Three of this year’s RH 25 coolest multi-concept companies joined Restaurant Hospitality editor-in-chief Michael Sanson at the recent MUFSO Conference in Dallas for a lively discussion about empire building. Houston-based Chris Cusack, co-owner of Treadsack; John Rigos, founder and co-c.e.o. of Aurify Brands; and Matt Bodnar, a partner with Fresh Hospitality, shared their perspectives on the opportunities and hurdles independent restaurant owners face as they broaden their portfolios.
Sanson: John, some of your newer concepts are known for their healthy profile. What attracted you to that market?
The Little Beet and Little Beet Table are both wholesome, healthy, chef-prepared menus. The timing for them is absolutely fantastic; consumers are increasingly discerning about their eating. It was a confluence of things in our favor…and we partnered with a James Beard-nominated chef who said he had some ideas about making fast food healthy. It also happens to be gluten free and we don’t lead with that, but people feel better after eating in restos.
Bodnar: Our two fastest-growing brands are squarely in the healthy fast-casual segment. I Love Juice Bar has exploded. And at Taziki’s (Mediterranean home cooking, 44 locations), everything is made from scratch, no fryers. We deliver it in a fast-casual way, which means guests can dine there three to four times a week.
LOHAS (lifestyle of health and sustainability) is underpinning that kind of consumer behavior. And because it has a healthy concept tailwind, it has a little more sustainability than cupcakes or other trends.
Sanson: Health is less of a focus for Treadsack’s concepts, which are more neighborhood places. Are you deliberately targeting the hipster crowd, with a focus on craft cocktails for instance?
Cusack: I think it’s a great thing to be able to create places you would like to hang out in. We have a lot of young professionals who really understand what we’re doing. As for the craft movement, I think if you want to do it have to put some wind behind it. We pay a lot of attention to our beverage programs and the ingredients on the menu. I’m involved in lot of individual things still, even though we are growing, but if you take your foot off the gas (for instance, with the craft cocktails) it would be really easy to not deliver it the way you want to.
Fresh Hospitality has a team of financial assassins and other experts. What do you bring to the table that has allowed you to grow to more than 100 units?
Bodnar: One of the things that differentiates us is we have a hub and spokes model that surrounds our portfolio—accounting, technology, etc.—so we can invest in a concept and bring to bear our accounting, real estate and marketing expertise to locations that allows them to grow and scale more quickly. When we buy a concept we don’t try to change or transform the brand, but we put processes in place that allow them to execute brand at a much higher level.
Sanson: Chris, do you see any potential growth vehicles in the concepts you’ve developed?
Cusack: We always get asked about opening another location, especially with Down House (a laid-back American restaurant). There may be a time that it might work. But right now they’re all still my little babies.
Sanson: Matt, Fresh Hospitality is a lot more methodical about expansion.
Bodnar: I come from a Wall Street background, so that’s how I think about the world. But at same time, what we really focus on and excel at is systems and processes. We aren’t necessarily architects with the brilliant creative vision—but we partner with people like that. We’re fanatical about never diluting or dumbing down the brand to make it scalable.
Sanson: Is there one that’s a star?
Bodnar: I Love Juice Bar is just exploding, It’s primarily a franchise-driven model. And we have taken Taziki’s from three to almost 50 locations. It’s catching up to Zoe’s.
Sanson: What’s the secret behind Taziki’s growth?
Bodnar: It goes back to systems and processes. It’s a very simple menu, it’s not rocket science and it’s not super ethnic. It’s almost American fare with Mediterranean flavors. About a year after invested, a guy we knew in the restaurant financial world sat down with us said, “Nothing has changed about Taziki’s, but it’s a whole lot better.” We worked to make the recipes and concept consistent.
I think the name probably hurts consumer trial initially because people don’t know what it is, but once we get people through the door I think we’ve got them.
Financing for smaller operators
Sanson: Smaller operators have more issues with financing expansion. How are you structuring deals to move forward?
Cusack: A few years I was going to try to open one restaurant, after I had already owned a few small cafes. The first one I started with friends and family, the second one with partner, the third and fourth with SBA loan, investors. My intention from the beginning was to build a team that I could return to rather than having to go back out to the wild. I would really like to talk to people who can invest a small amount [relative to the net worth] who really believe in what we are doing.
When we were first financing our Five Guys franchises we passed around the hat, then set up separate LLC. It’s not the best capital structure to have. In March 2013 we consolidated all the interests into a holding company. One guy enabled us to restructure the company and fund it. Now we look like a real business with a real balance sheet and have more interest from institutional investors. But it was a process to get there.
Bodnar: One of the things we’re really focused on to acquire and own real estate. In many deals we take a piece of real estate and have a privately held REIT. One of the other components is we either, at a market or at store level, have operating partners that have an equity stake in the business. It goes back to the Outback days: You have people at the store or market level with skin in the game. We have a holding company that’s at a parent investment level. Depending on the deal structure, sometimes we use bank financing or credit, on a deal-by-deal basis. Usually we take a majority stake in a concept, and we love the founder to stay on as c.eo., but sometimes they don’t want to stay on as leader.
Sanson: Chipotle recently went on a hiring spree, promising candidates the possibility of highly paid management jobs. How do you compete with that?
Cusack: The problem has been that a lot of people don’t see restaurants as a career path. We need to treat this like a real career path if we expect to get that candidate. We offer health care, 401k, a knife reimbursement program. We wanted to make this a career that people would get excited about.
Rigos: We embrace the same approach in terms of compensation and benefits. This is a big deal today. We live in New York City, and if you’re going to pay someone only $9 an hour there, even in the boroughs, it’s almost impossible to get by. So we’re looking to get to $15 an hour more quickly. We started a nonprofit designed to identify people with ambitions. It’s incredibly competitive in New York if you’re just offering a job. Compensation is important, but so are the other things: culture, team building and benefits. We embrace all that.
Bodnar: Obviously people are one of the major constraints to growth in the restaurant business. So we focus on training hiring development. But I think a lot of the regulations that have come down the pike are forcing restaurant operators to make a lot of changes to the business model because it’s getting more difficult to hire people. Technology is one way to help eliminate huge chunks of the service model. So is fast casual. A lot of people on the West Coast are looking at the delivery model to rethink traditional bricks and mortar—they have one location that prepares and delivers the food to where you are. They are leveraging technology to change their approach.