July 1, 2025 • 23 mins
Sales almost double when Smokey Bones restaurants are converted to the Twin Peaks chain, FAT Brands’ Chairman Andy Wiederhorn said on this episode of the Choppin’ It Up podcast. Wiederhorn joins Michael Halen, Bloomberg Intelligence’s senior restaurant and foodservice analyst, to discuss FAT Brands’ growth opportunities, including Twin Peaks, and plans to repay debt. He also comments on franchisee health, everyday value and the refranchising of Fazoli’s.
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Episode Transcript
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Speaker 1 (00:13):
Welcome to Chopping It Up. I'm your host, Mike Allen,
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.
If you enjoy the pod, I'd really love it if
you could leave us a review on Apple or Spotify.
Today we're joined by Andy Wiederhorn, the founder and chairman
of Fat Brands. Fat Brands is ninety two percent franchised.
(00:37):
It's a multi brand restaurant company with about twenty three
hundred units across sixteen chains and trades on the NASDAQ
with the ticker fat Fat. Welcome to the pod, Andy.
Speaker 2 (00:48):
Thanks for having me.
Speaker 1 (00:49):
I'd like to start with Twin Peaks. Many of your
listeners probably know that the chain was spun out in
an IPO earlier this year. What percentage of the company
to Fat Brands retained and what were the proceeds used
for it.
Speaker 3 (01:02):
Yeah, so we spun it out just at the beginning
of the year, divid ending five percent of the company
to the Fat shareholders and retaining a ninety five percent interest.
But after management gets some options and bondholders got some options.
Speaker 2 (01:16):
It's probably in the low nineties at this time.
Speaker 3 (01:20):
We planned to do an equity offering at some point
before the end of the year when the equity markets
opened up a little bit for restaurants, and then we'll
have new proceeds raised to build more restaurants, pay down debt.
Those are our primary focuses today.
Speaker 1 (01:35):
I read that you found your next leader of that brand, so.
Speaker 3 (01:38):
We hired a dynamic new CEO named Kim Boima, who
has a lot of experience thirty or forty years of
experience at Texas Roadhouse, California Pizza Kitchen, and a number
of other brands, a lot of bar experience from Texas Roadhouse,
so he's a rock star. We're delighted to have him
on board. He started maybe four weeks ago and is
(02:00):
really settled into the position already and is focused on
franchise profitability, corporate store restaurant level margin, and unit development.
We have a very big pipeline of another one hundred
stores for Twin to build out over the next few years,
and we're really focused on getting those stores open.
Speaker 1 (02:17):
Great and Smoky Bones was included in the IPO. I
think you expect to confert about half of the Smoky
Bones restaurants to Twin Peaks. How much will the conversions
cost compared to a new build, and what kind of
auv uplift are you seeing.
Speaker 3 (02:31):
It's a really interesting story, this conversion of half the
Smoky Bones. There are about sixty one Smoky Bones at
the time of our acquisition eighteen months ago. About half
of them are convertible into Twin Peaks. The other half isn't,
either because it's a trade area that's no longer attractive
to Twin Peaks, or it just doesn't qualify in the
lease with a landlord because of the percentage of alcohol
(02:54):
or some other restriction. We may have a Twin Peaks
already nearby. So of those thirty ish stores that are
going to convert, at least ten will be corporate, tann
will be franchised, and the other ten are in between
a corporate or franchise market. So we'll figure that out
along the way. We're seeing almost a doubling in sales
when we convert, like we converted the first store in Lakeland, Florida,
(03:18):
back in the fall of twenty twenty four, I was
doing three point six million as a Smoky Bones and
it opened up doing eight million plus as a Twin
Peaks will probably settle in right around seven or eight million.
Then we opened brand in Florida as well, just in
the spring here in February or the end of the winter,
and we're seeing a doubling again. So we really think
(03:40):
that Darden did a great job years ago picking the
real estate for these locations when they were the original
owner of Smoky Bones, and we're taking advantage of that now.
We'll still end up with somewhere between twenty and twenty two,
I think Smoky Bones that are freestanding, like we talked about,
and we'll continue to operate those for the foreseeable future
(04:00):
and probably grow that brand a little bit. It's about
eight or nine that will close just because it's end
of lease and it doesn't make sense to convert.
Speaker 1 (04:06):
Them, okay, and so in the near term the store
conversions and closures are kind of weighing on your revenue
and margins. When do you expect that headwind to become
a tailwind?
Speaker 3 (04:18):
Good question. That should end this year. We should finish
the full integration of Smoky Bones into the Twin Peaks team.
We'll save the business three or four million dollars of
operate expense. We also will get two or three more
conversions done in the next nine months or so, so
either beginning of next year or end of this year,
(04:40):
and that will ramp up the revenue because they're doing
twice as much volume as a Twin Peaks as the
Smokey Bones, and when they're temporarily closed for conversion, you're
not getting revenue from either brand, so that gives you
a little bit of a lag. Franchisees are also starting
to develop their stores and that's going to accelerate here
in the coming quarter or two. So very positive about it,
(05:01):
very happy about it. You can't happen fast enough. From
a cost perspective, it's three or four million dollars to
get one of these conversion into a Twin Peaks from
the Smoky Bones. But if you build a Twin Peaks
from the ground up, you're going to spend two million
on the land and another five or five and a
half million.
Speaker 2 (05:19):
To build the building.
Speaker 3 (05:21):
They may do a sale lease back and pull out
some of that, but it's a significant investment. So here
you're spending three or four million versus seven you know,
seven or eight million, you know, give or take the
real estate. So it's just another approach to make it interesting.
And of course, well we do these conversions, we're getting
a new lease with a lot of options and things
like that, so it's a it's a pretty solid way
to go.
Speaker 1 (05:40):
Yeah, I mean, it's a huge difference in auv it's
a huge difference on investment costs. That's fantastic. How long
do the conversions take?
Speaker 3 (05:50):
They take about nine months now ground up build of
if you buy the land build a building, it's like
two and a half years by the time you do
in title months and get the restaurant built, so it
significantly faster. It accelerates our new unit development. It's a
good opportunity for you know, the franchise e to to
move quicker on some of their development opportunities. They can
get some financing for it, like equipment and things like that.
So we think it'll you know, it'll really continue to
(06:14):
lean into accelerating growth.
Speaker 1 (06:16):
Okay, And what's the alcohol mix and how our customers
receiving the new bar menu?
Speaker 3 (06:21):
So we do about forty eight percent alcohol, which is
really you know, really you know, cutting edge. It's a lot,
it's a and it's a Barbelle system where you can
have five dollars beers or thirty five dollars fancy tequila
or whiskey, you know, whiskey shots or or on a
big ice cube. So you know, there's a there's a
big range there in the bar business, and there's there's
(06:44):
we're trying to refine that a little bit and just
make sure we're taking advantage of the margin with forty
eight percent alcohol. On the menu side of things, there's
also a little bit of streamlining going on. We've got
a very good scratch kitchen menu and you can come
into the restaurant and you can eat a steak or fish,
or you can have bar food and you know, you
pick whether you want an entree or all kinds of appetizers.
(07:04):
And that's really made it a well rounded menu offering
twenty five percent of the customers are female, and so
you've got to have a well rounded menu to make
sure you've got enough for everybody.
Speaker 2 (07:15):
Salad things like that.
Speaker 1 (07:17):
Of the other fifteen brands in the portfolio, which ones
have the best growth profiles.
Speaker 3 (07:21):
Well, about seven of them are high growth. So that's Faberger,
Johnny Rockets Round Table Pizza, Fizzoli's Twin Peaks we just
spoke of, and then our cookies and ice cream brand,
Marble Slab Creamery and Great American Cookie. Those were all
with a thousand store pipeline across all of that brands.
So in addition to the twenty three hundred restaurants open
(07:42):
or under construction, there's another one thousand that have been
paid for and signed up by the franchisees to build,
and they'll build somewhere one hundred to one hundred and
twenty a year going forward, and hopefully we can accelerate
that even more.
Speaker 2 (07:55):
So.
Speaker 3 (07:56):
It's a very solid source of organic growth where we're
not going out buying more brands for growth, but we're
actually organically growing that at basically the zero cost.
Speaker 1 (08:06):
And you're exploring the refranchising of fifty seven Fasolis units,
what kind of multiple do you expect to get on them,
how much do you expect to raise and how much
SG and A savings will you realize?
Speaker 2 (08:17):
Great question.
Speaker 3 (08:18):
Yeah, So when we convert the remaining company owned Fazoli
stores to franchises will be one hundred percent franchised in
that system. We expect it to be a single buyer,
but you never know, you know, it could raise somewhere
anywhere from fifteen to twenty five million dollars depending on
you know, the transaction we end up negotiating, including the
(08:39):
royalty percentage and things like that, but that'll all go
to pay down debt. In the faciliti securitization, it'll say
at least three million dollars of SG and A to FAT,
So it makes us money that the amount of royalty
will at least be equal to or exceed the earnings
on those company owned stores. So it works, you know,
(08:59):
plus we save the overhead. The multiple is somewhere in
the four to six times rage.
Speaker 1 (09:04):
Okay, and I saw that you were looking into some
duel or multiple branded store types. Can you talk a
little bit about that and how those are doing.
Speaker 3 (09:14):
Yeah, we've been co branding for years, over a dozen years.
We have Faburger and Buffaloes Express, which is a sort
of a wing stop version of a chicken restaurant. So
we have a number of those co branded, about one
hundred of them where it's a Fatburger Buffaloes Express. And
then we have some Johnny Rockets where they have hurricane
wings in their restaurants. As well, and then we've done
(09:36):
a try brand with Hotdog on a stick. We've done
a try brand with round table pizza, Fatburger and one
of the other brand's chicken or wings like Hurricane or Buffaloes,
and they've all been very interesting because you're just giving
a broader menu appeal to your customers when they can
come in and do that. And we have finally well
(09:56):
over one hundred of the Marble Slab ice Cream Great
American Cookies units that are co branded, so you know,
of course cookies and ice cream go together well, and
if you're going to open one, you might as well
open both and take advantage of that.
Speaker 1 (10:08):
Yeah, you took the words right out of my mouth.
That seems like a natural pairing for the brands that
you're co branding. Are you careful about the menu size,
because you know, we were reading about the dining brand's
attempts to merge Applebee's and ihop, and there's some talk
about the two menus kind of being too too big
(10:29):
and too too much for employees to learn up front.
Speaker 3 (10:33):
It's pretty easy for us on the co branding side
because they're different brands, and so if you're doing the
burger brands and you add wings, it's it's you know,
it's wings and tenders things like that with.
Speaker 2 (10:45):
A bunch of sauces. It's nothing complicated.
Speaker 3 (10:48):
What's more complicated is if you're doing a fat burger
a round table pizza, because the each have their own
menus and then you you know, you add something else,
whether it's dessert or you know, pretzel maker or something
to it, which is pretty simple. So you really those
big Try brands are really sort of two separate restaurants
with one kitchen, but they're they're fully different menus. And
then you know, clickies and ice cream is easy. That
(11:09):
that is what it is. So it's not too difficult.
Nothing crazy like two casual dining, you know, restaurant menus
in one that that would.
Speaker 1 (11:17):
Be tough for sure. Let's talk about your franchise ease.
How is access to capital and availability of quality real
estate right now?
Speaker 3 (11:25):
Well, it's been you know, it's been a challenge for
the last couple of years as you saw inflation raise
the cost of building new restaurants significantly, and you know,
financing became more expensive, so franchises were dragging their feet
a little bit to build stores and where we optimistically
had hopes of opening between one hundred and twenty one
hundred and fifty units a year. The last couple of
(11:47):
years we've been around one hundred. Still great new store openings,
but that's all that is. Franchise is walking slower. Making sure.
You know, this most recent tariff interruption sort of a
non event, but definitely had franchises worried about our equipment
price is going to go up yet again because there's
all kinds of important equipment fryers, grills, things like that.
(12:08):
Not so much the construction cost, but more like the
important equipment. So we seem to have a calm sense
of let's move forward again at full speed coming from
the franchise system. So we're hearing them all step up
with their development plans, come in for plan approval, things
like that at a much faster pace. So I'm optimistic
(12:28):
that will not only get there's one hundred stores open
this year, but it'll lean into a higher number in
the in the hopper for next year.
Speaker 1 (12:36):
It's good to hear the company reduced SG and A
spending by five million a year. Where were those cuts made?
Speaker 3 (12:43):
You know, there's some at the senior level where you know,
we haven't been as inquisitive, so we don't need quite
as much finance team experience there. And then there's just
some operating efficiencies on legal department things like that, where
we've you know, we've sort of been able to automate
some things and it's helped us reduce cost work.
Speaker 2 (13:00):
Anyone to look at that.
Speaker 3 (13:00):
I think that over time and the and the merger
of Smoky Bones into Twin Peaks, and then fis always
converting to refranchise stores, you know, that'll that'll be upwards
of a.
Speaker 2 (13:09):
Ten million dollars savings on a consolidated basis.
Speaker 1 (13:12):
Interesting. Yeah, I think chat GPT may be helping everybody
save money on legal expenses too.
Speaker 3 (13:17):
Man.
Speaker 1 (13:17):
You can you can ask it to create an fd
D for you know, a restaurant concept, and it comes
out with some pretty interesting stuff.
Speaker 2 (13:26):
Man, love that. Got to try that for sure.
Speaker 3 (13:30):
Liking at all.
Speaker 1 (13:33):
For sure. Speaking of lawyers, litigation expense jumped in the quarter.
How much longer will that continue to be? Ahead wind
to the P and L.
Speaker 3 (13:41):
We think that the majority of the litigation expense goes
away this year.
Speaker 2 (13:49):
One way or the other.
Speaker 3 (13:50):
These cases will come to an end through settlement or
other means, trials, whatever, but it'll all be over this year.
Speaker 1 (13:57):
Goodness utilization at the key production facility is kind of
low right now, and that forty to forty five percent range.
How long will it take to get to your near
term goal of sixty to seventy percent and how do
you plan to get there?
Speaker 3 (14:13):
Yeah, we have two programs that are in the works
right now and rolling out right now. One is a
test program of seven eleven where they're taking our cookies
and selling them in the stores and there's an option
to freshly bake them in the stores, and that has
legs to it that will give us a lot of
(14:34):
production and I think it'll go very well and the
customers will really will like those freshly baked cookies in
the stores with an oven that they put in and
they use our fresh dough and bacon in the oven
on the spot. It's called easy Bake and it's really
a great program. And then we also have a number
of other chains. Chuck E Cheese is one that we're
rolling out now where they're taking the Great American cookies
(14:55):
and selling them in the restaurants. And again that's a
branded product, and you know, branded products just sell better
in restaurants than unbranded products. So rather than every chain
having their own cookie named you know whatever, it is,
using a great American cookie, which is a recognized name
that's been around for years, gives people lift and traction
and helps move the product. And so you know, that's
(15:17):
been our that's been our focus, and that will soak
up quite a bit of excess capacity as it gets
rolled out.
Speaker 1 (15:26):
That's really interesting. What kind of lift the chains typically say.
Speaker 3 (15:31):
Well, I mean it depends on your dessert mix to
start with, but you know you can if you can
get five percent of sales.
Speaker 2 (15:36):
You're happy.
Speaker 3 (15:37):
You're very happy right with you know that kind of target.
So that's anywhere from two to five is what they're
looking for. But it's also a good margin product, so
I think it has a sort of a win win
for everyone.
Speaker 1 (15:47):
And do you expect to see more vertical integration in
the restaurant industry? You know some of the you know,
there's been articles out about lemon squeezing robots, Chick fil
A and you know, salad and has been implementing you know,
commissaries for a while. Do you do you see more
vertical integration in this inflationary environment?
Speaker 2 (16:09):
Well, you're always going to try to be efficient. You're
always going to look at things that make you efficient.
Speaker 3 (16:13):
But this is still a hospitality space, and guests want
to interact with someone and want to see their food
being made, and you know, you start to worry when
you don't see anything and it's all behind a wall
and it gets passed out to you. And you know,
in the age of you know, making things healthier here,
I think everyone wants transparency and so I mean there's
always a little bit of it, and you know, some
of that can help and save the margin and all
(16:34):
of that. But we're still in the hospitality business. We're
still going to make burger shakes and fries and in
front of people and pass them across the counter.
Speaker 2 (16:42):
Or deliver them to their table, and you know, that's
part of the experience.
Speaker 1 (16:47):
What are you seeing from the US consumer across your
brands because you're operating in you know, pretty much every
segment of the market, you know, fast casual, criick service,
casual dining, polished casual. So what are you seeing. Are
you seeing any movement in terms of you know, spending
by low income consumers, middle income consumers. What are you
seeing from your brands.
Speaker 3 (17:08):
We're very happy that we're not in fine dining these
days because find dining, you know, it's really tricky in
terms of consumer confidence and how much they're going to spend.
And then you have inflation creep where you know, to
go out to dinner and find dining restaurant the price
is almost doubled over the last five years, and you
that sticker shock beyond belief right in At the lower
(17:28):
tiered brands QSR, fast casual, et cetera. You've seen people
trade down. They've traded to the left, So a fast
casual might have gone to a QSR and so on.
Casual dining may have traded a fast casual. We're seeing
a resurgence in casual dining today. It's definitely positive. Wings brands,
you know, polished casual as well coming back nicely. QSR,
(17:51):
you know, has an issue if you can't really trade
down for it. So there's all kinds of value propositions
out there, and I think that at a high level
in all of the categories, what operators need to be
focused on is the guest experience. What I'm going to
call the value proposition, and I don't mean the value
meal where you get a burger for a dollar or
three dollars or whatever. I mean, if you're going to
(18:12):
charge somebody six dollars for a cup of coffee, it
better be a great experience, right, Or you're going to
charge them twenty dollars for a burger, shakes and fries,
it better be a great experience and a great product
and be seamless. And I think that's the value proposition
today is people understand that there's inflation, there's been a
price increase, but it's got to be seamless. You can't
(18:34):
have a bad experience in charge a high price.
Speaker 1 (18:36):
So on the last episode, we had been talking a
little bit about the resurgence of casual dining and some
of the things that came up where you like, QSR
was able to raise prices for about a year and
a half while while casual dining chains were largely closed
and the supply, demand and balance has kind of shifted
to because there's been a lot of closures in full service,
(18:57):
but quick service has gone on. And it's interesting too
that there's a shift towards what you get for what
you pay, and I guess part of that is people
are still employed, right it's.
Speaker 3 (19:11):
Definitely the consumer demanding that they get what they pay for.
Like I've never seen before, there's very much a focus
on if I'm going to pay twenty dollars for a meal,
it needs to be a great experience. I need to
know what I'm getting and it's got to satisfy me.
And conversely, if I'm going to pay five dollars for
a meal, that's great, it's a great value, it works
(19:33):
in my budget.
Speaker 2 (19:34):
It's qsr Fazolies is a perfect.
Speaker 3 (19:36):
Example of that, where we have a number of items
that are five dollars or less and you can it'll
fill you up and you'll get through it and you
know you're not emptying your wallet out just to grab
a quick bite. So I think you have to be
prepared to address what the consumer wants. You know, when
we sell a beer for five dollars at Twin Peaks,
you know that goes along ways. You know, somebody on
a budget wants to have frequency and come in often,
(19:57):
which we have a very very high ninety six seventy
seven percent black box intelligence intend to return from the
guest survey. That's saying, hey, I had a great experience,
it was a great value. I want to come back
and if they can come back, and the peers are
five dollars, they're going to come back a lot, right,
And it's we probably do cold beer better than anyone anywhere,
twenty nine degree cold beer, and so it's really you know,
(20:18):
it's an experience. It's well priced, and you can watch
any kind of sports game that's on. We have it,
and I think that is our competitive advantage in that
end of the spectrum where you can add value and
still be in a polished environment.
Speaker 1 (20:31):
Yeah, everyday, value is so important in this environment, no
matter what the segment you're operating in. Improving operations has
been a hot topic for the companies I cover. Is
this a point of focus for any of that brands
chains in twenty five or twenty six.
Speaker 2 (20:44):
It absolutely is.
Speaker 3 (20:45):
I mean, certainly at our company on store units, looking
at the restaurant level margin, looking at efficiency is critical.
Making sure that our pricing is in line with our
peers and that we're competitive, but we're not leaving margin
on the floor. I think that's something that you know,
will continue to focus on, particularly on the alcohol side
of things, where you know you've got to just be
(21:06):
careful because there's margin you you can leave on the
table if you're not careful.
Speaker 1 (21:11):
Cool And how did fat brands come to be.
Speaker 3 (21:14):
Well, we started with our first acquisition over twenty years
ago with the Faberger brand when it had forty restaurants
in California and Nevada, half franchised, half company on stores.
And we grew that brand, sailed through the recession in
two thousand and seven eight nine, which was which was
very difficult, and then bought the Buffalo's Cafe brand in
twenty eleven and kept going and growing and co branding.
(21:37):
Did a lot of international franchise sales during those years,
big sales in the Middle East and Asia, things like that.
And then we bought Ponderosa, Bonanza in the steakhouse chains
All you can Eat Baffetes in twenty seventeen as part
of our IPO on the Nasdaq, and at that point,
you know, we've been acquiring brands ever since. Now we
(21:58):
have a total of eighteen brands actually, and we've continued
to add them to.
Speaker 2 (22:03):
The portfolio when it makes sense.
Speaker 3 (22:05):
We were on an acquisition spree in twenty twenty and
twenty twenty one during COVID when there was a lot
of stuff for sale and not a lot of buyers,
so we opportunistically were at the table making transactions work
out for us where we could, and the efficiencies of
integrating the back office like one accounting department, one legal department,
(22:25):
marketing by brand, but not different departments things like that,
where there were significant operational efficiencies. And Twin Peaks and
Smoky Bones is a little different because it's such a
heavy alcohol business forty eight percent alcohol on the Twin
Peaks side, that we've left that business independent and tried
to there's some shared services in some back office things
that we can do, but it's really on its own
(22:47):
today and it's positioned to be a separate public company,
raised its own capital and grow and we think it's
just a lightning.
Speaker 2 (22:54):
Rod for growth in the Polish casual a dying space.
Speaker 1 (22:57):
Yeah, it's an interesting story, man, I look forward to
continuing to follow it. Thanks for doing this, Andy.
Speaker 2 (23:04):
Great, thanks for having me. Great to talk to.
Speaker 1 (23:05):
You, sure thing, and I want to thank the audience
for tuning in. If you'd like to learn more about
fat Brands and you don't have a Bloomberg terminal, visit
fat brands dot com. If you liked our discussion, please
share it with your friends and colleagues. Check back soon.
My colleague Daniellis, Sir Torri, will be interviewing me about
our second half outlook for the restaurant and food service
industries
Welcome to Chopping It Up. I'm your host, Mike Allen,
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.
If you enjoy the pod, I'd really love it if
you could leave us a review on Apple or Spotify.
Today we're joined by Andy Wiederhorn, the founder and chairman
of Fat Brands. Fat Brands is ninety two percent franchised.
(00:37):
It's a multi brand restaurant company with about twenty three
hundred units across sixteen chains and trades on the NASDAQ
with the ticker fat Fat. Welcome to the pod, Andy.
Speaker 2 (00:48):
Thanks for having me.
Speaker 1 (00:49):
I'd like to start with Twin Peaks. Many of your
listeners probably know that the chain was spun out in
an IPO earlier this year. What percentage of the company
to Fat Brands retained and what were the proceeds used
for it.
Speaker 3 (01:02):
Yeah, so we spun it out just at the beginning
of the year, divid ending five percent of the company
to the Fat shareholders and retaining a ninety five percent interest.
But after management gets some options and bondholders got some options.
Speaker 2 (01:16):
It's probably in the low nineties at this time.
Speaker 3 (01:20):
We planned to do an equity offering at some point
before the end of the year when the equity markets
opened up a little bit for restaurants, and then we'll
have new proceeds raised to build more restaurants, pay down debt.
Those are our primary focuses today.
Speaker 1 (01:35):
I read that you found your next leader of that brand, so.
Speaker 3 (01:38):
We hired a dynamic new CEO named Kim Boima, who
has a lot of experience thirty or forty years of
experience at Texas Roadhouse, California Pizza Kitchen, and a number
of other brands, a lot of bar experience from Texas Roadhouse,
so he's a rock star. We're delighted to have him
on board. He started maybe four weeks ago and is
(02:00):
really settled into the position already and is focused on
franchise profitability, corporate store restaurant level margin, and unit development.
We have a very big pipeline of another one hundred
stores for Twin to build out over the next few years,
and we're really focused on getting those stores open.
Speaker 1 (02:17):
Great and Smoky Bones was included in the IPO. I
think you expect to confert about half of the Smoky
Bones restaurants to Twin Peaks. How much will the conversions
cost compared to a new build, and what kind of
auv uplift are you seeing.
Speaker 3 (02:31):
It's a really interesting story, this conversion of half the
Smoky Bones. There are about sixty one Smoky Bones at
the time of our acquisition eighteen months ago. About half
of them are convertible into Twin Peaks. The other half isn't,
either because it's a trade area that's no longer attractive
to Twin Peaks, or it just doesn't qualify in the
lease with a landlord because of the percentage of alcohol
(02:54):
or some other restriction. We may have a Twin Peaks
already nearby. So of those thirty ish stores that are
going to convert, at least ten will be corporate, tann
will be franchised, and the other ten are in between
a corporate or franchise market. So we'll figure that out
along the way. We're seeing almost a doubling in sales
when we convert, like we converted the first store in Lakeland, Florida,
(03:18):
back in the fall of twenty twenty four, I was
doing three point six million as a Smoky Bones and
it opened up doing eight million plus as a Twin
Peaks will probably settle in right around seven or eight million.
Then we opened brand in Florida as well, just in
the spring here in February or the end of the winter,
and we're seeing a doubling again. So we really think
(03:40):
that Darden did a great job years ago picking the
real estate for these locations when they were the original
owner of Smoky Bones, and we're taking advantage of that now.
We'll still end up with somewhere between twenty and twenty two,
I think Smoky Bones that are freestanding, like we talked about,
and we'll continue to operate those for the foreseeable future
(04:00):
and probably grow that brand a little bit. It's about
eight or nine that will close just because it's end
of lease and it doesn't make sense to convert.
Speaker 1 (04:06):
Them, okay, and so in the near term the store
conversions and closures are kind of weighing on your revenue
and margins. When do you expect that headwind to become
a tailwind?
Speaker 3 (04:18):
Good question. That should end this year. We should finish
the full integration of Smoky Bones into the Twin Peaks team.
We'll save the business three or four million dollars of
operate expense. We also will get two or three more
conversions done in the next nine months or so, so
either beginning of next year or end of this year,
(04:40):
and that will ramp up the revenue because they're doing
twice as much volume as a Twin Peaks as the
Smokey Bones, and when they're temporarily closed for conversion, you're
not getting revenue from either brand, so that gives you
a little bit of a lag. Franchisees are also starting
to develop their stores and that's going to accelerate here
in the coming quarter or two. So very positive about it,
(05:01):
very happy about it. You can't happen fast enough. From
a cost perspective, it's three or four million dollars to
get one of these conversion into a Twin Peaks from
the Smoky Bones. But if you build a Twin Peaks
from the ground up, you're going to spend two million
on the land and another five or five and a
half million.
Speaker 2 (05:19):
To build the building.
Speaker 3 (05:21):
They may do a sale lease back and pull out
some of that, but it's a significant investment. So here
you're spending three or four million versus seven you know,
seven or eight million, you know, give or take the
real estate. So it's just another approach to make it interesting.
And of course, well we do these conversions, we're getting
a new lease with a lot of options and things
like that, so it's a it's a pretty solid way
to go.
Speaker 1 (05:40):
Yeah, I mean, it's a huge difference in auv it's
a huge difference on investment costs. That's fantastic. How long
do the conversions take?
Speaker 3 (05:50):
They take about nine months now ground up build of
if you buy the land build a building, it's like
two and a half years by the time you do
in title months and get the restaurant built, so it
significantly faster. It accelerates our new unit development. It's a
good opportunity for you know, the franchise e to to
move quicker on some of their development opportunities. They can
get some financing for it, like equipment and things like that.
So we think it'll you know, it'll really continue to
(06:14):
lean into accelerating growth.
Speaker 1 (06:16):
Okay, And what's the alcohol mix and how our customers
receiving the new bar menu?
Speaker 3 (06:21):
So we do about forty eight percent alcohol, which is
really you know, really you know, cutting edge. It's a lot,
it's a and it's a Barbelle system where you can
have five dollars beers or thirty five dollars fancy tequila
or whiskey, you know, whiskey shots or or on a
big ice cube. So you know, there's a there's a
big range there in the bar business, and there's there's
(06:44):
we're trying to refine that a little bit and just
make sure we're taking advantage of the margin with forty
eight percent alcohol. On the menu side of things, there's
also a little bit of streamlining going on. We've got
a very good scratch kitchen menu and you can come
into the restaurant and you can eat a steak or fish,
or you can have bar food and you know, you
pick whether you want an entree or all kinds of appetizers.
(07:04):
And that's really made it a well rounded menu offering
twenty five percent of the customers are female, and so
you've got to have a well rounded menu to make
sure you've got enough for everybody.
Speaker 2 (07:15):
Salad things like that.
Speaker 1 (07:17):
Of the other fifteen brands in the portfolio, which ones
have the best growth profiles.
Speaker 3 (07:21):
Well, about seven of them are high growth. So that's Faberger,
Johnny Rockets Round Table Pizza, Fizzoli's Twin Peaks we just
spoke of, and then our cookies and ice cream brand,
Marble Slab Creamery and Great American Cookie. Those were all
with a thousand store pipeline across all of that brands.
So in addition to the twenty three hundred restaurants open
(07:42):
or under construction, there's another one thousand that have been
paid for and signed up by the franchisees to build,
and they'll build somewhere one hundred to one hundred and
twenty a year going forward, and hopefully we can accelerate
that even more.
Speaker 2 (07:55):
So.
Speaker 3 (07:56):
It's a very solid source of organic growth where we're
not going out buying more brands for growth, but we're
actually organically growing that at basically the zero cost.
Speaker 1 (08:06):
And you're exploring the refranchising of fifty seven Fasolis units,
what kind of multiple do you expect to get on them,
how much do you expect to raise and how much
SG and A savings will you realize?
Speaker 2 (08:17):
Great question.
Speaker 3 (08:18):
Yeah, So when we convert the remaining company owned Fazoli
stores to franchises will be one hundred percent franchised in
that system. We expect it to be a single buyer,
but you never know, you know, it could raise somewhere
anywhere from fifteen to twenty five million dollars depending on
you know, the transaction we end up negotiating, including the
(08:39):
royalty percentage and things like that, but that'll all go
to pay down debt. In the faciliti securitization, it'll say
at least three million dollars of SG and A to FAT,
So it makes us money that the amount of royalty
will at least be equal to or exceed the earnings
on those company owned stores. So it works, you know,
(08:59):
plus we save the overhead. The multiple is somewhere in
the four to six times rage.
Speaker 1 (09:04):
Okay, and I saw that you were looking into some
duel or multiple branded store types. Can you talk a
little bit about that and how those are doing.
Speaker 3 (09:14):
Yeah, we've been co branding for years, over a dozen years.
We have Faburger and Buffaloes Express, which is a sort
of a wing stop version of a chicken restaurant. So
we have a number of those co branded, about one
hundred of them where it's a Fatburger Buffaloes Express. And
then we have some Johnny Rockets where they have hurricane
wings in their restaurants. As well, and then we've done
(09:36):
a try brand with Hotdog on a stick. We've done
a try brand with round table pizza, Fatburger and one
of the other brand's chicken or wings like Hurricane or Buffaloes,
and they've all been very interesting because you're just giving
a broader menu appeal to your customers when they can
come in and do that. And we have finally well
(09:56):
over one hundred of the Marble Slab ice Cream Great
American Cookies units that are co branded, so you know,
of course cookies and ice cream go together well, and
if you're going to open one, you might as well
open both and take advantage of that.
Speaker 1 (10:08):
Yeah, you took the words right out of my mouth.
That seems like a natural pairing for the brands that
you're co branding. Are you careful about the menu size,
because you know, we were reading about the dining brand's
attempts to merge Applebee's and ihop, and there's some talk
about the two menus kind of being too too big
(10:29):
and too too much for employees to learn up front.
Speaker 3 (10:33):
It's pretty easy for us on the co branding side
because they're different brands, and so if you're doing the
burger brands and you add wings, it's it's you know,
it's wings and tenders things like that with.
Speaker 2 (10:45):
A bunch of sauces. It's nothing complicated.
Speaker 3 (10:48):
What's more complicated is if you're doing a fat burger
a round table pizza, because the each have their own
menus and then you you know, you add something else,
whether it's dessert or you know, pretzel maker or something
to it, which is pretty simple. So you really those
big Try brands are really sort of two separate restaurants
with one kitchen, but they're they're fully different menus. And
then you know, clickies and ice cream is easy. That
(11:09):
that is what it is. So it's not too difficult.
Nothing crazy like two casual dining, you know, restaurant menus
in one that that would.
Speaker 1 (11:17):
Be tough for sure. Let's talk about your franchise ease.
How is access to capital and availability of quality real
estate right now?
Speaker 3 (11:25):
Well, it's been you know, it's been a challenge for
the last couple of years as you saw inflation raise
the cost of building new restaurants significantly, and you know,
financing became more expensive, so franchises were dragging their feet
a little bit to build stores and where we optimistically
had hopes of opening between one hundred and twenty one
hundred and fifty units a year. The last couple of
(11:47):
years we've been around one hundred. Still great new store openings,
but that's all that is. Franchise is walking slower. Making sure.
You know, this most recent tariff interruption sort of a
non event, but definitely had franchises worried about our equipment
price is going to go up yet again because there's
all kinds of important equipment fryers, grills, things like that.
(12:08):
Not so much the construction cost, but more like the
important equipment. So we seem to have a calm sense
of let's move forward again at full speed coming from
the franchise system. So we're hearing them all step up
with their development plans, come in for plan approval, things
like that at a much faster pace. So I'm optimistic
(12:28):
that will not only get there's one hundred stores open
this year, but it'll lean into a higher number in
the in the hopper for next year.
Speaker 1 (12:36):
It's good to hear the company reduced SG and A
spending by five million a year. Where were those cuts made?
Speaker 3 (12:43):
You know, there's some at the senior level where you know,
we haven't been as inquisitive, so we don't need quite
as much finance team experience there. And then there's just
some operating efficiencies on legal department things like that, where
we've you know, we've sort of been able to automate
some things and it's helped us reduce cost work.
Speaker 2 (13:00):
Anyone to look at that.
Speaker 3 (13:00):
I think that over time and the and the merger
of Smoky Bones into Twin Peaks, and then fis always
converting to refranchise stores, you know, that'll that'll be upwards
of a.
Speaker 2 (13:09):
Ten million dollars savings on a consolidated basis.
Speaker 1 (13:12):
Interesting. Yeah, I think chat GPT may be helping everybody
save money on legal expenses too.
Speaker 3 (13:17):
Man.
Speaker 1 (13:17):
You can you can ask it to create an fd
D for you know, a restaurant concept, and it comes
out with some pretty interesting stuff.
Speaker 2 (13:26):
Man, love that. Got to try that for sure.
Speaker 3 (13:30):
Liking at all.
Speaker 1 (13:33):
For sure. Speaking of lawyers, litigation expense jumped in the quarter.
How much longer will that continue to be? Ahead wind
to the P and L.
Speaker 3 (13:41):
We think that the majority of the litigation expense goes
away this year.
Speaker 2 (13:49):
One way or the other.
Speaker 3 (13:50):
These cases will come to an end through settlement or
other means, trials, whatever, but it'll all be over this year.
Speaker 1 (13:57):
Goodness utilization at the key production facility is kind of
low right now, and that forty to forty five percent range.
How long will it take to get to your near
term goal of sixty to seventy percent and how do
you plan to get there?
Speaker 3 (14:13):
Yeah, we have two programs that are in the works
right now and rolling out right now. One is a
test program of seven eleven where they're taking our cookies
and selling them in the stores and there's an option
to freshly bake them in the stores, and that has
legs to it that will give us a lot of
(14:34):
production and I think it'll go very well and the
customers will really will like those freshly baked cookies in
the stores with an oven that they put in and
they use our fresh dough and bacon in the oven
on the spot. It's called easy Bake and it's really
a great program. And then we also have a number
of other chains. Chuck E Cheese is one that we're
rolling out now where they're taking the Great American cookies
(14:55):
and selling them in the restaurants. And again that's a
branded product, and you know, branded products just sell better
in restaurants than unbranded products. So rather than every chain
having their own cookie named you know whatever, it is,
using a great American cookie, which is a recognized name
that's been around for years, gives people lift and traction
and helps move the product. And so you know, that's
(15:17):
been our that's been our focus, and that will soak
up quite a bit of excess capacity as it gets
rolled out.
Speaker 1 (15:26):
That's really interesting. What kind of lift the chains typically say.
Speaker 3 (15:31):
Well, I mean it depends on your dessert mix to
start with, but you know you can if you can
get five percent of sales.
Speaker 2 (15:36):
You're happy.
Speaker 3 (15:37):
You're very happy right with you know that kind of target.
So that's anywhere from two to five is what they're
looking for. But it's also a good margin product, so
I think it has a sort of a win win
for everyone.
Speaker 1 (15:47):
And do you expect to see more vertical integration in
the restaurant industry? You know some of the you know,
there's been articles out about lemon squeezing robots, Chick fil
A and you know, salad and has been implementing you know,
commissaries for a while. Do you do you see more
vertical integration in this inflationary environment?
Speaker 2 (16:09):
Well, you're always going to try to be efficient. You're
always going to look at things that make you efficient.
Speaker 3 (16:13):
But this is still a hospitality space, and guests want
to interact with someone and want to see their food
being made, and you know, you start to worry when
you don't see anything and it's all behind a wall
and it gets passed out to you. And you know,
in the age of you know, making things healthier here,
I think everyone wants transparency and so I mean there's
always a little bit of it, and you know, some
of that can help and save the margin and all
(16:34):
of that. But we're still in the hospitality business. We're
still going to make burger shakes and fries and in
front of people and pass them across the counter.
Speaker 2 (16:42):
Or deliver them to their table, and you know, that's
part of the experience.
Speaker 1 (16:47):
What are you seeing from the US consumer across your
brands because you're operating in you know, pretty much every
segment of the market, you know, fast casual, criick service,
casual dining, polished casual. So what are you seeing. Are
you seeing any movement in terms of you know, spending
by low income consumers, middle income consumers. What are you
seeing from your brands.
Speaker 3 (17:08):
We're very happy that we're not in fine dining these
days because find dining, you know, it's really tricky in
terms of consumer confidence and how much they're going to spend.
And then you have inflation creep where you know, to
go out to dinner and find dining restaurant the price
is almost doubled over the last five years, and you
that sticker shock beyond belief right in At the lower
(17:28):
tiered brands QSR, fast casual, et cetera. You've seen people
trade down. They've traded to the left, So a fast
casual might have gone to a QSR and so on.
Casual dining may have traded a fast casual. We're seeing
a resurgence in casual dining today. It's definitely positive. Wings brands,
you know, polished casual as well coming back nicely. QSR,
(17:51):
you know, has an issue if you can't really trade
down for it. So there's all kinds of value propositions
out there, and I think that at a high level
in all of the categories, what operators need to be
focused on is the guest experience. What I'm going to
call the value proposition, and I don't mean the value
meal where you get a burger for a dollar or
three dollars or whatever. I mean, if you're going to
(18:12):
charge somebody six dollars for a cup of coffee, it
better be a great experience, right, Or you're going to
charge them twenty dollars for a burger, shakes and fries,
it better be a great experience and a great product
and be seamless. And I think that's the value proposition
today is people understand that there's inflation, there's been a
price increase, but it's got to be seamless. You can't
(18:34):
have a bad experience in charge a high price.
Speaker 1 (18:36):
So on the last episode, we had been talking a
little bit about the resurgence of casual dining and some
of the things that came up where you like, QSR
was able to raise prices for about a year and
a half while while casual dining chains were largely closed
and the supply, demand and balance has kind of shifted
to because there's been a lot of closures in full service,
(18:57):
but quick service has gone on. And it's interesting too
that there's a shift towards what you get for what
you pay, and I guess part of that is people
are still employed, right it's.
Speaker 3 (19:11):
Definitely the consumer demanding that they get what they pay for.
Like I've never seen before, there's very much a focus
on if I'm going to pay twenty dollars for a meal,
it needs to be a great experience. I need to
know what I'm getting and it's got to satisfy me.
And conversely, if I'm going to pay five dollars for
a meal, that's great, it's a great value, it works
(19:33):
in my budget.
Speaker 2 (19:34):
It's qsr Fazolies is a perfect.
Speaker 3 (19:36):
Example of that, where we have a number of items
that are five dollars or less and you can it'll
fill you up and you'll get through it and you
know you're not emptying your wallet out just to grab
a quick bite. So I think you have to be
prepared to address what the consumer wants. You know, when
we sell a beer for five dollars at Twin Peaks,
you know that goes along ways. You know, somebody on
a budget wants to have frequency and come in often,
(19:57):
which we have a very very high ninety six seventy
seven percent black box intelligence intend to return from the
guest survey. That's saying, hey, I had a great experience,
it was a great value. I want to come back
and if they can come back, and the peers are
five dollars, they're going to come back a lot, right,
And it's we probably do cold beer better than anyone anywhere,
twenty nine degree cold beer, and so it's really you know,
(20:18):
it's an experience. It's well priced, and you can watch
any kind of sports game that's on. We have it,
and I think that is our competitive advantage in that
end of the spectrum where you can add value and
still be in a polished environment.
Speaker 1 (20:31):
Yeah, everyday, value is so important in this environment, no
matter what the segment you're operating in. Improving operations has
been a hot topic for the companies I cover. Is
this a point of focus for any of that brands
chains in twenty five or twenty six.
Speaker 2 (20:44):
It absolutely is.
Speaker 3 (20:45):
I mean, certainly at our company on store units, looking
at the restaurant level margin, looking at efficiency is critical.
Making sure that our pricing is in line with our
peers and that we're competitive, but we're not leaving margin
on the floor. I think that's something that you know,
will continue to focus on, particularly on the alcohol side
of things, where you know you've got to just be
(21:06):
careful because there's margin you you can leave on the
table if you're not careful.
Speaker 1 (21:11):
Cool And how did fat brands come to be.
Speaker 3 (21:14):
Well, we started with our first acquisition over twenty years
ago with the Faberger brand when it had forty restaurants
in California and Nevada, half franchised, half company on stores.
And we grew that brand, sailed through the recession in
two thousand and seven eight nine, which was which was
very difficult, and then bought the Buffalo's Cafe brand in
twenty eleven and kept going and growing and co branding.
(21:37):
Did a lot of international franchise sales during those years,
big sales in the Middle East and Asia, things like that.
And then we bought Ponderosa, Bonanza in the steakhouse chains
All you can Eat Baffetes in twenty seventeen as part
of our IPO on the Nasdaq, and at that point,
you know, we've been acquiring brands ever since. Now we
(21:58):
have a total of eighteen brands actually, and we've continued
to add them to.
Speaker 2 (22:03):
The portfolio when it makes sense.
Speaker 3 (22:05):
We were on an acquisition spree in twenty twenty and
twenty twenty one during COVID when there was a lot
of stuff for sale and not a lot of buyers,
so we opportunistically were at the table making transactions work
out for us where we could, and the efficiencies of
integrating the back office like one accounting department, one legal department,
(22:25):
marketing by brand, but not different departments things like that,
where there were significant operational efficiencies. And Twin Peaks and
Smoky Bones is a little different because it's such a
heavy alcohol business forty eight percent alcohol on the Twin
Peaks side, that we've left that business independent and tried
to there's some shared services in some back office things
that we can do, but it's really on its own
(22:47):
today and it's positioned to be a separate public company,
raised its own capital and grow and we think it's
just a lightning.
Speaker 2 (22:54):
Rod for growth in the Polish casual a dying space.
Speaker 1 (22:57):
Yeah, it's an interesting story, man, I look forward to
continuing to follow it. Thanks for doing this, Andy.
Speaker 2 (23:04):
Great, thanks for having me. Great to talk to.
Speaker 1 (23:05):
You, sure thing, and I want to thank the audience
for tuning in. If you'd like to learn more about
fat Brands and you don't have a Bloomberg terminal, visit
fat brands dot com. If you liked our discussion, please
share it with your friends and colleagues. Check back soon.
My colleague Daniellis, Sir Torri, will be interviewing me about
our second half outlook for the restaurant and food service
industries
Host
Michael Halen
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