Welcome to Chopping It Up.
I'm your host, Mike Hanlon, the senior Restaurant and Food Service analyst at Bloomberg Intelligence. Our research and that of bi's five hundred analysts around the globe can be found exclusively on the Bloomberg terminal. Today, we're joined by Sam Zatz, co founder and CEO at CRAFTABWL.
How you doing Sam?
Hey, Mike Aydan, how's your day weekend?
It was nice, man, got to spend some time with family and friends.
What about you? It was great?
It was great. See here in Texas, we had one hundred degrees, then Labor Day hits and we're down now to eighty five ninety degrees, so we can actually get outside and finally have our summer in the South.
Did very nice. Yeah, we're lucky.
You know, we had a little bit of rain this weekend, but this week has been absolutely glorious. Highs of eighties, lows of fifty five. It's been absolutely perfect.
So that's right. You've got to enjoy it and hopefully had some good family time as well.
Yeah, and so you're a California guy, right, so you missed that California weather or what that's true?
That's true. So for most of my life was based out of pale Alto and went to actually both of the rival schools back on the West coast. So a little bit of divided during the big game. But enjoy California. But for the past five years, Texas and southern hospitality has definitely been home for us here.
All right.
And so yeah, I saw you graduated from Berkeley with an engineering degree, So we'll get to that in a second. But have you ever read The Way of the Peaceful Warrior by Dan Millman? I have not, but tell me all right, So I just finished it.
It's a phenomenal book.
It's an oid to biograph, it's an auto biographical novel, and it primarily takes place at Berkeley, in fact, the gas station near Berkeley. It's about the author's spiritual journey. So I highly recommend it.
And just about everybody at Berkeley has their own spiritual journey. You can pick whether it's through football, through engineering, or just by walking the streets to Telegraph Avenue. So you get to pick your own ending there in your own journey. So it's quite a special place.
Very cool man, all right. So as an engineer, how'd you get into the restaurant business.
So I actually grew up in a family of restaurant tours. Family were engineers from former Soviet Russia, and when my grandparents came here, they of course needed to find a family business, and of course my parents got us all into the hospitality business. So we actually had a couple of restaurants back in Palelto in the Peninsula, and it was actually my first job helping out serving tables seeding guests in our family's restaurants.
Very cool.
So once you talk a little bit about craftable and how you came up with that idea.
Yeah, So it was actually having grown up in restaurants and then having spent some time in engineering school, I really wanted to learn about businesses and really leveraging how can technology help businesses become more profitable and operate smarter. So I actually jumped into management consulting after my Berkeley days where I did a lot of business transformation, and so, of course, after my wrapped up consulting, started to get
more eager and excited to be more entrepreneurial. Ended up in business school and I had explored a series of various industry and then one day actually a good friend of mine had called me and he had shared that he had some great news, he had some very challenging news. And that was actually the day he became the beverage director of a well known restaurant in San Francisco. And that day was great because you know, he had spent ten years being a bar back, our tender, bar manager.
Ultimately becoming a beverage director. That day was also scary. It was scary because he finally realized what beverage directors do, and that's basically living about fourteen different Excel spreadsheets, one for ordering, one for inventory, one for recipes, another for waste, another for menu pricing and costing, and basically, you know, the data's manual, it's difficult, it's disparate. And he was basically asking me, you know, hey, Sam, you're the you're
the former consultant, you're the engineer. Hey, can you help me understand you know, what is this whole bar P and L and how do I download Excel? And that was when I realized there's a huge opportunity to really help our incredible industry really understand how to make better operational decisions inside of the four walls of the restaurant.
Okay, and what was your typical customer?
Well, I guess before we get in there, why do you talk a little bit more about the suite of the products and what you offer and what it helps do at the restaurant level.
Yeah.
Absolutely, So we take a operator first approach, which is a little bit different than most other restaurant tech solutions. And so what we mean by that is that we look at what different functions and departments of the restaurant or hospitality that we're serving. So we have a solution called Beveger that's for your bar management, as restaurant profits are won and lost at the bar program, as you
know all too well. And then a number of years later we created product called food Ajert similarly it's for culinary directors and for chefs that are trying to manage
their food cost management. And then after that we actually realized and not as much realized, but received the feedback that our food and beverage products were actually happened to be in hotels, and believe it or not, hotels also like to procure and manage and track inventory of non F and B products as well, whether it's retail or linens and things like that. So we actually have a house product which is our non F and B for all the operational decisions, again very similar to food and
beverage for the house departments. And then during COVID in twenty twenty, we created our first real time analytics solution, so think about delivering sales versus labor and understanding their prime costs every fifteen minutes. So we're pretty excited about that. That was really eye opening as folks were shifting from in person and in room dining to delivery and third party and takeout. It really shifted the model of how
to manage sales, cogs and labor. And that's really where we really dove in with our customers and created our
analytics solution. And so that's really the suite of Prafitable products, and we serve all different segments of hospitality, whether it's restaurants, bars, QSRs, FSRS, hotels, resorts, we even have a large collection of golf courses, country clubs, entertainment venues, really anywhere where the operators are really trying to make better day to day decisions, where you know they're really trying to tackle the middle of that P and L for prime cost and cogs and labor reporting and management.
Yeah, which is so important right now with all the labor and commodity and inflation we've seen over the last handful of years.
And really, why I have you here today?
And it sounds like you're also helping the gms and the beverage directors and a lot of the employees do their jobs as well.
Does your product help with employee retention?
Yeah, Mike, So, employee retention is actually a huge element, and it's one that we see the Craftable Solution helping a lot of our restaurant partners. Just think about it. Your bar manager, you're closing the month, it's two o'clock in the morning, and now you've got six hours of
counting inventory. Or you're a chef and you're trying to figure out how much do I order for the week, but it's a holiday week, maybe it's just before labor day a week ago, and you're trying to understand how do I properly order so I don't have waste and
then have really overbearing food costs. And so those are all decisions that we're helping our operators, whether it's the bar manager, the general manager, or the culinary director and even the director of ops really understand how do I run those day to day, real time decisions that they're making day and day out, and that they've relied really on instinct and intuition and their handy dandy spreadsheet and clipboard. And so that's really where the essence of craftable.
Comes very cool.
And you mentioned, you know, you you serve restaurant customers, you know, across the spectrum and all the different sub segments of the industry. What what's the typical size of your customer?
So typical size of a graphical customers anywhere from five to five hundred restaurant locations, and it could be a restaurant, could be quick serve, it could be full serve, it
could even be full hotel hospitality. Really we're looking for operators that are are are having either complex operations where they're making a lot of various recipes with a lot of menu changes, vendor changes, uh seasonality with staffing, or we see another type of customer where they're looking to have a very high velocity or speed in terms of
their feedback and their operations to the customer. So the high velocity really are more chain franchise QSR type of models where we really blend nicely, and then a lot of the farm to table, complex big wine program, craft cocktails, or even a whole hotel solution is really where that more complex, sophisticated use case comes in. But we serve both.
Okay, very cool.
It sounds like you know you're doing a good bit of sales forecasting right to help predict inventory needs and labor.
Are you using AI to help with that process?
Yeah? Absolutely, so. We've spent the last three years developing our own AI models, and really what we're doing is we're providing a baseline based off of how your prior sales are as well as we have over dozens of data points and factors that feed into it. But what we've really realized is that the win win is not
just to replace the general manager. One of my clients very successful, he calls it lebotomizing when you actually start to feed the answer to the GM versus having that GM really understand customer and then being given them a baseline.
So we take a mixed approach, a hybrid approach, if you will, where we generate an initial forecast from a quantitative perspective, and then we welcome our clients to actually add in any additional things that they may know are coming that the model may have missed based off of prior history and performance. But Mike, you're totally right. Everything
starts with the forecast. Once you've got a really strong forecast, that's really where that beautiful real time feedback loop starts to activate and spin and really drive an increased profitability, whether it's what you're ordering, how you're staffing, what you're prepping, and even how to maximize and optimize your menu so you can optimiz Is it for engineering profitability? Ah?
Yeah, that was one of the questions I was going to ask.
Sorry I beat you to it.
Yeah, you did so, so you do help with menu pricing absolutely.
So we're not in the dynamic pricing arena yet, we're looking really more towards the operational menu pricing, which is, how do we bring together the price that you actually are paying today, what your labor and your staffing is today, and then what your menu profitability is today. So those are things that you know, your grandfather's accounting system really can't do, especially in such a high paced world that we're currently live in.
In the restaurant space, yeah, yeah, for sure.
And I'd imagine it's down to the to the SKU, right, so you can you know, you might have more pricing power on a chicken cutlet sandwich because you sell thousands and thousands of them a week versus maybe a chicken salad or something like that.
Right.
Yeah, absolutely, we look at the profitability, we look at the volume of the sale. We also are looking at the supply chain. We're starting to look at, you know, what are the prices that we're getting from the vendors on Sunday, So you can start to think about, well, how do I price my menu or what are the items to actually lto and push forward and so again, it all starts with the forecast, and the forecast is what's going to help you with the purchasing, and then
that's how you can start to optimize the menu. A lot of restaurants have a lot of stability and kind of consistency, but everything around that restaurant is very dynamic, and that's really what we're trying to help bridge between the outside world and trying to make it a little bit easier for operators to manage all those different forces inside.
Cool And are you doing that down to the individual restaurant.
We're doing it down to the individual restaurant. We're doing it down to the individual skew. We're doing it down to the individual vendor skew that may roll up to an inventory skew as well. So it's all about really understanding and putting all the pieces togethers as we call it. We like to connect all those dots together.
Yeah, I mean, strategic pricing has been huge that the chains that we cover that had a really good handle on it over the last few years have been able to raise prices so much more. They've had such better traffic than the chains that were behind the curve on that one man.
Yeah, and stepping back, you can only continue to raise prices so much as we're seeing and as the summer has really proven, and so you know, raising prices will only get you so far. And then it's really understanding, well, how do I actually leverage all these new data sources make better real time decisions to cut my excess costs and waste so that way I can minimize the impact on the customer and that's what will keep those guests counts as high as possible.
Yeah, for sure, And you mentioned you're moving to real time operations and flash reporting.
Can you talk about that. Yeah.
Absolutely, So what we've realized is again as the world canntinues to get more and more complex and more and more data points, is really about what we're calling the continuous close or the continuous feedback loop, which is all about how do we create that AI generated forecast which is going to help you understand all the different parts of the business, whether it's what you're purchasing, what you're staffing,
or what you're prepping. And then as you're starting to get that feedback loop back, so how sales is coming in, how labor is coming in, we start to bring that forecast to actual and really it's a rolling real time feedback loop, so your forecast gets replaced with your actual and then you're re forecasting.
It's interesting, you know, and we talked last time too.
You talked about how important it is for finance and ops to kind of work together when addressing the middle of the.
P and L.
Can you talk a little bit about about that and how you know, just maybe reducing your costs on an item doesn't solve the problem for the long term.
Yeah. Absolutely, we see this set craft all all the time, there will be a directive from finance that says you need to go cut costs, and then operations really just goes on a vendor or a skew item cost cutting exercise. And back when I was in consulting, we actually did these things called procurement studies where you really were just trying to squeeze all of your costs and your expenditures.
That works maybe once, maybe twice, but it doesn't really work for the long term, and it doesn't actually help the overall long term profitability because you may squeeze or you may cought or eliminate something because of the cost factors, but now you're missing about well maybe it's going to produce higher labor or it'll or you'll lose out on revenue.
And so stepping back to understand what the total implication is and looking at it not as a cost driving exercise but a profit driving exercise is really what we partner with all of our clients around focusing on.
Yeah, great, it's so important to have finance, operations marketing all on the same team.
And oftentimes folks in finance may not have operator experience, and so bridging the gap between the two is really important, and finance is looking to generate financial statements, but operations is really trying to manage the day to day and so if finance can help with the reporting back to operations, and operations can collaborate with finance to have them reach their goals, that's really where we see a lot of great growth and probably something that a lot of the
successful change that you're reporting on are having a lot of success with.
Let's talk about commodity prices a bit.
Oil prices have been sliding lower, you know, probably a lot of it. It's due to weaker economic data of China also the US, but the soft commodities still remains stubborn.
Right.
We still have food costs remaining kind of high. So what's your outlook on food inflation for the rest of this year, maybe into twenty twenty five.
Yeah, so we see food inflation going down a little bit, so it'll continue to the annual inflation will continue to be in the in the one to three percent range as we continue to see it, So we don't expect to see more bumps, but you're still going to continue to have high interest rates. They may be cut slightly here and there, so the pressures that you're talking about
aren't going anywhere. I mean, let's face it, we're almost twenty one percent higher than we were since the pandemic, and that's not going to have any sort of relief.
So those high food costs are here to stay. Which again and don't want to sound like a broken record, but it's again where you know, we will start working with one of our partners and we'll see that they're buying chicken from five different vendors and that's really where that real time decision loop and understanding, forecast and budget is. You know, are we buying the right chicken? When are
we buying the chicken? And we'll see various swings on the different skews of the chicken, and so really grasping a good hand on the supply chain and again kind of connecting to before, it's not about a cost cutting, it's about let's talk with our vendors, let's talk with our supply chain. How do we create a win win relationship and be able to maybe cut down the five SKUs to three SKUs and find a better alignment of
your supply chain with your distributors and your suppliers. We see that as an immense opportunity and it's something that we do day in and day out as we support our.
Customers digital sales.
What are you seeing from your customers in terms of digital sales. We've seen kind of a reduction in digital sales. I think maybe there could be some pushback here on just the price that you know, some people are paying.
For third party delivery providers.
What do you see in Yeah, so what we're seeing is the demand has definitely gone down than we had coming out of the pandemic. I think folks are to get back into the restaurants, get back into hospitality really
the reason why you and I love this industry. But the digital sales, I think that the restaurant tours are starting to catch up with the technology companies and they're starting to price in a lot of those commissions and extra fees, especially when you look at returns and chargebacks and things like that, which we see accumulate quite quickly
for the restaurant tour. And so what that's driving is that the restaurants are starting to put higher prices on those menus, and so you're seeing more and more menu variation versus based on the different channels of where that restaurant is available.
Okay, and you know AI obviously all the rage.
I have to ask the question, outside of craftable, what AI functionalities and technologies do you think are best for restaurants.
Gosh, there's so much opportunity in a to take a lot of the manual and the repetitive tasks. I think a lot of the buzz and a lot of the Silicon Valley type story telling about how AI is going to, you know, take over lives and is going to replace you and me. I think that's a little bit of hyper belief you if you really ask me candidly speaking, but where where does AI really do a great job.
It's anything that's super repetitive, super manual, super consistent, where there's a lot of data that can be processed in a short amount of time. And that's really anything that's revolving around the communication with the customer, around the menu, for example, providing customer service, being able to analyze data like prior sales, being able to look at competitor or benchmark data. I'm sure you guys are using a ton of AI just to just to synthesize and analyze everything
that you're doing at Bloomberg as well. That's really where I think the essence of it. I think the storylines around AI, I think that those are just those are just buzzwords at the moment.
Yeah, got to get those tech valuations up there.
You go. They've had some softening valuations, so we got to keep coming back. I mean, I remember we were talking about AI back at back in Berkeley and we were twenty thirty years into the beginning of AI. So AI is not new, you know, it's really if you remember, the prior buzz was big data, so it's just another generation and evaluation bump. As you're suggesting.
Yeah, it's funny. We use Cognoviy Labs. We'll give a shout out to one of our partners. They analyze Twitter data or x data for us on marketing programs and just you know, emotions around different brands and they do a great job. But we've been using them since sixteen, right, there's been like actual versus theoretical forecasting data that maybe not the most advanced AI, but that's been around this
industry for a little while. So it's always it's always interesting to hear all these people that think AI really was just invented with chat GBT.
Yeah, it's totally funny you say that, because you know, I'll speak to some industry veterans and they'll be like, back in the day, we didn't call it AI. We just called it an Excel model, and that was our forecast. And so now all of a sudden, you know, that Excel model became a big data model and now it's just a chat GBT AI under the hood. I got
to tell you, it's all pretty much the same. There's obviously a lot of different enhancements and ways to move forward, and they're just making that data synthesis faster, just like what you're seeing in terms of that, and you know, similar one to your use case that we see that rush as are starting to warm up to is really analyzing sentiment and customer feedback. So whether you're thinking about your Yelp reviews, your Google reviews, there's a bunch of
different in restaurant feedback providers. But really the goal and where AI can do a really great job is bringing all those channels together and really providing you know, the qualitative feedback from the voice of the customer. And then you can bring in tools like craftable to understand the operational quantitative feedback, and now you're really painting a story between the synthesis from an AI and then actual models and what the KPIs are in the business.
Yeah, that's a great use case. You know, I'm definitely you know, it's why I asked the question. I'm just curious to see which which use cases prove basically an ROI before others.
Right.
You know, we've heard of some difficulties some change have had with a lot of different things right now, Voice ordering is one that we've seen some chains give give up on because it was a lot harder than they thought than they thought it would be.
You know, we continuously are studying this and looking at all of our different partners and how they're using AI. The bulk of the bulk of where we've seen it successful, it's going to stem from customer service. And I think we've seen that for probably before we got in this aihype with a lot of the chatbots. I think that's really the sophistication and what we would call like step one, and then I think it's really it's not really AI
ordering or AI marketing, it's really AI synthesis. And I think that's I think sometimes where operators are missing the bigger, the lower hanging fruit opportunity of where AI can help them. It's basically to understand various data points and to be able to capture them and get a holistic view very quickly, much faster than you and I can manually browse through
different websites or sources or data sets. And so it's I don't think that we're seeing fundamental use cases where it's dominated as an end to end solution, but a lot of areas where you can think about it's AI powered but to be to be determined whether or not we can see AI delivered. And I think that's where the exciting inflection point of where we are today.
Is good stuff.
Yeah, man, it's going to be fun to watch it all unfold over the next few years.
Thanks for doing this. This was fun. Where can our listeners go to find out more about craftable?
Yeah? So we're at craftable dot com and we partner with restaurants and hospitality groups coast to coast. You're not too small, You're not too big. We really are eager and excited to partner with high hospitality professionals that are really looking to improve their operations and seeking that real time feedback loop for making those decisions. So really excited and thank you again for bringing this together, Mike sure Thing.
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