Restaurants Pivot Amid Expensive Real Estate

And I happened to get a call from Focus Brands and they were looking for someone to help run legal with specific background and brand licensing, product development, et cetera. And so we started a conversation and I was hooked immediately. I think the thing that impressed me the most was if I was going to make the jump from pharma to food, I needed to be a team in an environment that was welcoming and encouraging of me to learn and really get into this space. And indeed that's what happened.

The team at Focus Brands at the time was just exceptional. Rusufenhower had just assembled this great talent, and that's where my journey began. I showed up on the first day and they were like, okay, great, here's your next sixty to ninety days. You're going to train in every single brand that we have. I was more like, show me your docket so I can make sure there's nothing burning down this house. And Russ was very clear about this. He's like, no, you are not tatching a single contract

until you finish this training. And I said, yes, sir, and went and did it. And I think from that day forward, I was probably legitimately hooked. And that's the beginning of the journey.

counsel as a business asset and someone who can actually add strategic thinking to the discussions at an executive level. And I am a born entrepreneur. I think I started my first business at like fourteen. I think my dad will actually say thirteen. But I knew that I needed to do something different, and so while I was sort of sessing out what was going to come next for me professionally, I started exploring buying a franchise restaurant, and

a lot of that is my desire. I'm first generation Cuban American, and I had seen so many of our multi unit franchisees kind of start with one and then do two and three and really create some serious generational wealth and that is one hundred percent where my heart was. I'm like, yeah, I'm going to invest in this and invest in myself and get some a first you know, front re view t ops. Never did I think I'd actually become an operator legit, Like, I was like, oh,

this will be a great investment. And that's some advice I'd give to people all the time, like if you're going to buy a restaurant, beware, it's going to suck you in. It is not mailbox money. And that is indeed what happened. I took a partner, we started a development group. We ended up securing the rights to develop for Chicken Salad Chick in the Atlanta Augustine Athens market. So overnight we did a deal where we had to take over three underperforming units and stabilize the business, get

it in the black. And then the development schedule was I think, in hindsight, I can say this punishing, you know, they just there was a lot of very rapid growth teed up. So I ended up opening eight units in twenty months and got it down to an absolute science. And that was in addition to building a catering program and testing delivery for the brand had a wonderful run. Honestly, don't know that I ever would have left that system and really enjoyed being part of it. And they needed

different things from us. You know, we'd been a very good growth partner for them, but the brand needed to come to Atlanta as an HQ, and we were sitting on the territory, you know. So then we became a strategic acquisition and so we successfully exited in twenty eighteen, which then brought us to full course. So I took some time in nineteen to breathe for the first time. I turned forty, and I had that conversation with yourself. You're like, what do I want to do when I grow up?

of emerging capital solutions for growing restaurants. We are devoid of what most other industries would have is venture capital, so to speak. That's just not really a great, exacting, very exact fit for us in terms of the restaurant

growth models. You know, we also lack a lot of you know, development strategies for people, right like a reinvestment in people, especially the ones who often get overlooked, who are in the hourly wage positions, who are indeed where a lot of our diversity is trapped in our industry. You know, we look really great on paper at a high level, but you dig down and a lot of that talent is down at the hourly wage level. How

do we elevate them into leaders? And you know, I also had a really clear vision on what the playbook needed to look like for growth, and it needed to include things like product manufacturer and development to create efficiencies in labor and operations and possibly even new revenue streams for restaurant brands. And it's easier to do that earlier

than later. I can speak from experience. So Full Course was really born out of a need for capital solutions and reinvestment in people, but also a vision to sort of expand the ways that brands can grow and leverage some of the very proven techniques that we know work for large brands, but bring them at an affordable and accessible way to emerging brands who need that help too. And here we are today.

and they'd give their spiel about the candidate. We'd always send a boy and a girl together and they'd leave the materials. And we tested it on one campaign and we won by a landslide and a three way race, and I quickly became the accidental go to for those types of services for state and local campaigns all over the state of Florida. And I was like fifteen, I didn't even have a car, and my mom, to her credit, was so visionary. She's like, we got to make this scalable.

And so what we would have is sort of like a campaign captain that we would train, we'd teach them the playbook, and we'd connect to the local high schools and kind of create this low key volunteer army. And we would pay them by the door knock or by the hour, depending on what it was. And it was wildly successful and I ran that business pretty consistently until I was about twenty one twenty two. Helped pay for college.

we do at the brand. Whenever and wherever possible, because I think that that makes brands a little stickier for consumers and it does help to generate a lot of loyalty and alignment with your consumer base when you can be clear on that and then deliver on it too.

to grow. So that is our contribution back to the restaurant industry, and that is the Full Course foundation. In the middle, we have a management company called full Course and that management company has a deep bench of experience with over two hundred and fifty years of subject matter expertise and everything from operations, supply chain, finance and accounting, marketing people. And then on the development side, we also have expertise and for a major t channels of growth.

That's company store development, franchise development, product licensing and manufacture, as well as non traditional development into areas like stadiums, arenas, hospitals, universities and airports. And that is indeed at the hallmark of our investment strategy. We are an omni channel developer and we build brands that have very solid revenue platforms and a ton of runway for growth. Now, the third leg of this stool, if you will, is obviously our

capital solution. So in the full course funds of which there is currently one about to be fully allocated, almost done completely choosing those deals which I'm excited to make some announcements soon, and our second forthcoming fund are dedicated to emerging food and restaurant brands. We typically come onto the cap table as a first major equity investor, and we are truly there as a value add investor and

development partner. So we are here to inject into these businesses growth capital, and it's in a minority position on the cap table. So whether you need coaching or support in the growth of your business, or you're an established franchise or you need help picking better franchisees or training your franchisees, we have a wide range of consulting services that we actually offer and then we can always come behind as a fair and equitable investor as well for the clients who really need that.

So I think because of our deep experience in the land of franchising and the fact that I've run franchising for multi brand operations like Focus now called go to brands, it is very important to large franchisors to have us, you know, in their arsenal, if you will, and we take care of a lot of issues that you would often see in large franchise organizations with more than like three thousand units, where some franchisees need more help and

support but sometimes the franchisors want to maintain that legal distance and boundary between the relationships, so those engagements tend to look a little bit more people heavy, right. It's leadership development, franchise selection tools, right, helping teach a single unit franchisee how to become a multi unit franchise owner. Helping take high potential corporate store employees and coaching them on how to become a business owner and basically become

prepared to become a franchisee in the system. And those engagements can range anywhere from a three month to a three year process, depending on what kind of support they need, because it's let's be clear, it's not that the brand couldn't do this themselves. They understand it. It's a legal boundary that they don't want a cross where they are viewed as having too much control over the business. And I deeply understand and respect that as former counsel myself,

so we can provide those kinds of solutions. I think the other end of the spectrum is mid size brands that are probably anywhere from one hundred to two hundred units where their growth has either stuttered, stalled, or plateaued and they're having issues either selling franchises or are looking at other alternative revenue streams. Now, I think in those situations we are also a nice bolt on for franchise selection, for management training, for leadership development. So there's always a

people quotient to what we do. You see the theme here, and of course, in the early stage brands we work with, all these things are true, but they just need more heavy lifting. So we have a number of programs where we can come in and support field operations for franchisees.

You know, we can do deep training for franchisees, we can help with franchise e site selection, whatever the needs are, because, let's face it, a lot of emerging franchise ors when they're south of you know, let's say twenty franchise units, it's expensive to try to provide that support with headcount and sometimes outsourcing some of those features, whether it's franchise sales, support, compliance operations, what have you, is actually more cost effective

than trying to build a team out internally.

think that will be our core investment premise. However, you know, there are plenty of brands out there that maybe eleven company stores are fifteen and maybe they haven't even franchised yet, or maybe they're one hundred percent franchise, And those types of opportunities come across my desk often, and I love the founders and I love the brand, but they weren't

just quite right of a fit for fun One. So I'm actually very excited to open fun Too, so we can let some of those prospects back into the funnel, because I think there's just as many awesome deals in that space as well.

it's you know, double digits. And further complicating the situation is that there is a very very low vacancy rate right now for commercial real estate that's appropriate for a restaurant, and when it is available, it's extremely expensive. So some of the things I've seen brands do extremely well is really start pushing into alternative formats. So they're taking what is this sort of perfect unit and trimming it down

into a smaller footprint. They're looking at ways to co brand with sister brands if it's a multi unit concept, really trying to leverage the space that is available in creative and unique ways. I also am seeing a lot of what we would call omni channel development, so a lot of product lines coming out and being commercialized. We're seeing a lot of emphasis on non traditional deals, which you know, tend to be licensing deals, but nonetheless still

generate revenue. So you know, I think the brands that are doing really well right now and are going to continue growth, are paying attention to the exorbitantly high occupancy costs they're in market right now and pivoting just a little bit. We'll come back to it, but they're not abandoning traditional brick and mortar by any stretching imagination. We've got a weait in some cases for the market to normalize not just with lending, but also available construction and

you know, fresh real estate, so we'll see. I think this is actually fueling a lot of growth into other channels, which I love to see because that's been my investment thesis for over five years. So I'm like, welcome to the party, everyone, come on in. The water's warm. Yeah.

earnings calum that's what you're hearing. It's because that's how the multiple happens to generate any kind of return to investors, specifically as it relates to franchise units as well. Right, So you know, with the return model being what it is slightly better for franchised units over company stores for private equity, A lot of that push on growth, in my opinion, can sometimes be misdirected if you do not understand the consequences and you're only in it for the

short term. If you are looking at the long term health of a brand, you can afford to take a few wammis on high rent when there is a legitimate mark play. A perfect example of this is time square. Right. You can drop a unit in times Square and easily argue that it is as valuable in marketing and brand awareness than it is for the actual sales and through put to the bottom line. But not every high rent package and every market has that kind of additional return

to an investor. And so if you're focused on a short term return, which you know, not all private equity does this, but most of them hold these brands for between three to four years, that's a short time. So they're not going to let a little bit of rent inflation slow them down. They're going to keep banging out the units. Why because they want the cash flow. But if it's a franchise system in particular, they want the

top line sales there to pull royalty. Right. So there's sometimes some conflicting messaging as it relates to growth and what is appropriate growth. And I would submit to you that that's what happens when the capital comes in and doesn't necessarily have the same depth of experience in actually operating a restaurant and suffering under those high occupancy costs. So, yes,

that does happen. It doesn't just happen in restaurants too, by the way, it happens in other retail businesses as well, where there is a very blind faith and one kind of growth. You know, damn, the consequences go go go, And there is there are always consequences when you make

those kinds of decisions with blinders on. And I do think that some brands will suffer for maintaining a ridiculously high or fast pace to their growth with respect to unit specifically, it's going to damage unit level economics, there's no question.

a manufacturing capacity. And sometimes when I'm talking to chefs in particular, what I say to them like, wouldn't it be great if your spice blend just showed up, pre mixed and pre measured in a packet for every single recipe And they would be like, oh my god, like mees on. Plus, I'm like exactly. So there's a number of different manufacturing tools, and that's something I want to make very clear to people. This is not about creating a widget that's going to sit in the grocery store.

You go into a kitchen first and the put your operator head on and you go, how can I make this more effective? How can I make this more efficient? And that's what we're looking for. So when we say manufacture, sometimes it's a complete product, and that complete product will ship frozen to a location and then be cooked on site when appropriate. But sometimes it's just the dough. Sometimes it's the spice mix. Sometimes it's a marinad or a sauce. And when you solve for that first, you do a

number of things. As the franchise or the owner of the brand, you're protecting the recipe. So there's not a lot of detail given to franchisees or other users of that product. You're creating efficiency, right, not just in labor, but in speed in the kitchen. You're creating a lot of quality control that's baked into those manufactured products, so there's less room for error. And you know, maybe someone thinks it needs more pepper. Nope, it doesn't. You follow

the recipe, thanks, right. So fundamentally, the way that we approach product manufacture is operational needs first, and then we go out and look at the marketplace and we go, hmm, okay, what is missing out in the marketplace and this channel and this segment of food where we might be able to serve a purpose, whether it's to wholesale like to food service sales, or rather to direct to consumer retail through our restaurants where we're sending them home with packaged

food or you know, take home meals, seasoning blends, et cetera, or maybe in a traditional retail environment. And that's where you really start to see some power, right, because then that becomes a whole other revenue stream for the business

and you don't have to divulge the proprietary recipe. You don't even have to use the same exact recipe you're using in the restaurant, but it's already being manufactured to your benefit for back of house, you might as well figure out a way to leverage it in a really intelligent way. So where we see a lot of success in this is if the product is manufactured in its center of plate, we can drop food costs to like

twelve percent. It's insane what that does. But also consider that if you are manufacturing product for use in the kitchen, you also see a similar reduction of cogs, but then you also are bolting on additional revenue too. So I'm sort of at a loss as to why more companies aren't doing this. But again, I'm super biased because I've been doing this for twenty years and I've already proven this.

That was several brands I've worked with before, So it's to me, it's just it's a natural part of our playbook because we can also shop for brands that live in that space that would make a great restaurant, and we've indeed made at least one investment just like that.

It's one of my favorite things to do. I'm the person who loves to put on the hairnet and the white coat and the shoe covers and go into the manufacturing facility. And you know, there is an art and a science to matching your product to an appropriate manufacturing solution, and not everyone is good at it. So one of the things I see a lot of is like, oh, we tried to manufacture this and it didn't work. We'll

say more about that. Why didn't it work? Well, turns out they talked to one manufacturer and they were trying to make sauce with someone who does bakery, right, not the same thing, right, And there's so much to consider, like fully loaded costs delivered, how close is it to your nexus of your stores? Can they ship directly to DC's.

I mean, the process itself usually takes us about three to six months to match with the manufacturer and make something that actually works after several tests, and then we start kicking into high gear. Right. But man, I like to tell people, you see the ROI on this immediately, because if you're a friend system, most people don't understand this.

But proprietary products through a franchise system where it's got a special recipe and it's unique to the brand, you can actually surcharge for those through the system, and it is to most franchisores a small source of additional revenue, and rightfully so, it's their R and D and IP behind it. But it more than pays for itself, more than pays for itself.

you know, whatever day part segment you're competing in. And I think what a lot of loyalty programs lack is that not just a feeling of exclusivity, but a genuine sense of we are grateful you're here, thank you for your business. And that comes out in the details, right, the types of rewards that you're giving, the way you message, the communication. And I think it all starts with being clear and what the brand is about. And it has

to feel authentic. Someone else can't write this for you, right, And so if you're a young brand, these are from the founder, you know. These are communications that are the rough equivalent of when I own my restaurants, coming out from around the pos and after a really crushing lunch and walking the dining room and just saying thank you so much for coming in today. Here's a card I'd love for you. I'm the owner, Please come back and

bring up a new friend next week. We are trying to get the word out that is what your loyalty program should feel like, and so many of them are missing a social aspect, a two way communication aspect, an appropriate scale of rewards that is exciting and feels valuable, right, Like not just cool swag, but man, I've eaten here ten times in the last month. I'm going to get a gold star for that. What does that mean to me?

Means you don't just get something cool and get a shout out, but maybe you get like a cool value to your next meal, you know. And I think dollar for dollar, paying attention to that consumer right now and really fostering the loyalty and the frequency of visit is probably money better spent than trying to induce trial with new customers who are very cash strapped right now. Right.

You don't want to be fighting for wallet share and inducing trial right now, in my opinion, you're fighting for frequency a visit.

couple a couple of problems. One is that a lot of private equity is you know, and major investors at a certain size, like let's say check size is over you know, ten million, they need banks to help finance these deals. They're not writing one hundred percent equity or cash check for these deals, at least that's not their preference typically, And so there's a lot of powder kegged, you know, dry dry powder like up at that level, and they're looking for deals that can still work without leverage,

which is hard to find. So the deals that we're seeing at the very top are like three hundred mil and up all the way up to nine point six billion, you know, whatever Subway was. And I think that's because those funds can afford literally afford to write that check, make the deal happen, and then bank on being able to recap and refin when interest rates are more appropriate. They can carry it on their balance sheet as part of a blended portfolio. Not as big a deal for them.

They're going to make more opportunistic purchases too, because I would bet than in some of those cases, those deals are being put to market right now because they need to be at market right now for whatever reason. You know, I think mid tier, like mid level, you know anything. Let's say smaller deals or mid range deals are just

sitting on the sidelines. I know many many an investment banker who's sweating right now because they just got books and books and books of deals they want to put out, but the time is not right because again, who's financing those deals? Nobody right, And so a couple things happening. One is an emergence of private credit. So we're seeing a lot of family offices and ultra high net worth individuals kind of swoop into this market because they see

the long term growth of the industry. We're crossing a trillion dollars this year. We're still putting up positive growth. We grow with the population. We are fully rebounded from COVID, So despite inflationary pressures, people got to eat. Their behaviors shift in our categories, but they still have to eat.

So if you are one of those investors, this is a very good time for you to get into the space, make some strategic positions as part of your longer term portfolio, and take advantage of the lack of credit that's available, right, So they're providing private instruments left, right, and sideways. It's like all the rage right now. You know. The other thing I'm seeing is some consequences down at a smaller level. So there's a lot of M and A with franchise

e consolidation. Yes, we've seen this with some very large franchisees and very big systems, but we've also seen a heck of a lot of it under the radar with like units that are somewhere between like ten and thirty. They have very high overhead, they're not properly leveraged. They were banking on big growth and using debt to do that.

Now they have debt, like crazy high interest rate debt on their balance sheet, and they're not growing, they're defaulting on development agreements, and so a lot of opportunistic and distressed assets down at that kind of early stage what I would call early stage multi unit franchise ese, right,

So tons of consolidation down there. Tons is, if you are a well capitalized, cash flowing multignit franchise and you see an adjacent multignit franchise struggling, you're going to make that offer, You're going to go ahead and shoot your shot, because they may just roll up into your organization. So lots of interesting M and A. But I would say it's largely stratified and mostly because of the scarcity of debt.

And in the middle, what is happening is a lot of investment in this space, either at equity or with private credit by ultra high net worth individuals or family offices.

I'm going to throw this one out there too, like I am reading the whole Brainchild because I need to figure out how to handle a toddler who's very opinionated. So in two languages, nonetheless, so that's kind of a mix of what I'm reading right now on the nightstand and in my office.

to chat with you. So you can book a call directly with us on our website and you can always find me on LinkedIn. I'm on there quite a bit putting out a lot of thought leadership in this space, so you can give me a follow and full course of follow on LinkedIn.