September 5, 2024 • 27 mins
Restaurants can’t just raise prices, they need to use data to make real-time decisions to cut waste and excess costs, says Craftable CEO and co-founder Samuel Zats. In this episode of Bloomberg Intelligence’s Choppin’ It Up podcast, Zats sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss how artificial intelligence can help project sales, reduce costs and help inform labor and purchasing decisions. He also comments on digital sales, commodity inflation and what types of functions are best solved by AI.
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Episode Transcript
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Speaker 1 (00:21):
Welcome to Chopping It Up.
Speaker 2 (00:23):
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.
Speaker 1 (00:38):
How you doing Sam?
Speaker 3 (00:40):
Hey, Mike Aydan, how's your day weekend?
Speaker 2 (00:42):
It was nice, man, got to spend some time with
family and friends.
Speaker 1 (00:46):
What about you? It was great?
Speaker 3 (00:47):
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.
Speaker 1 (01:00):
Did very nice. Yeah, we're lucky.
Speaker 2 (01:03):
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.
Speaker 3 (01:12):
So that's right. You've got to enjoy it and hopefully
had some good family time as well.
Speaker 2 (01:19):
Yeah, and so you're a California guy, right, so you
missed that California weather or what that's true?
Speaker 3 (01:25):
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.
Speaker 1 (01:47):
All right.
Speaker 2 (01:47):
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.
Speaker 1 (02:03):
It's a phenomenal book.
Speaker 2 (02:04):
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.
Speaker 3 (02:19):
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.
Speaker 2 (02:35):
Very cool man, all right. So as an engineer, how'd
you get into the restaurant business.
Speaker 3 (02:39):
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
(03:05):
was actually my first job helping out serving tables seeding
guests in our family's restaurants.
Speaker 1 (03:13):
Very cool.
Speaker 2 (03:15):
So once you talk a little bit about craftable and
how you came up with that idea.
Speaker 3 (03:20):
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
(03:41):
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
(04:01):
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.
(04:22):
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,
(04:43):
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
(05:08):
help our incredible industry really understand how to make better
operational decisions inside of the four walls of the restaurant.
Speaker 1 (05:17):
Okay, and what was your typical customer?
Speaker 2 (05:19):
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.
Speaker 1 (05:31):
Yeah.
Speaker 3 (05:31):
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
(05:53):
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
(06:15):
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
(06:35):
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.
(06:57):
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,
(07:20):
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
(07:41):
they're really trying to tackle the middle of that P
and L for prime cost and cogs and labor reporting
and management.
Speaker 2 (07:50):
Yeah, which is so important right now with all the
labor and commodity and inflation we've seen over the last
handful of years.
Speaker 1 (07:57):
And really, why I have you here today?
Speaker 2 (08:01):
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.
Speaker 1 (08:07):
Does your product help with employee retention?
Speaker 3 (08:10):
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,
(08:32):
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
(08:55):
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.
Speaker 1 (09:11):
Comes very cool.
Speaker 2 (09:13):
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?
Speaker 3 (09:25):
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
(09:49):
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
(10:09):
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.
Speaker 1 (10:28):
Okay, very cool.
Speaker 2 (10:31):
It sounds like you know you're doing a good bit
of sales forecasting right to help predict inventory needs and labor.
Speaker 1 (10:42):
Are you using AI to help with that process?
Speaker 3 (10:45):
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
(11:08):
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
(11:31):
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,
(11:52):
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?
Speaker 1 (12:02):
Yeah, that was one of the questions I was going
to ask.
Speaker 3 (12:05):
Sorry I beat you to it.
Speaker 2 (12:06):
Yeah, you did so, so you do help with menu
pricing absolutely.
Speaker 3 (12:11):
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
(12:34):
can't do, especially in such a high paced world that
we're currently live in.
Speaker 1 (12:37):
In the restaurant space, yeah, yeah, for sure.
Speaker 2 (12:42):
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.
Speaker 1 (12:59):
Right.
Speaker 3 (12:59):
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
(13:20):
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.
Speaker 1 (13:43):
Cool And are you doing that down to the individual restaurant.
Speaker 3 (13:46):
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.
Speaker 2 (14:05):
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.
Speaker 3 (14:22):
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
(14:44):
on the customer and that's what will keep those guests
counts as high as possible.
Speaker 2 (14:49):
Yeah, for sure, And you mentioned you're moving to real
time operations and flash reporting.
Speaker 1 (14:54):
Can you talk about that. Yeah.
Speaker 3 (14:56):
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
(15:16):
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
(15:39):
and then you're re forecasting.
Speaker 1 (15:41):
It's interesting, you know, and we talked last time too.
Speaker 2 (15:44):
You talked about how important it is for finance and
ops to kind of work together when addressing the middle
of the.
Speaker 1 (15:52):
P and L.
Speaker 2 (15:53):
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.
Speaker 3 (16:02):
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
(16:24):
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
(16:45):
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.
Speaker 2 (17:02):
Yeah, great, it's so important to have finance, operations marketing
all on the same team.
Speaker 3 (17:09):
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
(17:30):
great growth and probably something that a lot of the
successful change that you're reporting on are having a lot
of success with.
Speaker 1 (17:38):
Let's talk about commodity prices a bit.
Speaker 2 (17:40):
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.
Speaker 3 (17:51):
Right.
Speaker 2 (17:52):
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.
Speaker 3 (18:02):
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
(18:23):
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
(18:43):
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
(19:05):
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
(19:25):
see that as an immense opportunity and it's something that
we do day in and day out as we support our.
Speaker 1 (19:31):
Customers digital sales.
Speaker 2 (19:34):
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.
Speaker 1 (19:48):
For third party delivery providers.
Speaker 3 (19:51):
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
(20:13):
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
(20:37):
restaurant is available.
Speaker 1 (20:39):
Okay, and you know AI obviously all the rage.
Speaker 2 (20:43):
I have to ask the question, outside of craftable, what
AI functionalities and technologies do you think are best for restaurants.
Speaker 3 (20:55):
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
(21:16):
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
(21:37):
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
(21:57):
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.
Speaker 1 (22:09):
Yeah, got to get those tech valuations up there.
Speaker 3 (22:12):
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
(22:34):
generation and evaluation bump. As you're suggesting.
Speaker 2 (22:39):
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,
(23:01):
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.
Speaker 3 (23:21):
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
(23:42):
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
(24:07):
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
(24:28):
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.
Speaker 2 (24:40):
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.
Speaker 1 (24:55):
Right.
Speaker 2 (24:55):
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.
Speaker 3 (25:10):
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
(25:31):
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,
(25:52):
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
(26:16):
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.
Speaker 1 (26:34):
Is good stuff.
Speaker 2 (26:36):
Yeah, man, it's going to be fun to watch it
all unfold over the next few years.
Speaker 1 (26:41):
Thanks for doing this. This was fun. Where can our
listeners go to find out more about craftable?
Speaker 3 (26:46):
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
(27:09):
and thank you again for bringing this together, Mike sure Thing.
Speaker 2 (27:14):
I want to thank the audience for tuning in. If
you liked the episode, please subscribe and leave us a review.
Check back soon for a conversation with George Felix, Brinker's
chief marketing officer.
Welcome to Chopping It Up.
Speaker 2 (00:23):
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.
Speaker 1 (00:38):
How you doing Sam?
Speaker 3 (00:40):
Hey, Mike Aydan, how's your day weekend?
Speaker 2 (00:42):
It was nice, man, got to spend some time with
family and friends.
Speaker 1 (00:46):
What about you? It was great?
Speaker 3 (00:47):
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.
Speaker 1 (01:00):
Did very nice. Yeah, we're lucky.
Speaker 2 (01:03):
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.
Speaker 3 (01:12):
So that's right. You've got to enjoy it and hopefully
had some good family time as well.
Speaker 2 (01:19):
Yeah, and so you're a California guy, right, so you
missed that California weather or what that's true?
Speaker 3 (01:25):
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.
Speaker 1 (01:47):
All right.
Speaker 2 (01:47):
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.
Speaker 1 (02:03):
It's a phenomenal book.
Speaker 2 (02:04):
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.
Speaker 3 (02:19):
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.
Speaker 2 (02:35):
Very cool man, all right. So as an engineer, how'd
you get into the restaurant business.
Speaker 3 (02:39):
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
(03:05):
was actually my first job helping out serving tables seeding
guests in our family's restaurants.
Speaker 1 (03:13):
Very cool.
Speaker 2 (03:15):
So once you talk a little bit about craftable and
how you came up with that idea.
Speaker 3 (03:20):
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
(03:41):
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
(04:01):
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.
(04:22):
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,
(04:43):
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
(05:08):
help our incredible industry really understand how to make better
operational decisions inside of the four walls of the restaurant.
Speaker 1 (05:17):
Okay, and what was your typical customer?
Speaker 2 (05:19):
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.
Speaker 1 (05:31):
Yeah.
Speaker 3 (05:31):
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
(05:53):
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
(06:15):
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
(06:35):
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.
(06:57):
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,
(07:20):
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
(07:41):
they're really trying to tackle the middle of that P
and L for prime cost and cogs and labor reporting
and management.
Speaker 2 (07:50):
Yeah, which is so important right now with all the
labor and commodity and inflation we've seen over the last
handful of years.
Speaker 1 (07:57):
And really, why I have you here today?
Speaker 2 (08:01):
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.
Speaker 1 (08:07):
Does your product help with employee retention?
Speaker 3 (08:10):
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,
(08:32):
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
(08:55):
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.
Speaker 1 (09:11):
Comes very cool.
Speaker 2 (09:13):
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?
Speaker 3 (09:25):
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
(09:49):
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
(10:09):
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.
Speaker 1 (10:28):
Okay, very cool.
Speaker 2 (10:31):
It sounds like you know you're doing a good bit
of sales forecasting right to help predict inventory needs and labor.
Speaker 1 (10:42):
Are you using AI to help with that process?
Speaker 3 (10:45):
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
(11:08):
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
(11:31):
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,
(11:52):
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?
Speaker 1 (12:02):
Yeah, that was one of the questions I was going
to ask.
Speaker 3 (12:05):
Sorry I beat you to it.
Speaker 2 (12:06):
Yeah, you did so, so you do help with menu
pricing absolutely.
Speaker 3 (12:11):
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
(12:34):
can't do, especially in such a high paced world that
we're currently live in.
Speaker 1 (12:37):
In the restaurant space, yeah, yeah, for sure.
Speaker 2 (12:42):
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.
Speaker 1 (12:59):
Right.
Speaker 3 (12:59):
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
(13:20):
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.
Speaker 1 (13:43):
Cool And are you doing that down to the individual restaurant.
Speaker 3 (13:46):
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.
Speaker 2 (14:05):
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.
Speaker 3 (14:22):
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
(14:44):
on the customer and that's what will keep those guests
counts as high as possible.
Speaker 2 (14:49):
Yeah, for sure, And you mentioned you're moving to real
time operations and flash reporting.
Speaker 1 (14:54):
Can you talk about that. Yeah.
Speaker 3 (14:56):
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
(15:16):
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
(15:39):
and then you're re forecasting.
Speaker 1 (15:41):
It's interesting, you know, and we talked last time too.
Speaker 2 (15:44):
You talked about how important it is for finance and
ops to kind of work together when addressing the middle
of the.
Speaker 1 (15:52):
P and L.
Speaker 2 (15:53):
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.
Speaker 3 (16:02):
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
(16:24):
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
(16:45):
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.
Speaker 2 (17:02):
Yeah, great, it's so important to have finance, operations marketing
all on the same team.
Speaker 3 (17:09):
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
(17:30):
great growth and probably something that a lot of the
successful change that you're reporting on are having a lot
of success with.
Speaker 1 (17:38):
Let's talk about commodity prices a bit.
Speaker 2 (17:40):
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.
Speaker 3 (17:51):
Right.
Speaker 2 (17:52):
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.
Speaker 3 (18:02):
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
(18:23):
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
(18:43):
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
(19:05):
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
(19:25):
see that as an immense opportunity and it's something that
we do day in and day out as we support our.
Speaker 1 (19:31):
Customers digital sales.
Speaker 2 (19:34):
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.
Speaker 1 (19:48):
For third party delivery providers.
Speaker 3 (19:51):
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
(20:13):
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
(20:37):
restaurant is available.
Speaker 1 (20:39):
Okay, and you know AI obviously all the rage.
Speaker 2 (20:43):
I have to ask the question, outside of craftable, what
AI functionalities and technologies do you think are best for restaurants.
Speaker 3 (20:55):
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
(21:16):
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
(21:37):
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
(21:57):
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.
Speaker 1 (22:09):
Yeah, got to get those tech valuations up there.
Speaker 3 (22:12):
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
(22:34):
generation and evaluation bump. As you're suggesting.
Speaker 2 (22:39):
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,
(23:01):
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.
Speaker 3 (23:21):
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
(23:42):
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
(24:07):
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
(24:28):
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.
Speaker 2 (24:40):
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.
Speaker 1 (24:55):
Right.
Speaker 2 (24:55):
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.
Speaker 3 (25:10):
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
(25:31):
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,
(25:52):
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
(26:16):
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.
Speaker 1 (26:34):
Is good stuff.
Speaker 2 (26:36):
Yeah, man, it's going to be fun to watch it
all unfold over the next few years.
Speaker 1 (26:41):
Thanks for doing this. This was fun. Where can our
listeners go to find out more about craftable?
Speaker 3 (26:46):
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
(27:09):
and thank you again for bringing this together, Mike sure Thing.
Speaker 2 (27:14):
I want to thank the audience for tuning in. If
you liked the episode, please subscribe and leave us a review.
Check back soon for a conversation with George Felix, Brinker's
chief marketing officer.
Host
Michael Halen