think you need to have the technology
Speaker 3: that the guests want. I see some brands who are
Speaker 3: Kiosk only or some brands that are app only. What
Speaker 3: I believe is you need to have the option of Kiosk,
Speaker 3: app or front Counter and whatever the guest is most
Speaker 3: comfortable with, that's.
Speaker 2: Going to be I love it here.
Speaker 3: There's one one national burger chain that I know I
Speaker 3: won't mention any names, but started in New York where
Speaker 3: you know, you go into their restaurants today and they
Speaker 3: try to push people to the Kiosk and I just
Speaker 3: don't think that that's the right way to do it.
Speaker 3: I think if you want to use the kiosk, to
Speaker 3: use the kiosk, if you want to if you want.
Speaker 4: To talk to a person, talk to a person.
Speaker 1: I agree, all right, So what are your biggest concerns?
Speaker 1: What worries you most?
Speaker 3: Yeah, I think right now we're really ramping up our
Speaker 3: unit growth, so attracting enough folks to especially management level
Speaker 3: folks who can deliver.
Speaker 4: I love it here.
Speaker 3: That's really important. I think with the supply chain chain
Speaker 3: challenges right now, it's taken a lot longer to build
Speaker 3: new restaurants. Equipment's harder to get and it's more expensive.
Speaker 3: I seem to be two steps behind the rabbit all
Speaker 3: the time on how much costs are you know, costs
Speaker 3: are increasing, and how it's how it's delaying the the
Speaker 3: are builds. You know, we used to be able to
Speaker 3: say we could build a restaurant in ninety days, and
Speaker 3: you just can't build a restaurant in ninety days anymore.
Speaker 3: There's just too many supply chain issues and too many
Speaker 3: labor issues to get that done. So I think that
Speaker 3: those are the you know that those are the big
Speaker 3: challenges but you know, we have four restaurants that are
Speaker 3: going to open, four new restaurants that are going to
Speaker 3: open before the end of the year. Our next new
Speaker 3: restaurant is going to be in del Mar just north
Speaker 3: of La Joya in San Francisco. And then we have
Speaker 3: three they're going to be opening in in the South
Speaker 3: Bay in San Francisco, one in Mountain View, one in
Speaker 3: Sunny Vale, and one in Santa Clara. And then we
Speaker 3: have five restaurants, five plus restaurants in the pipeline, including
Speaker 3: two in Arizona next year. So making sure that you
Speaker 3: don't grow faster than you have. I love it here
Speaker 3: teams in place for is the is the number one is.
Speaker 2: The number one priority for me.
Speaker 3: You can't get too far out ahead of your skis.
Speaker 3: I love it here is a big reason why we're
Speaker 3: where we are today. And if we start opening new
Speaker 3: restaurants that can't deliver I love it here, then uh,
Speaker 3: then we're not gonna We're not going to be able
Speaker 3: to sustain the things that we've been able to build
Speaker 3: for the past few years.
Speaker 1: That's great, man, Listen, this is fun, you know. Congratulations
Speaker 1: on your success, good luck moving forward. Thanks again for doing.
Speaker 4: This all right. Thank you Michael. It's been a blast.
Speaker 1: Yeah, it's good. Good to catch up, it's been a while.
Speaker 1: I also want to thank the listeners for tuning in.
Speaker 1: Keep an eye out for our next episode, airing in
Speaker 1: a few weeks. We'll be interviewing Howard Penny, Managing Director
Speaker 1: and senior restaurant analyst at Hedge Eye. Have a good day, everybody,