Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Smashburger North America same store sales grew two point four
Speaker 2: percent in the fourth quarter. It's also planning to open
Speaker 2: twelve new locations this year via franchise. Joining us now
Speaker 2: is Jim Sullivan, Smashburger CEO Jim. This debate over franchising
Speaker 2: chains really seems to have picked up some steam with
Speaker 2: Jeff Smith yesterday and one of our analysts, for example,
Speaker 2: basically said it's hard for a company to kind of
Speaker 2: switch and get out there and start to franchise. I
Speaker 2: would love to hear just what your experience is and
Speaker 2: how difficult it is to get franchising right, because you
Speaker 2: obviously have a brand and equality that you also want
Speaker 2: to preserve.
Speaker 1: Great Well, first, thank you and good morning. Thank you
Speaker 1: for having me.
Speaker 3: I think one I support what Jeff had to say
Speaker 3: one hundred percent franchising within the restaurant sector specifically, it's
Speaker 3: a great way for us to grow.
Speaker 1: It's a great it's a great return on our invested capital.
Speaker 1: It is difficult.
Speaker 3: It's all about making sure you have the right unit
Speaker 3: economics that are scalable and sustainable, and then it's picking
Speaker 3: the right partner that are well capitalized and experienced within
Speaker 3: the space. So it is a challenge, but it's one
Speaker 3: that's very rewarding when you get the right partner in
Speaker 3: the right market and they can accelerate and propel the
Speaker 3: growth of the brand, which just drives many efficiencies across
Speaker 3: many channels of the business, whether it be marketing, supply chain,
Speaker 3: spans of control. So we at Smashburger are completely committed
Speaker 3: to the franchise model. In fact, we plan to become
Speaker 3: an asset light model here over the next eighteen months.
Speaker 3: So we're going to double down and really ramp up
Speaker 3: what we're doing both from a traditional franchise as well
Speaker 3: as our non traditional franchise space.
Speaker 4: As you look to expand, how are you identifying the
Speaker 4: best places to put in new franchises? The space is crowded,
Speaker 4: there's a lot of fast food everywhere. How do you
Speaker 4: pick what's going to be successful for Smashburger?
Speaker 1: You know, it's interesting, it's kind of an art and science.
Speaker 3: We have technology that we utilize that will help us
Speaker 3: pinpoint exactly based on performance of existing restaurants within the portfolio.
Speaker 1: We take those characteristics and then we repeat them.
Speaker 3: Through an algorithm, and then we have what I call
Speaker 3: the art, which is our people on the ground that
Speaker 3: are actually viewing each of the sites, studying the trade area,
Speaker 3: studying the competition, understanding how the competition is performing.
Speaker 1: We benchmark against that and we want.
Speaker 3: To make sure that they index north of one hundred
Speaker 3: of where their national average is.
Speaker 1: That gives us a.
Speaker 3: Good indication that there's a demand for burger within the
Speaker 3: markets that.
Speaker 1: We want to compete in.
Speaker 2: The Other thing that's happening in this space at the moment, Jim,
Speaker 2: which I'm sure you are acutely aware of, are the
Speaker 2: various outbreaks, whether it be silospora, salmonella. How has that
Speaker 2: impacted you? Have you had to take a good and
Speaker 2: hard look at your supply chain and is that protected
Speaker 2: at this moment.
Speaker 3: Yes, we absolutely take a hard look at that every
Speaker 3: day that we operate. From the standpoint of the recent outbreaks. One,
Speaker 3: we don't use iceberg let in our restaurants. We use
Speaker 3: a green leaf let us a whole head, and we'd
Speaker 3: also use one that's a pre cut. We've taken precautionary
Speaker 3: measures where we've instituted a double washing of our whole
Speaker 3: head as well as an additional washing, even though it's
Speaker 3: a pre wash product that comes in that's purely precautionary.
Speaker 1: There was no need for that.
Speaker 3: We verified with our suppliers that our supply is safe
Speaker 3: as it relates to Halapaenno's in the recent news that
Speaker 3: came out, we want to use it on a very
Speaker 3: limited basis. Klapeno for us is what we call a
Speaker 3: modifier under our create your Own menu where if you
Speaker 3: want to add Holopeno you can. We don't feature on
Speaker 3: any of our core builds. However, we did last night
Speaker 3: elect that we would voluntarily remove Hoolapeno for the time
Speaker 3: being until we further understand the impact. So for us,
Speaker 3: we're just taking a precautionary measure to protect our guests
Speaker 3: in our team members. So we pulled it. But we
Speaker 3: don't feel that there's any risks to the business. This
Speaker 3: is purely precautionary.
Speaker 4: Well, have you seen any decline in traffic or any
Speaker 4: effect on traffic from all these headlines?
Speaker 1: We have it, We have it.
Speaker 3: We continue to drive positive same store traffic, same store sales,
Speaker 3: So no, we have not seen an impact from that.
Speaker 3: But if you think where we're situated, we're burger right,
Speaker 3: We do have a let us component to what we do,
Speaker 3: but we're primarily.
Speaker 1: A protein so we have not experienced.
Speaker 3: That, and I'm quite frankly we haven't even heard from
Speaker 3: our guests questioning what it is or what we're doing
Speaker 3: as it relates to our produce.
Speaker 2: Jim, you know this industry well, and I wonder perhaps
Speaker 2: we're just suffering from recency bias. But it feels like
Speaker 2: there's been a lot of outbreaks as of late. Is
Speaker 2: it actually the case has something changed? Is it hotter
Speaker 2: weather that's allowing this to happen, Is something changed with
Speaker 2: like overall supply chains, or is this like a normal
Speaker 2: course of business what we're living through right right now?
Speaker 3: You know, I honestly I think that there's always risks
Speaker 3: that are out there. We just rely on the FDA
Speaker 3: and the CDC and we follow what they direct us
Speaker 3: as to what the risks may be that are out there.
Speaker 3: I do think it's just kind of an anomaly right
Speaker 3: now that you head back to back. We haven't experienced
Speaker 3: that for now several years. There's always small cases that
Speaker 3: break out, but I'm not concerned that there's an overwhelming
Speaker 3: concern for supply chain.
Speaker 4: What about pricing and the inflation that you're facing, particularly
Speaker 4: in the beef market. How is that affecting your margins
Speaker 4: and how are you trying to protect them.
Speaker 1: It's definitely impacted our margins.
Speaker 3: We've been very disciplined around price and pricing, understanding the
Speaker 3: macro that's out there and consumers are pinched. So we've
Speaker 3: introduced our Everyday Value, which is a four ninety nine
Speaker 3: price point for us. This is a way for us
Speaker 3: not only to promote a price point, but it's really
Speaker 3: about our quality and our experience. So value for us
Speaker 3: is an entirely different equation versus just price. But we're
Speaker 3: offsetting what's occurring with beef by driving other proteins and
Speaker 3: other products through our menu and through product innovation.
Speaker 2: Hey, Jim, that's all we have time for. Thank you
Speaker 2: so much for joining us. Jim Sullivan of Smashburger