Savory’s Smith on Consumer Squeeze, Value Meals

It was streaming media. Can you believe that? Like you think about that in our lifetime, like it hasn't the streaming media and like video on our phones and TV, it hasn't always existed. And the answer is no, it didn't always exist, and the Internet was fairly new with stream media in nineteen ninety six, seven and eight, I started streaming media company. So that's where I started my

impetus and my entrepreneurial career was. Then I built and sold out to a public company, and then I started another company that was in financial software and then construction software. When I was doing my last company, which was a construction software company that was private equity backed, my wife of at the time, how many years is that was? Ten years we were married, We had two toddler boys, and she says, hey, I want to do something different than just be a stay home mom. I'd like to

do a business or whatever. And I said, well, great, what would you like to do. You've been such a great support to me. And she's like, I'd like to open a restaurant. I'm like, oh, my hell, that has the stupidest idea, Like why would you ever do that? And I had all these fallacies in my head about the industry, which most people do that don't really know the ETHNB industry, And what came out of my mouth, Mike was I think it's a great idea, and I would love to support you, and I think we should

definitely do that. And for that reason, I'm married for twenty five years now, Mike. But yeah, I supported her. And she opened up her first restaurant in two thousand and eight, and believe it or not, it was like the worst time in the world for tech and the stock market and banks and construction, and so my life was on fire. And she opened up her first restaurant and to my surprise, it was absolutely slammed. It was so busy, and I'm like, how's that fair? Like why

is my life on fire now? And she's like crushing it and The one thing that I was so impressed with was after a few months of her being in business, I remember looking at her p and l her finances and I'm like, holy crap, what is that? And she says, Andrew, that's called profit because I had never seen that before my whole career. Mike is a tech CEO and founder. And so, to shorten up the story, the following year,

I sold my tech business. We actually stabilized it and we sold it, and I called her up and said, Heed, I'd love to join you and see what this is all about. So we really started our business career sixteen years ago was just kind of try something together, do something together. And boy, our whole career Mike has been a series of moonshots. We kind of said, well, let's do five of these, and let's do ten. It was a bakery and cafe concept at the time. We ended

up doing fifty of them. So that was kind of like one of those moonshot stories where it's like, wow, we just built one hundred million dollar business just because it was serendipitous, and we really started building this an amazing team behind us. We got into Little Caesars program and they had eighty seven Little Caesars, and then we started having brands come to us and say, hey, what you're doing with these other brands, could you do for us?

And we had this incredible ops team, we were operators, and so we said, yeah, I think we could probably do it with other brands too, and so we started making investments in twenty and seventeen. In twenty eighteen, and that was really the pivot of our previous company to the Savory Fund, where we decided to take really our operational background, our team, our playbook of growth and apply it to emerging brands. And instead of doing it with just the bank of Andrew and Shauna, we decided to

do with others that we know and trust. And so we raised a Savory Fund one in twenty eighteen, or Savy Fund two, which was a absequent one hundred million dollar funds will both back to back on hundred million dollar funds in twenty twenty one, and then we just launched fun three for two hundred million dollars to beta this year.

And then you go through the process or you order, or you sit down and you're served, and when you leave, you think, well, they have everything there, the sites, the sounds, the smells, that everything was hit, like all my senses were hit and they did it amazingly. Those are the brands we all remember, and those are the brands that we typically are talking to. And it's interesting that most people would probably step over them because they're not multi

regional players yet. But if you look under the underbelly of that business, most of the businesses we look at they've been around for ten years, fifteen years, and they have six to fifteen units, and there are these unbelievably successful brands, but most are just not looking at them. And so for us, we think, well, why have they not continued to grow? And we realize it's because it's

just a different skill. There's a skilled gap for me to start something, and there's a skill gap mostly for founders to take things from call it ten units to one hundred units or ten units to fifty units, and it's really the skill that we have as a team. So when we identify brands, we look for the ones that are typically stepped over but are absolutely evolving that flavor segment or the segment of emerging brands within that area,

and we approach them directly. So, Mike, if you had a restaurant, we would call you up and say, listen, we think the world of your brand and the concept, and we'd love to meet. I'd say ten out of ten times we get the founder to respond and meet with us. So it's been very, very fun to meet with the founders across America. We diligent sixteen hundred brands.

Can you believe that it's been a few Yeah, so yeah, we just look for the ones that are kind of stepped over, but the ones that are really doing something very unique and kind of show their head above the rest of the crowd.

evolve through some cycles. Yeah, and typically during cycles you see the most out of a brand, out of the leadership team, out of a founder, right, So we like to get to the point where we kind of see them go through a couple of evolutions or cycles. So yeah, we like five to ten units kind of the call it five to fifteen years.

interested in that they're hot, that they're being disrupted. If you think about, you know, the Asian category, for instance, Mike as an example, you know, we all grew up going to eat at the little hole in the wall shop that's really, really, really good Asian food, you know, a Chinese cuisine or a you know, a Thai cuisine. But they're starting to go out because the second generation, we home G two and G three, they just don't

want to take over. They want to go something else with their lives, and so they're really faced with either trying to sell it to someone that will take it or just shut them up. So we've watched that data the last several years, and if you look at the King of the Pin, I mean it really is Andrew over at Panda Express. I mean, he's crushed it. It's something that we all have to just stand there and

revere him for what he's done. But there's a lot of disruption in that category with the single shops, and so we think that something like that is very interesting to us. So we've looked at a lot of Asian concepts recently and it's incredible to see that you're and my dollars. If there's a good shop around us, we're spending money there often. I mean, it's on the pin

wheel of options. And so that's kind of an idea of where we start focusing because we feel like that trend will be interesting for the next several decades.

to service that debt. So you really push that risk adjusted return off to the to the you know, the franchise e, and then for years, the franchise or you can kind of sit back and relax and take royalty. The problem is with that, though, is the cash on

cash on some of these brands is so high. Why would you Why would you push that off to the franchise Z If you, as a corporate owner have such good returns and you have good build costs, you have no problem staffing your stores, you have the hype, you're in the right flavor segment. I actually believe that there's buyers for all types of brands in all different I would say chapters of their growth, and they don't always

all have to be franchise or franchise y relationships. I also think that a lot of the amazing brands, and we've seen this too, Mike, there's been a lot of amazing brands where they have really screwed up their business because they went franchising too soon and they didn't really have a very good under belly or undercaracter foundation, whatever you want to call it, to their main business, the hub.

And so for me, I always feel like, no matter if you go franchise or not, Like, we franchised a brand that we've been involved with for many years and we still own a significant majority of Swig drinks, and Swig you know, went out, we built fifty five sixty

corporate stores, had this unbelievable cash flowing business. We were in the game, we were operators, and then we flipped the switch to say, well, let's start franchising to kind of protect our turf and still be the leader in dirty Sodas because it's the original concept creator of dirty Sodas. And we sold five hundred and fifty franchises and we're still adding twenty five units in corporate a year to

be in the game with the franchise ese. But the franchisees that we got were like, well, since you know what it takes to be a you know, a store operator, an owner and operator of this business, we believe you more. We trust you, We're going to be in this together. And the other thing is we don't depend on them for franchise fees and royalty fees. I think that there's

a disconnect between you and me, Mike. If you're the franchise O or I'm the franchise e, you have no thing, but I'm paying you every single month, and you're so dependent on it. You don't really care about my success. You just need my franchise fees and my royalty. Yes, So that for us, we just we don't think it's wrong to franchise. We have franchise businesses. It's just when do you franchise? Is really the position that we take.

treat your partner and how would you treat your spouse? Sir? How you want to treat your franchisees the same way. You want to be in partnership with them. And if they're not successful, you're not going to be successful. So we you know, within the Savory platform we have we have twelve brands, and within those brands, we have two of them franchising and others that are right on the verge of potentially franchising. But across the board, Savory will

always have skin in the game. We will always have a foundational corporate body of stores to pay for team, to pay for innovation, to pay for technology, to pay for support, and not have the dependency on franchisees to do that for me. I want to do that for them. I don't want them to do it for me.

about it is they've kept thinkings simple at McDonald's. Of course they add things in and out, but you know, I still eat the same freaking meal if I go to McDonald's as I did when I was a kid. Right, So, when I saw them spin out and do cosmics, I in my mind, I thought, man, that seems in my mind like a little bit of an offshoot. And it's also they're grasping for straws. In my mind, I think you should just stick with what you are as golden

arches and introduce some things on your menu there. I think Cosmics is something that's interesting because it's also paving the road for new innovation within the segment of Hey, I just want to quick treat and I want to go grab something real quick, and I don't want to have a full menu. But I think Cosmics has got too big of a menu. I think that they should go, you know, more simple. It's hard to stay simple, Mike, and he says that several times in this industry, simple

is hard. I mean, look at in and out how simple they've been all these years, and they crushed it. It's been hard for them to stick with X. They've been putting, you know, put pressure has been put on them to add things over the years, and they just haven't. And so I think simple is hard, and I think Cosmics not too simple. But I'll tell you this right now. It's impressive that they're going for it, and I actually

think it'll be a success. But they have a long way to go to figure out what that's going to be and what it will look like across the country if they decide to do that.

also just done regular TI build out. I will say that, you know, since I've been in the industry the sixteen years that I have been, I came into it kind of during a recession, you know, in two thousand and eight, two thousand and nine, I've gone through kind of the pole years. We kind of hit the epidemic or pandemic, which slowed everything down. And then now we've kind of been in this new evolution of the industry of well, what's next. And I think that people don't really know

what's next. And when I say that, as far as on the real estate, there's a lot of new product coming where people are going, which is the sprawl areas, the suburbs, where there's new people coming in in droves because they're living certain geographies and they're going to new geographies like Dallas and Houston and others that are just exploding, and so there's new product coming out of the ground.

But what has made real estate super super hard over the last three years is one cost of construction and supply shortage. That was a huge, huge problem twenty twenty two, twenty twenty three, and I think everybody felt it cost to build something was up forty to fifty sixty sometimes

one hundred percent, which is ridiculous. So you just can't make investment decisions that make sound, you know, return earns with that cost increase, and so I think it slowed everybody down from building new buildings, so there's not new product coming out of the ground. And then it's made people kind of overpriced or gouge people that are looking

for land. So where you're trying to ground lease, you could use the ground lease something for sixty seventy eighty thousand to put a swig on it, and now everybody thinks, well, it's worth one hundred and twenty five hundred and forty five hundred and fifty a year, and I don't think

that the landlords understand that's not sustainable. And so I think we're going to go through kind of a cycle right now where you're going to see a lot of people growing fast and then a lot of stuff coming back on market to flip it to someone else to sublet or take it off their hands because you just can't sustain those prices. So it's it's I think there's a big shake up right now in real estate. There is product out there, it's either old or dilapidated, and

you have to regentrify it. Ground leases are very very expensive, and so we're just being disciplined and not overpain because we think that people are going to turn around and try to release it because they can't make money at those prices. And then construction costs have finally come down, mic so we're starting to see new projects that have been mothballed for the last couple of years start up again, and so we think that the next eighteen months there

will be new projects to actually start negotiating on. But you're right, if there's a building, there's five, six, seven, eight lois that are in that, you know that owner's hands and he can play us all off of each other and try to get the best price, and kudos to him, you can do it. I would just say to all my counterparts in this industry, mic, stop screwing each other by, you know, raising the prices more and

more and more. Let's just all be disciplined and say this is what works for us, and let's keep the prices down because we're doing it to ourselves.

And I think the problem is is that we we lean more on growth of units, so get more roofs out there built, And in my mind, I think that we're all backwards on that. Having you know, some of the greatest brands out there that have done incredible work over the last five ten years, the Sweet Greens, the Caavas, the Chipotles, you know, any of them. There's a certain point in time you have to make money. You got

to make really good money too. And I can say that because we've made really, really good money on our brands, and I'm never hesitant to say I'm going to pause and perfect and get my profits up versus adding more roofs. And I think that the street mic as you know, they're like, well, you need to grow a twenty five or thirty five percent clip a year with more and

more roofs. I wish the rhetoric would be and the interviews would be, how are you doing and have you increased profits and have you got a better customer sentiment so that you're a stabilized business. Instead it's just how many more units always every year? And it's like stupid because they are they're driving up the cost. You know, I go to a couple centers in Boston and I'm trying to say this because you're you're up in those

neck of the woods. Love Boston. Boston's amazing, right, and there's so many beautiful places that we would love to grow. One of our brands in the DMV called South Block that's doing just an incredible job in the DMB, And I thought the DMB was expensive. You up to Boston, You're like, you know, yeah, the rents one hundred and fIF they're two hundred foot there. I'm like two hundred foot, Like Gucci can't afford that, Like what are you talking about?

So yeah, I think that we're kind of lost our damn minds on what we think is realistic, and then people are pissed off when they have to spend ten dollars on a drink. It's like I the rent is you know, ridiculous, and so if we don't cool it, we're all going to be paying for it anyway. All right.

that the consumer is fairly fit. And I think that with the consumer, they're not as loyal as they used to be. They're putting dollars where they feel they're getting the most value for their money, and they're dumping the brands that they feel like they're getting gouged. What we see is with one of our brands, you know, getting a good value and getting a lot of food. Let's just say weight to your dollar.

you're getting. But indulgent brands, habitual brands and brands that are repetitive brands, you can eat a lot of it and you don't feel like it's something that's you know, for special occasions only. Those are the ones that are getting the traffic. It's just the bottom line. So I think it's going to come back, yes, But I do think that the American dollar is getting squeezed right in

everybody's pocket. And because it's getting s these people are looking for value or they're putting it in the indulgence. So a snack in the afternoon. For right now, a lot of people are saying, well, I'm just grabbing a drink and a snack and that's their lunch. And so we're losing traffic to lunch because there's snack options out there now too. That when I say snack, not sugary like you know, unhealthy snacks. It can be a healthy

snack with a you know, a flavored drink. But at the end of the day, I think people are substituting eating out like they used to with indulgent snack times and then value plays. That's just what they're doing.

go places to get value, right. So if you do that too much, then you're going to devalue your brand. Then you're just hurting your margins in the bottom line anyway. So you got to be really careful not to coop on the hell out of your brand, and you want to be very very careful to not just give away your profit because then you're working for nothing.

casual dining now? Is it going to be defined dining where the papa is seventy five and one hundred dollars a person? No, But I do think Americans want to go out and still have a nice meal at Chili's, right, Like they still want to go sit down and have that experience.

like sixteen years ago. I remember getting our catering orders if you call it, or your daily orders on a fax machine. Like I can't even believe that was within my lifetime within the food and beverage industry. And I have people I know in this industry They've been in this industry industry for thirty years, and I'm like, holy crap. If I was getting them on fax machines, what were you guys were getting them on like scrolls, Like what the hell? It's just crazy to know how fast, you know,

things have evolved in chas in this industry. Of course, the pandemic pushed more technology in this segment, food and beverage segment than ever before. We had this slide that was presented to us the other day of all the new tech in the industry and had hundreds and hundreds and hundreds of logos right on this sheet. And the problem for us as operators and the food and beverage

segment is it's overwhelming. You don't even know which ones are going to help you, which ones are going to actually fine tune the business, make it more profitable, bring more business, make your customers more happy. So I do think that there's got to be a Darwinian shakeout also within the tech sector, within F and B, and I think that it will happen. I think it's already starting to happen. Because the tech industry is underwater right now,

they're all swinging for it. I feel like it's a knife fight for all of them right now to raise money to continue. I think several of them that probably couldn't really get customer matching will probably fall out, and that's okay, I mean that's just what happens. But I will say that the ones that we're most interested in are the things that we have to do that a technology can simplify and reduce cost out of and reduce

human intervention. So do I think AI is really intriguing in this industry, Yes, but we've been looking at AI every day. I feel like talked about AI this year

like it's a new thing. AI has been talked about for years, right, Mike, and I think that AI has got a long way to go on how it's going to work to help our industry because it's such a touch point hospital it's hospitality, so there's so much high touch with our customers and within the restaurant that I don't think AI is going to take us out of this industry or take our consumers away from brick and mortar. But I do think AI is going to be interesting.

And I think that robotics have a place, but they're just so far from from where we need them to be they're so expensive, and I don't think that they've nailed it yet. We're looking at a couple right now that we're very intrigued with, but it's just not there yet. So I think that some are too early still, and I think early adopters are testing it, and I think

we'll wait for them to do that. I think AI is interesting, but I think it's also early adopting, and there's a lot of technology that is just on the base of chat, GPT and others that it's like, well, you really don't have anything unique in AI. It's just you're using chat GPT to do what you're doing. So

I think there's going to be a shakeout. I think that their technology arena is still a little early in F and B, but we are still very very interested in using a lot of it where it's going to replace maybe some human intervention and reduce cost of other things. One example would be that we use and we actually invested into as well as eighty six repairs.

within every single line out. I'm in the middle of our P and L because technology should make a lot of those things better.

out if we're looking at different flavor segments. And they said, oh, my gosh, you got to go to Via three one three, And the cool thing was is VIA three one three. I speak Spanish too, I'm bilingual, and so I heard VIA and I'm like, oh, that's by the way of And three one three is the area code over from Chicago, which is three one two. And I'm like, oh, it's by the Way of Detroit. And I'm like, it's Detroit

style pizza. So I knew what it was, but most people don't understand that it's the area code of Detroit and it's by the Way of Detroit. My partners, Brandon and Zane Hunt, two brothers that lived and grew up

in Detroit. We're done in Austin. They both had different jobs and they're like, there's not pizza like this here, and so they started out of the trailer and when they were serving the square pizza with the sauce on top and explaining what you know, Detroit Stale pizza was, people said, well, what is this and they said, well, it's Detroit style pizza. And they did that, Mike, fourteen years ago, thirteen years ago, Detroit style pizza was not really a phrase. When you were in Chicago, you just

called it pizza. Yeah, And when you're in Detroit, you just call it pizza. You don't call it Detroit stell pizza. In Detroit, they were really the ones that coined the phrase Detroit stele pizza and they're actually identified as that and they're looked at as kind of the pioneers of Detroit Stell Pizza. So we made an investment a couple of years back. We're opening up stores twenty one to twenty five this year. We already opened up a couple

this year and so we're getting close. Man, it's it's fun to it's fun to see that one grow because it's an unbelievable product, unbelievable story, and we're just honored to be working on that one with Brendan and Zane Hunt. Very cool.

And the cool thing we've run it and saying is they're so pro everybody winning. I just love how they view everybody. And so we went and got Pizza Hut. We sat in my office and Savory and we all ate a piece and we all kind of looked at each other and a couple of people were like, well it's pretty okay, and there's like I don't really like it, and so it's just fun because yeah, pizza comes out with it's like Detroit style. It's like you're grasping.

what are you doing? You tell me the brand you're doing and the food and it's amazing, and I'll share you what I'm doing, and I'm telling you how well I'm doing and where I'm successful and where I'm not. It just is so open and free flowing. It's one of the reasons why six years ago I started the Restaurantology Conference, my own conference where we put it on. We pay for everything. We don't have anybody there pitching anything, or any vendors or nothing. We have six hundred operators

come and we just tell them everything we're doing. We have no secrets because I care that everybody wins, even there's people that compete with some of my brands are there. And then after in the hallway and during lunch when we feed everybody, they're all talking to each other and sharing what's working and what's not working. In my mind, nothing there has hurt anybody's business. It's only helped each other's business because we only learn from each other and

we all want to improve. Can't feed everybody, you know, none of us can. So I agree, that's why I really have enjoyed this industry. I guess I'm going to stay in at my good stuff. Man.

everybody to win. So unfortunately people can believe that if they want, but truly I want everybody to win.