February 1, 2024 • 35 mins
Fogo de Chao doesn’t build a site pipeline until it has three years of visibility into the development of general managers, CEO Barry McGowan tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, McGowan sits down with Michael Halen, BI’s senior restaurant and food service analyst, to explain how the company’s investments in its employees are fueling strong sales and traffic growth. McGowan also comments on Fogo de Chao’s acquisition by Bain Capital and explains how a unique service model drives best-in-class restaurant-level margin.
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Episode Transcript
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Speaker 1 (00:22):
Welcome to Chopping It Up. I'm your host, Mike Hallen,
the senior restaurant and food Service analyst at Bloomberg Intelligence.
Today we're joined by Barry McGowan, CEO of Happy Belated Birthday.
Speaker 2 (00:34):
Barry, Well, gosh, thank you appreciate. Mike, so glad to
be part of Chopping Up. A big fan of your
your work, so thanks for the kind of invite.
Speaker 1 (00:42):
Yeah, I'm excited to have you. How did I do
with the pronunciation?
Speaker 2 (00:46):
You did really well. Your Portuguese a little bit more,
but you're getting there. I would say you'd convinced anybody
from Brazil. You're from Brazil, so that's right.
Speaker 1 (00:57):
So working for Fogo, has it made you more of
a fan of soccer and mixed martial arts?
Speaker 2 (01:05):
Oh with hey, Yes, and I'd say I've always been so.
I grew up in Europe, born in Germany. I'm a
naturalized US citizen from Ireland, so I would say I'm
an Irish gal show. But I've always loved football, real football.
And yes, I would say mixed martial arts even more
than ever before. Obviously, we have a lot of regulars
(01:25):
who mixed martial arts based off that they always come
in Cole.
Speaker 3 (01:28):
Yes the answers, Yes, very cool.
Speaker 1 (01:31):
And you know LinkedIn told me it was your birthday.
It also told me that you worked for Norman Brinker,
which I did not know how I was working for Norman.
Speaker 3 (01:39):
Oh, I'd say he was.
Speaker 2 (01:41):
Prior to Norman. I worked for McDonald's, an owner operator
that just inspired me. I was really young, fifteen years old,
currenting sixteen and thought one day I'd owned my own McDonald's.
And then got into the industry red press and read
about this gentleman named Norman Brinker. So he opened a
Chili's in Dent in America. We call it Dent in America, Denton, Texas.
(02:03):
But and I just basically wanted to work for Chili's
at the time because I knew of him. And I
tell you what a transformational leader, aspiring guy. Still, I
would say a lot of the culture attributes thing that
I believe they were really important. We learned from Norman
and his culture, Doug Brooks and the whole Brinker today.
So yeah, love my time with Breaker and National And
(02:23):
I have to say I met the man, got to
sit in a room and listen to speak, and still
very much part of I would say the culture that
I believe in in terms of our industry, the things
that matter most.
Speaker 1 (02:33):
So yeah, he was an iconic leader. That's very cold.
Speaker 3 (02:37):
Sure was, Sure was.
Speaker 1 (02:39):
So Fogo it's had an oppressive track record of generating
positive traffic.
Speaker 3 (02:43):
In the last decade.
Speaker 1 (02:44):
So if you could talk a little bit about what's
what's fueling the gains and you know, then the uniqueness.
Speaker 3 (02:50):
Of photo the you bet.
Speaker 2 (02:53):
So you know, we just finished the ninth year Mike
of traffic, which is as you know, it is a
very big thing in our industry. So taking share is critical,
but how you do it matters as well. So again,
this brand's forty five years old. We've been in US
for twenty six, but we set out eleven years ago.
Joining was just looking at the consumer that used us
(03:13):
and then really asking our Fogo fanatics how they fog
and just unlocking that to say, well, how do we
make Fogo and understanding how to die in this unique
differentiated concept for more people to drive occasions, trial and
of course frequency. So I just say this, it was
built just on really deliberate small things, but most important
(03:35):
thing was just hospitality upfront, never sacrificing labor, focusing on
Our biggest investment every day is labor, not an expense.
So changing the mindset to hospitality begins with being staffed,
well trained, and keeping the guest focus in mind all
the time. So I just say we've just leaned into
(03:55):
the fundamentals of that and then really created occasions people
who've heard about us to try us giving entry points, price, optionality,
day parts, and you know, little things like happy hour.
Instead of doing it three to six, we just say
it's happy hour all day long at Fogo. Let's give
our guest value all the time. And by the way,
(04:16):
we always believe in it. I still believe today. Value
is always critical. And even the last four years, when
you looked at some of the analyst supports that you
shared and others have talked about pricing, you know, last
four years is pretty steep on up to twenty two,
we averaged about ten percent price from nineteen to twenty two.
We're about maintaining that going through twenty three, so about
(04:40):
two and a half percent price per year, even through
the toughest time. And if you look at the industry
at over thirty percent during that time, goes back to
the guest is always going to appreciate value. Now, doing
that and maintaining margin while driving positive traffic is what
we've been able to achieve, and that's uniqueness to our
operating model. Important thing to us. The first metric we
(05:02):
focus on is traffic, then we think about mix with
our innovation, and then we look at price. Last.
Speaker 3 (05:08):
We never focus on price the very last thing we'll do.
So that's kind of how we got here. Put it
that way.
Speaker 2 (05:14):
And I'll just say this too. And you know this
micro you've been around you. You know we're small. Now
we're building restaurants. Ten years ago, eleven years ago, we
had one market with multi units and that was not
Paula Brazil. Now in the US we have twelve markets
we have multi units. So awareness is growing, trial is growing,
and frequency is growing all at the same time. So
(05:36):
that tailwind goes back to brand building. And I would
say this for operations team and every GM it's executing,
the moment of truth is every time the guest drives
up to your parking lot. So that's where we were
really focusing on again to continue to make sure the
guest wins.
Speaker 3 (05:51):
All the time.
Speaker 1 (05:53):
Yeah, so you're in an enviable position for sure, and
you touched on a few topics that I'd like to
hit on today for sure. I guess one of them was,
you know, let's just start about talking about twenty twenty three.
You know, it wasn't a great year for a lot
of your competitors.
Speaker 3 (06:07):
Traffic fell, there was.
Speaker 1 (06:08):
A mixshift to a less expensive items. Did you see
some of that in your business?
Speaker 2 (06:13):
Well, we, you know, we we saw mixshift, and I
go back some of his normalization, you know, going through
the curve of you know, access to working at home,
to people coming back to work. Also just normalized school travel,
all those things. So some of that I think we
were expecting. Now we were lapping big numbers I would say,
bigger than peers, but we still cut through it and
(06:33):
basically ended the year positive and traffic and revenue, and
even with the inflationary pressure more inflation last year, we
did a lot more work internally with new product mixshift.
We didn't contract down, we stayed nimble with thirty day rolling,
and we're able to really pick up overhang and do
select different cuts. Same thing with our market table. Basically,
(06:54):
our margin in twenty three was the same as it
was in twenty nineteen, with only two and a half
percent price carry, which was I think a testament to
the team, the uniqueness to operating model that we're able
to do both. So I would say everybody faced the same.
I would say adjusting, And I tell everybody, you know
(07:16):
why traffic is important when you have capacity gains during COVID,
the pasty gains when people were coming in shoulder periods
because they weren't working or staying at home, their schedules changed.
Now as you see that shift, you demand for peak
areas are the same.
Speaker 3 (07:30):
So good news as we have capacity internal and we
have the place to keep building on that. But it
was a challenge.
Speaker 2 (07:37):
To be honest, it was adjustment, and I would say
the last four years have been adjustment, as you know
you're reporting to it. But I go back to now
we're back in the whole basis of the consumer is
at the forefront, and you hear everybody talking about I
can't take as much price. A lot of people are
going to have to roll off a pretty big price.
So we're very grateful that we thought long you know,
(07:58):
we weren't thinking about the short term and even during
the pandemic, and you and I have talked about this,
You know, we always told everybody, look, the pandemic is
going to end. Let's don't make decisions based off the
crisis in front of us. Always make sure you know
you're thinking beyond the issue. And that paid off. The
same thing with pricing. We believed ultimately inflation between two
and three percent long term, and we just got to
(08:20):
stay in that range or we would give it up
somewhere else. And we don't want to ever give up
is traffic. We never want our value proposition to be
out of play. And I do believe why we finished
thirteen or two twenty three strong is our value proposition.
During those four years, it actually strengthen, It got better
with our peers. Our ppa spread between peers went from
amount of twenty percent spread to close to thirty. So
(08:43):
we kept holding on that knowing that and by the way,
we're challenged can you take more price? And we just say,
you know, let's hold let's be smart with it. And
it also challenged us to work harder on our leaning
harder into our model about how much more value can
we give the guests but maintain margin. That's what I
call real innovation and real creativity. On the culinary side,
(09:04):
I'm really proud of our team for all the work
they did to achieve that.
Speaker 1 (09:06):
So all right, good stuff. Yeah, the service model when
you look at the s one that you filed in
the past, right that the labor you know, labor cost
is really stick out in terms of you know, outperforming
your peers. So if you can talk a little bit
about the service model and what it does for your
p and L. Sure.
Speaker 2 (09:27):
So it's all based and rooted in a century's old
culinary art form cultural hospital. So it starts in the
product input of high quality product, the butchering of it,
and the resting and preparing simply seasoning and slow roasting.
And the unique thing is that is a very i
would say, very strong skill that it takes. It's a
(09:49):
lot of skills in one. So you're taking a chef
that has those attributes basically a butcher and then a
grill master, and then you're asking me to do one
other thing. Then they go out and serve of that
cut to the guest. So I tell everybody we have
a fast casual operating model. We just customize to a
plate versus a bowl or a burrito or whatever the.
Speaker 1 (10:10):
Thing you do.
Speaker 2 (10:12):
We have more skews. So that simple model of three
rolls in one really does two things. During a busy night,
I like to say, if you're next to a peer,
the kitchen's you know, fifteen people in the kitchen, there's kds,
there's people calling tickets, there's assembly where it's a lot.
It's a beautiful thing. By the way, ours all of
our chefs, our fifteen chefs, are basically in a dining
(10:34):
room serving a guest, along with our servers, our primary service,
our back servers. So our restaurant's full of people just
looking after people. So that distinctive difference operationally just takes
one big lever of complexity out and drives real productivity
with basically a lot less people. And as you know,
(10:55):
our turn times are also about an hour, so the
immediacy pays off for the guests, gives them full control,
and it keeps it simple. And it's protein base which
is even more dynamic. So we take big risks when
we do it. So I always tell everybody this model
sounds simple, but a lot of people lose a lot
of money in this business.
Speaker 3 (11:14):
We've just done it for.
Speaker 2 (11:15):
Forty five years, and we know the culinary art form
and we really invest heavily in training, skills and development
and finding the right people for the role, because ultimately
it's the guest we're trying to please. But the operating model,
like you said, the structural advantage is that we just
are much more productive. And probably the most powerful part
is the guest gets all the benefit. And that's why
(11:37):
it's so targeted and powerful. And yes, it shows up
in the versus the very best in class fast casual.
You know, our restaurant level margins are about seven hundred
basis points the very best in class full service. And
I'm talking when I say best in the class. You
know you got Darden, You've got a Texas Roadhouse. We're
(11:59):
close to the basis points more productive. So it's it's
pretty powerful, not just I would say, in the labor
but it also goes down into what I just explained
also in the cost of sales for protein centric brand
to run, you know, twenty eight to sub twenty eight
percent cost of sales is pretty pretty strong. Our prime
cost to a prime costs about between fifty and fifty
(12:19):
two percent. It's pretty awesome model.
Speaker 1 (12:21):
Yeah, for sure. And I'd imagine the cooks make more
if they're you know, also participating in the tips in
the tip pool, and then you know, i'd imagine that
also contributes to the very low turnover that you see.
Speaker 2 (12:37):
Yeah, Mike, you hit the head. So it's a skilled role,
but we can train it. It's a lot of training.
So it also broadens our audience because it's an aspirational role.
And yes, we've actually great minimum wage we pay for
chefs go you. As you know, wage isn't only just
tip credit. So these guys make more than tip credit
most of the time and they get tips, and we
(12:59):
have some states with no hip credit. So we'd like
to say, look, labor is an investment. We just put
the dollars where it matters, and they make great money
and they learn great skills. And by the way, it's
very rewarding. And I go back to when you find
the right person the right skills and they mature in
that and they're serving a guest, it's really proud. If
you're a chef, you love what you make and you
(13:19):
serve it and you get this satisfaction from the guest
right there, and not they'll fix it right away, so
they need to see again. So that's where it plays
to the culture and to your point, the retention. It's
very enjoyable for them and it's fun to watch and
great to see them in their art form.
Speaker 3 (13:34):
It's it's exciting.
Speaker 1 (13:36):
Yeah, I'd imagine that's rewarding being able to see your
guests actually enjoy the food that you're cooking, right, Yeah.
Speaker 2 (13:43):
Instead of sitting back in the line wondering I made
the plate, how are they liking the food? You know,
when I used to cook, I used to ask, Hey,
how's the guest or do they like me? So now
you get the chef walk would go around and you
see the table. I would come out and talk to
the tables. But now today to know that our chefs
are always in the dining room, that's where they should be,
are they anyhow, it's fun.
Speaker 1 (14:01):
It's a lot of fun. Yeah, it's awesome. I'm a
fan of it for sure. It's still early days. But
how's the partnership with bane Capito going so far?
Speaker 3 (14:10):
Sure?
Speaker 2 (14:11):
I tell you we're thrilled their engagement. One the cultural alignment,
I would say, this is what when we went through
the process with them, we chose Baine to be Frank.
We pursued them because the cultural alignment. We knew who
they were, we knew what they had to offer. Getting
their attention was always the biggest thing. We're a small brand, look,
(14:31):
they're big company, massed experience, but we're glad to at
least have their tension, get it and then go through.
Speaker 3 (14:37):
The process with them.
Speaker 2 (14:38):
And going through the whole diligence actually validated why we
wanted to partner with them. So I said, it's early
days of September, but I tell you we're from day one.
They've been engaged with our entire team. We went to
Brazil how our first board meeting the entire team came,
which was a lot of fun and just we communicate
on WhatsApp, the Fogo Mundo we call the folk communication channel,
(15:01):
what's up there, And that's all by the team, the
general managers and managers.
Speaker 3 (15:04):
We don't do it. We just get to see it.
They blew up and loved it.
Speaker 2 (15:08):
Whenever Bane people are in our restaurants, that goes wild,
you know, socially, goes viral within our own communication platforms,
which we love. So they're connected with the team already.
Speaker 3 (15:19):
Again.
Speaker 2 (15:19):
We'll have our global leadership conference coming up this next
week in San Antonio, with all our international partners, all
our gms and sales managers and the bin teams coming
to it, which again just shows their commitment to their
portfolio companies, their engagement from the tip of the spear
to the executive team. I couldn't say anything more that
we're just excited about this next chapter of growth with
(15:40):
bank capital, really excited.
Speaker 1 (15:43):
And can you comment on when they would like to
take the company public?
Speaker 2 (15:47):
Sure, you know, I would say they're long, they know
the business. We're both mutually aligned that Look, let's just
build a business and we'll know the right time. I
think that's the way we approach it. But I would
say this personally. You know, after a minute, for two
years trying to s one, I just told the team,
look for the next twenty four months, let's just keep
continuation of our brand. So when you look back, you know,
(16:09):
five years, six years, you keep going, Look, we're everything
we're telling you, we have already achieved, and we can
show you a clear path. So for us, we'll have
plenty of new restaurants, a lot more restaurants ramping. We'll
hit some key milestones upcoming, and I'd like to time
that by time we go publicly close to if Bane's ready,
and we're in alignment obviously, but we'll have our restaurants
(16:33):
in the next two or three years. We'll have more
new restaurants ramping than our core. We'll have three year visibility,
which you already have today, three visibility to pipeline.
Speaker 3 (16:44):
We'll have over ten.
Speaker 2 (16:44):
Thousand team members, we'll be close to our first billion
in revenue, and we'll be close to our fiftieth year anniversary.
So all those things are really big for a small
company that's looking to the next fifty years. And we
know we have a very clear plan for the next
thirty years growth that our algorithm long term algorithm of
ten to fifteen percent earnings growth. We feel very comfortable
(17:07):
we're achieving that and better, we still feel like the
next twenty five thirty years we have visibility of that.
Speaker 3 (17:13):
So that's what's great. By the way, it's all free.
Speaker 2 (17:15):
Cash flow or cash flow generation. We grow organical, we
always have, so you know, we're not trying to grow
into earnings. We are driving earnings, and our GNA leverage
is all improving as we talked about before. Our brand
building is also just coming to lights. Our tailwind is
only going to get stronger, but we want to just
(17:35):
make sure our value creation.
Speaker 3 (17:37):
Plan is all in place.
Speaker 2 (17:39):
We're aligned with Bain and you know, really focus discipline, growth,
and when we're ready, I'll call you first and let.
Speaker 1 (17:46):
You know I appreciate it. Let's get into the development plans.
How many restaurants do you have today? What's a split
between company owned and franchised, and what do you think
the preferred split is?
Speaker 3 (17:59):
Sure?
Speaker 2 (18:00):
Right now, we're eighty five restaurants. At the end of
the year globally, eleven were franchised, so, you know, franchises
everything besides Brazil in the US, we're from Brazil, a
Brazilian company growing in the US, and now we're planning
flags internationally with really strong operating and strategic partners. We're
(18:20):
not trying to open a bunch of restaurants. We're trying
to find a great partner that loves our brand like us,
who wants to operate and execute, and we're long term
and have facilities. So we'd like to say we're leveraging
now the Americas. We got Canada through Central South America
lined up, We've got our first partner in Asia opening up,
and then we've already got a partner in the Middle
East who's growing, and we've signed a partner in Turkey.
(18:43):
So we feel like the major international markets that align
with our brand that we know will do well, will
basically grow organically there and you'll start to see those
come up to South America Central. But i'd say the
proper mix for US, we go, look, it's going to
be ten year, but I would say five years from
now you might be opening We might be opening just
(19:04):
as many international capital light restaurants as we are domestically.
But really the cash generation is going to be from
our domestic growth. But this to us is about brand positioning.
Today we're the category leader in this space. We're kind
of leading the category, and then really our view is
these strategic cities we're going to is about being a
(19:25):
category leader Globally. We are already an international brand. We're
not concerned about international. We're just basically growing organically international,
like we have been doing for twenty six years in America.
So I think the mixed long term will probably you know,
when you get you know, fully built out, it's thirty
thirty percent international franchise. But as you know, we also
(19:46):
think opportunistically that some point now in the future could
also be an opportunity to buy back strategic buybacks as well.
Speaker 3 (19:52):
That's how we think of it.
Speaker 2 (19:54):
Right now, we're using our focus as our free cash
flow is really driving stronger terms in America, in Brazil.
Brazil is growing organically, so as America yep.
Speaker 1 (20:04):
And then international business. You know, obviously it's very high margin,
which is nice and i'd assume it allows you to
grow a little bit faster, you have less headaches in
terms of regulation.
Speaker 3 (20:14):
You're a copper cap everything. You know, on a balance,
she just gets stronger.
Speaker 2 (20:17):
And look, one reason we want to go public, and
you know we want we feel very good, you know Bain,
we're aligned with Bain on value creation. But look post
public and Bain's monetization. You know, we always look to
the future, and this is why we always say we
would love to just be an alpha in somebody else's
portfolio and just really we get to that organic growth
(20:40):
like we're talking about curve. You know, six, seven, eight
years from now will be we should be buying back shares,
issuing dividends and growing at fifteen percent. And that's what
we think we can do if we do this right.
Along with like you said, the international mix, capital light piece,
along with our all that just adds up to high
efficient capital generation and just strong earnings growth long term.
Speaker 1 (21:02):
What's the development plans for this year? How do smaller
units fit into that plan? And what do you think
the total white space opportunity is? Sure?
Speaker 2 (21:12):
So you know, i'd say this this year we have
obviously the pipeline's full. I think we put announcement. We
got visibility through twenty six. Actually some in through twenty six,
but definitely twenty four to twenty five is pretty much done.
We say we're going to open ten to fifteen units
a year. We opened eleven last year company for international,
so we'd see that algorithm staying. So we feel very
(21:33):
confident we'll achieve that. But our small unit, first one
in the US, we open the first one in Rio
and Rio Baha and them all was five thousand square
foots doing really well. The returns in Brazil and that
are doing tremendous. We have international partners all be opening
and we're from four to six thousand square foot units
based off that unit, and then the return hurles on
(21:56):
that initially are strong. Then we're going to open our
first domestic five thousand square foot unit at the World
Trade Center, so you're going to be invited at to
see that, see what that experience looks like. We're opening
a six thousand square foot this year in downtown Seattle
along with a rooftop lounge on a tenth floor, so
again driving different occasion, leveraging the same asset, great economics
(22:18):
in that box, huge demand that we look to capture,
so we go back to the site is the most important,
the demographic and the demand, and then we really work
hard on the economics to make sure that we are
minimum hurdle is a forty percent return, so all that
has to go through that rigorous process to get the underwriting.
Good news is in twenty three all of our new
(22:40):
classes at restaurants, we've averaged about fifty seven percent return,
So our outperforming our demand hurdle. We're investing where we
say we're going to invest on average about four million,
and we're driving great returns. So we see more of that,
and the proof points of the smaller box just goes
back to how deep we can penetrate an urban market.
Speaker 3 (22:59):
As you know, we have eighteen thousand square foot.
Speaker 2 (23:02):
Location in midtown doing really well, so going down the
World Trade Center is another proof point of capture rate
and brand leverage, and then we're excited about that. And
so that leads to the white space question and the
s one we have it. I would say we'd say
we'll have well over three hundred in the white space.
We think long term we could be six hundred. But
(23:23):
I go back to it still early stage, but we
still feel very good about how we're building. And remember
we don't have prototypes. We're not constrained by prototype. I
don't need three acres of land in an eighty five
hundred square foot box. We think about, hey, how much capital,
how what's the demand? How much capital we should spend
in minimum we should minimum it to two times revenue
(23:44):
to investment, and how do I drive the best experience?
Speaker 3 (23:47):
And that's the creative part we use.
Speaker 2 (23:49):
That's where we really work hard at to give the
guests the best experience where they most likely are going
to be gravity and how does that map out for
what we call the market planning, so we can build
a brain and leverage the brand equity and improve our.
Speaker 3 (24:03):
Asset utilization at the same time.
Speaker 2 (24:05):
And all that it has been eleven years of work
and give you an example that in La market, we've
just opened our tenth location, so that's the biggest market,
most saturated. In that same market, I think there's over
twenty two cheesecakes, So we're not trying to overpenetrate, but
that market, every time we open a unit, we have
record sales in that market. So it goes back to
(24:25):
the awareness is growing. Since we're convenient, trial is growing
in frequency. So that's all part of the strategy of development.
If you would brand.
Speaker 1 (24:33):
Yeah, yeah, as you know, I visited the Willibrook location.
It's beautiful. So so it sounds like you don't have
you know, a prototype, which which is pretty cool is
do you use an AUV number or do you talk
about a sales per square foot or maybe kind of both,
just you know for our listeners.
Speaker 2 (24:53):
Sure so well, so generically, look, you've seen you twenty
three and we shared an ICR. Look we you know
twenty nineteen reverenced seven point seven. We're averaging about ten
point four million right now. Our demand hurdles. We're looking
at a demand of well over eight million before we
build a restaurant. So we're not trying to just plant flags.
We're just brand building to make sure that those restaurants
(25:15):
do high volume. A lot of work goes into that,
and this is why we know our pipeline takes three
years to develop, and now we have three years of visibility.
And you know, everything we just spoke to has been working.
It's been in the works for eleven years. Nobody just
showed up and did it, and again for twenty six
years in America, and for brand leverage forty five years.
(25:36):
So all that is just a continuation that we'd like
to say incrementally improving. So if you think about that,
in twenty nineteen or even before ten years ago, our
restaurants averaged about fourteen thousand square foot our eighteen thousand
square foot location in Manhattan. Now we're averaging about between
seven and eight thousand a foot and we're doing higher volumes,
so asset utilization's gone up. We've invest a lot of
(26:00):
design and engineering around redoing our entire kitchen to put
our attributes up front, the culinary attributes you see the
Peninsula grill up front. We've layered some of the materials,
simplified our back of the house operation, built beautiful bar fogos.
Even if you've been to paramus, we've got the next
level lounge, so we use We've gone from about fifty
(26:20):
percent of our space being back of the house to
about twenty to twenty five percent, so our whole revenue
per square footage has just gone up by fifty percent.
But we focus on revenue and experiences in space, So
we like to say we transform space with great design,
too great to make experiences more enjoyable. The operating model
(26:44):
overa is dove where we lack. Before there were big
boxes and the experience was lacking. So that's what we've
transformed the last six years in a new box. Like
you said, Willebrook and all that, those are timeless, warm
and approachable designs and they're more in a more suitable environment.
What I love is you get to see the grill
and the chef do their art form and come out
and serve you. That's the part that we love.
Speaker 1 (27:07):
Very cool. You know, we touched on the low turnover
rates that you have, So what percentage of the new
store gms are brought in from other Phogo restaurants.
Speaker 2 (27:19):
That's a great question every one of us all. So
we promote from within, even if we bring outside talent.
We look they got to want to be part of it,
to join the culture, be part of it. Because our
model is different. It's not like any other restaurant model.
You've got to learn the guest flow, you got to
understand how the model works.
Speaker 3 (27:37):
It's very nuanced.
Speaker 2 (27:40):
So once you get it, it's a maturity curve and
I would say an experienced curve to get up there
to proficiency. Now we have high potential talent from outside
that gets it really quick. So it's really dependent on
an individual. But I'd say remember our GM's average with
us or over ten years. Our area directors are over
twenty years. Regional directors have been with us thirty so
(28:02):
that retention rate, a skill set and tho those we
call anybody who don GM or mentors, so that mentoring
is really critical. And that's why we say is we
don't our industry. We talk about labor. I always talk
about labor as an investment. We never talk about labor
as a cost. It's a percentage of P and L.
But we every the way we think of as our
(28:23):
first dollar revenue goes to people. That's training, hiring, staffing,
and just what you said, how do you become a GM?
You got to invest in it every day, and because
we're growing, we can pull talent up from within and
it's really exciting to see.
Speaker 3 (28:38):
And I tell you we talked about development.
Speaker 2 (28:41):
So getting back to your human capital retention, we don't
build our human We don't build a site pipeline until
we have visibility for three years of our GM pipeline.
The GM has to have succession underneath them. The assistant
manager has to have team members stepping up to their role.
And so the continuity of leadership at every level cultivates
our culture, the experience, and then we open the restaurant.
Speaker 1 (29:04):
That's what we say.
Speaker 2 (29:05):
First dollar goes to team people, second dollar revenue goes
to guest experience. Third dollar, Hey, what are we doing
our community, our local store? And then we always say
what's left is we'll go back to Bay and ask
permission to a rigorous process to reinvest in a new restaurant.
That's kind of how we approach the business. And by
the way, our gms know that model. That's why revenue
(29:25):
is the most important thing.
Speaker 1 (29:27):
That's very smart. And you know I work with publicly
traded companies, so I don't think they have the luxury
maybe of planning out their people plans before their actual
development plan. So kudos to you and the team that
that's very cool and not something I don't think I've
(29:47):
ever heard, and I've been in this business for quite
some time.
Speaker 2 (29:53):
It's as you know, we're in hospitality. People are most
important metrics. That's the thing that I think people forget.
You can't engineer that out and say you've hit your margin.
Well you got to fix your model, and you sterioally
need people to do it. If you take people out,
that's fine. Then go in the vending machine business.
Speaker 1 (30:10):
That's awesome for sure. Let's change years a little bit.
How are you planning to boost Seamstar sales and traffic
this year? You have anything new in the pipeline?
Speaker 2 (30:19):
Sure, well, I would just say, you know, we've got
innovation that keeps coming. So the seasonal stuff we do. Obviously,
our indulgent platform we rolled out right before COVID with
our dry age Tomahawk took off like crazy and we
hit the pandemic. Now we'd also then we had wagu
and the pipeline, and again we did the opposite during
during COVID. We didn't take things away. We actually added
(30:41):
Wagoo and went upstream and just said, look, we're going
to focus on hospitality. We didn't change our dining rooms.
We just focused on that. So that platform indulgent took
off during COVID, we expanded it, we had a Rabbi strip,
and then that platform just again really strong. So if
we think about that ramping, it's ramping into this year.
(31:03):
Every year it's getting better. We're going to add a
new attribute to that. So we're testing this year whole
fresh seafood again. Our culinary attribute of slow roasting over
open flame creates a salty bark because all we do
is salt. Simply about how we butcher, We rest the meat,
we age it properly, and then slow roasted with salt.
So that's the craveability that salty bark is a culinary
(31:26):
attribute we own. What we want to own is fresh
seafood is doing the same thing with oil and salt
and just blistering fish. So blistering and salty bark are
those cravable attributes that drive differentiation. So seafoods our next
big unlock fresh seafood. Excited about that. We're looking at Brenzeno,
but I'll keep you post on that. So we think
(31:46):
that's another I would say, a frequency driver, another way
to indulge and or just have a pescatarian and you
know this might be our product line.
Speaker 3 (31:56):
No menu.
Speaker 2 (31:57):
We can accommodate any diet tribe. They're vegetarian, you're keito,
your pescatarian. We're just rounding that out and that's part
of the joy. And again that goes back to our
demographic eighty seven percent millennial gen Z, forty two percent female,
a very ethnic group. And we have a family segment
of it too, about twenty six percent of our uses family.
(32:18):
So all that demographics opposite of steakhouse. So when you
drive this innovation goes back to Cajun celebration. Again, food
discovery all the time within what we do. So that's
a ramp, indulgent ramp. And then we do we're doing
wine dinners. This is only our second year. This is
starting our third year and twenty four wind dinners. Those
are growing immensely. We do four year, We're probably going
(32:41):
to eventually go to six. But those wine dinners and
our bar events we do monthly are bringing in about
forty to fifty percent of the use. It's our new people,
new to our new trial. So that's a huge I
would say strategic advantage of driving occasions for somebody who
is aware but hadn't tried, so it becomes an entry
(33:02):
point of trial. And again you take those bar events
of wine and wagou whiskey and dry age, or you
go to you know, our VK Wind Dinner which is priced,
you know, value pricing compared to everybody else's wind inner,
and you get the full complement, strong value. But you
learn about great South American minds or great California wines,
and those are still ramping and they're meaningful because as
(33:26):
you know, our our liquor mix is about fourteen percent
because of our velocity, right we turn a table in
an hour, but our bar foco platforms new and growing,
so fourteen percent liquor mix. And our new restaurants like
Wilbrook and you tried that and Paramise, they're averaging close
to twenty. So the new design, the new training, so
(33:47):
we know that's a ramp lift. Our private I would
say large group is about fourteen percent as well. We
have peers doing twenty twenty five percent. So we're just
now starting on that with the new design, a better.
Speaker 3 (34:00):
Space, new new equipment.
Speaker 2 (34:02):
And fully staffed sales team, which we staffed during the COVID.
We totally ramped up with that and all that's paying off.
So we think that's going to grow to about twenty
percent as well. So all that is, you know, tailwinds
to the brand. So excited about that side.
Speaker 3 (34:16):
Of the innovation.
Speaker 1 (34:17):
Good stuff. Everybody loves a good wine dinner.
Speaker 3 (34:19):
I know I do. That's right by the way.
Speaker 2 (34:21):
South America wind is all half price. You got to
try a bottle of Milkala, It's ninety seven rated, it's
half price. It's best way to have wine. So all day,
happy are on South America.
Speaker 1 (34:32):
All right, I have to check that out. That's good stuff.
All right. I think we're going to wrap it up there.
Thanks again, Where where can the audience go to find
a nearboat nearby? Fogo? And what social media platforms is
the brand big on?
Speaker 2 (34:44):
So we're big on Instagram again. Brand love is big
and again and well I love it. You'll see our
consumer's voice advocates of our brand. So just you know,
you could see a lot of brand on socially, so
obviously Instagram is big for us. And then I would
just say for the best way is just go fogo
dot com and you know we'll put all the latest
(35:06):
news and where we're going next and love to host
you there. Look forward to seeing you, Mike. You're going
to get an invite to all these openings opening up,
but you're welcome anytime. But appreciate all your time and
thanks for all you do for our industry and you
always appreciate your insights.
Speaker 1 (35:22):
Sure thing. Yeah, I'm looking forward to that World Trade
Center opening for sure. I'd like to thank the audience
for tuning in. If you like the episode, please share
with your friends and colleagues. Check back in a couple
of weeks. I'll be having a discussion with executive consultant
Ray Johnson.
Welcome to Chopping It Up. I'm your host, Mike Hallen,
the senior restaurant and food Service analyst at Bloomberg Intelligence.
Today we're joined by Barry McGowan, CEO of Happy Belated Birthday.
Speaker 2 (00:34):
Barry, Well, gosh, thank you appreciate. Mike, so glad to
be part of Chopping Up. A big fan of your
your work, so thanks for the kind of invite.
Speaker 1 (00:42):
Yeah, I'm excited to have you. How did I do
with the pronunciation?
Speaker 2 (00:46):
You did really well. Your Portuguese a little bit more,
but you're getting there. I would say you'd convinced anybody
from Brazil. You're from Brazil, so that's right.
Speaker 1 (00:57):
So working for Fogo, has it made you more of
a fan of soccer and mixed martial arts?
Speaker 2 (01:05):
Oh with hey, Yes, and I'd say I've always been so.
I grew up in Europe, born in Germany. I'm a
naturalized US citizen from Ireland, so I would say I'm
an Irish gal show. But I've always loved football, real football.
And yes, I would say mixed martial arts even more
than ever before. Obviously, we have a lot of regulars
(01:25):
who mixed martial arts based off that they always come
in Cole.
Speaker 3 (01:28):
Yes the answers, Yes, very cool.
Speaker 1 (01:31):
And you know LinkedIn told me it was your birthday.
It also told me that you worked for Norman Brinker,
which I did not know how I was working for Norman.
Speaker 3 (01:39):
Oh, I'd say he was.
Speaker 2 (01:41):
Prior to Norman. I worked for McDonald's, an owner operator
that just inspired me. I was really young, fifteen years old,
currenting sixteen and thought one day I'd owned my own McDonald's.
And then got into the industry red press and read
about this gentleman named Norman Brinker. So he opened a
Chili's in Dent in America. We call it Dent in America, Denton, Texas.
(02:03):
But and I just basically wanted to work for Chili's
at the time because I knew of him. And I
tell you what a transformational leader, aspiring guy. Still, I
would say a lot of the culture attributes thing that
I believe they were really important. We learned from Norman
and his culture, Doug Brooks and the whole Brinker today.
So yeah, love my time with Breaker and National And
(02:23):
I have to say I met the man, got to
sit in a room and listen to speak, and still
very much part of I would say the culture that
I believe in in terms of our industry, the things
that matter most.
Speaker 1 (02:33):
So yeah, he was an iconic leader. That's very cold.
Speaker 3 (02:37):
Sure was, Sure was.
Speaker 1 (02:39):
So Fogo it's had an oppressive track record of generating
positive traffic.
Speaker 3 (02:43):
In the last decade.
Speaker 1 (02:44):
So if you could talk a little bit about what's
what's fueling the gains and you know, then the uniqueness.
Speaker 3 (02:50):
Of photo the you bet.
Speaker 2 (02:53):
So you know, we just finished the ninth year Mike
of traffic, which is as you know, it is a
very big thing in our industry. So taking share is critical,
but how you do it matters as well. So again,
this brand's forty five years old. We've been in US
for twenty six, but we set out eleven years ago.
Joining was just looking at the consumer that used us
(03:13):
and then really asking our Fogo fanatics how they fog
and just unlocking that to say, well, how do we
make Fogo and understanding how to die in this unique
differentiated concept for more people to drive occasions, trial and
of course frequency. So I just say this, it was
built just on really deliberate small things, but most important
(03:35):
thing was just hospitality upfront, never sacrificing labor, focusing on
Our biggest investment every day is labor, not an expense.
So changing the mindset to hospitality begins with being staffed,
well trained, and keeping the guest focus in mind all
the time. So I just say we've just leaned into
(03:55):
the fundamentals of that and then really created occasions people
who've heard about us to try us giving entry points, price, optionality,
day parts, and you know, little things like happy hour.
Instead of doing it three to six, we just say
it's happy hour all day long at Fogo. Let's give
our guest value all the time. And by the way,
(04:16):
we always believe in it. I still believe today. Value
is always critical. And even the last four years, when
you looked at some of the analyst supports that you
shared and others have talked about pricing, you know, last
four years is pretty steep on up to twenty two,
we averaged about ten percent price from nineteen to twenty two.
We're about maintaining that going through twenty three, so about
(04:40):
two and a half percent price per year, even through
the toughest time. And if you look at the industry
at over thirty percent during that time, goes back to
the guest is always going to appreciate value. Now, doing
that and maintaining margin while driving positive traffic is what
we've been able to achieve, and that's uniqueness to our
operating model. Important thing to us. The first metric we
(05:02):
focus on is traffic, then we think about mix with
our innovation, and then we look at price. Last.
Speaker 3 (05:08):
We never focus on price the very last thing we'll do.
So that's kind of how we got here. Put it
that way.
Speaker 2 (05:14):
And I'll just say this too. And you know this
micro you've been around you. You know we're small. Now
we're building restaurants. Ten years ago, eleven years ago, we
had one market with multi units and that was not
Paula Brazil. Now in the US we have twelve markets
we have multi units. So awareness is growing, trial is growing,
and frequency is growing all at the same time. So
(05:36):
that tailwind goes back to brand building. And I would
say this for operations team and every GM it's executing,
the moment of truth is every time the guest drives
up to your parking lot. So that's where we were
really focusing on again to continue to make sure the
guest wins.
Speaker 3 (05:51):
All the time.
Speaker 1 (05:53):
Yeah, so you're in an enviable position for sure, and
you touched on a few topics that I'd like to
hit on today for sure. I guess one of them was,
you know, let's just start about talking about twenty twenty three.
You know, it wasn't a great year for a lot
of your competitors.
Speaker 3 (06:07):
Traffic fell, there was.
Speaker 1 (06:08):
A mixshift to a less expensive items. Did you see
some of that in your business?
Speaker 2 (06:13):
Well, we, you know, we we saw mixshift, and I
go back some of his normalization, you know, going through
the curve of you know, access to working at home,
to people coming back to work. Also just normalized school travel,
all those things. So some of that I think we
were expecting. Now we were lapping big numbers I would say,
bigger than peers, but we still cut through it and
(06:33):
basically ended the year positive and traffic and revenue, and
even with the inflationary pressure more inflation last year, we
did a lot more work internally with new product mixshift.
We didn't contract down, we stayed nimble with thirty day rolling,
and we're able to really pick up overhang and do
select different cuts. Same thing with our market table. Basically,
(06:54):
our margin in twenty three was the same as it
was in twenty nineteen, with only two and a half
percent price carry, which was I think a testament to
the team, the uniqueness to operating model that we're able
to do both. So I would say everybody faced the same.
I would say adjusting, And I tell everybody, you know
(07:16):
why traffic is important when you have capacity gains during COVID,
the pasty gains when people were coming in shoulder periods
because they weren't working or staying at home, their schedules changed.
Now as you see that shift, you demand for peak
areas are the same.
Speaker 3 (07:30):
So good news as we have capacity internal and we
have the place to keep building on that. But it
was a challenge.
Speaker 2 (07:37):
To be honest, it was adjustment, and I would say
the last four years have been adjustment, as you know
you're reporting to it. But I go back to now
we're back in the whole basis of the consumer is
at the forefront, and you hear everybody talking about I
can't take as much price. A lot of people are
going to have to roll off a pretty big price.
So we're very grateful that we thought long you know,
(07:58):
we weren't thinking about the short term and even during
the pandemic, and you and I have talked about this,
You know, we always told everybody, look, the pandemic is
going to end. Let's don't make decisions based off the
crisis in front of us. Always make sure you know
you're thinking beyond the issue. And that paid off. The
same thing with pricing. We believed ultimately inflation between two
and three percent long term, and we just got to
(08:20):
stay in that range or we would give it up
somewhere else. And we don't want to ever give up
is traffic. We never want our value proposition to be
out of play. And I do believe why we finished
thirteen or two twenty three strong is our value proposition.
During those four years, it actually strengthen, It got better
with our peers. Our ppa spread between peers went from
amount of twenty percent spread to close to thirty. So
(08:43):
we kept holding on that knowing that and by the way,
we're challenged can you take more price? And we just say,
you know, let's hold let's be smart with it. And
it also challenged us to work harder on our leaning
harder into our model about how much more value can
we give the guests but maintain margin. That's what I
call real innovation and real creativity. On the culinary side,
(09:04):
I'm really proud of our team for all the work
they did to achieve that.
Speaker 1 (09:06):
So all right, good stuff. Yeah, the service model when
you look at the s one that you filed in
the past, right that the labor you know, labor cost
is really stick out in terms of you know, outperforming
your peers. So if you can talk a little bit
about the service model and what it does for your
p and L. Sure.
Speaker 2 (09:27):
So it's all based and rooted in a century's old
culinary art form cultural hospital. So it starts in the
product input of high quality product, the butchering of it,
and the resting and preparing simply seasoning and slow roasting.
And the unique thing is that is a very i
would say, very strong skill that it takes. It's a
(09:49):
lot of skills in one. So you're taking a chef
that has those attributes basically a butcher and then a
grill master, and then you're asking me to do one
other thing. Then they go out and serve of that
cut to the guest. So I tell everybody we have
a fast casual operating model. We just customize to a
plate versus a bowl or a burrito or whatever the.
Speaker 1 (10:10):
Thing you do.
Speaker 2 (10:12):
We have more skews. So that simple model of three
rolls in one really does two things. During a busy night,
I like to say, if you're next to a peer,
the kitchen's you know, fifteen people in the kitchen, there's kds,
there's people calling tickets, there's assembly where it's a lot.
It's a beautiful thing. By the way, ours all of
our chefs, our fifteen chefs, are basically in a dining
(10:34):
room serving a guest, along with our servers, our primary service,
our back servers. So our restaurant's full of people just
looking after people. So that distinctive difference operationally just takes
one big lever of complexity out and drives real productivity
with basically a lot less people. And as you know,
(10:55):
our turn times are also about an hour, so the
immediacy pays off for the guests, gives them full control,
and it keeps it simple. And it's protein base which
is even more dynamic. So we take big risks when
we do it. So I always tell everybody this model
sounds simple, but a lot of people lose a lot
of money in this business.
Speaker 3 (11:14):
We've just done it for.
Speaker 2 (11:15):
Forty five years, and we know the culinary art form
and we really invest heavily in training, skills and development
and finding the right people for the role, because ultimately
it's the guest we're trying to please. But the operating model,
like you said, the structural advantage is that we just
are much more productive. And probably the most powerful part
is the guest gets all the benefit. And that's why
(11:37):
it's so targeted and powerful. And yes, it shows up
in the versus the very best in class fast casual.
You know, our restaurant level margins are about seven hundred
basis points the very best in class full service. And
I'm talking when I say best in the class. You
know you got Darden, You've got a Texas Roadhouse. We're
(11:59):
close to the basis points more productive. So it's it's
pretty powerful, not just I would say, in the labor
but it also goes down into what I just explained
also in the cost of sales for protein centric brand
to run, you know, twenty eight to sub twenty eight
percent cost of sales is pretty pretty strong. Our prime
cost to a prime costs about between fifty and fifty
(12:19):
two percent. It's pretty awesome model.
Speaker 1 (12:21):
Yeah, for sure. And I'd imagine the cooks make more
if they're you know, also participating in the tips in
the tip pool, and then you know, i'd imagine that
also contributes to the very low turnover that you see.
Speaker 2 (12:37):
Yeah, Mike, you hit the head. So it's a skilled role,
but we can train it. It's a lot of training.
So it also broadens our audience because it's an aspirational role.
And yes, we've actually great minimum wage we pay for
chefs go you. As you know, wage isn't only just
tip credit. So these guys make more than tip credit
most of the time and they get tips, and we
(12:59):
have some states with no hip credit. So we'd like
to say, look, labor is an investment. We just put
the dollars where it matters, and they make great money
and they learn great skills. And by the way, it's
very rewarding. And I go back to when you find
the right person the right skills and they mature in
that and they're serving a guest, it's really proud. If
you're a chef, you love what you make and you
(13:19):
serve it and you get this satisfaction from the guest
right there, and not they'll fix it right away, so
they need to see again. So that's where it plays
to the culture and to your point, the retention. It's
very enjoyable for them and it's fun to watch and
great to see them in their art form.
Speaker 3 (13:34):
It's it's exciting.
Speaker 1 (13:36):
Yeah, I'd imagine that's rewarding being able to see your
guests actually enjoy the food that you're cooking, right, Yeah.
Speaker 2 (13:43):
Instead of sitting back in the line wondering I made
the plate, how are they liking the food? You know,
when I used to cook, I used to ask, Hey,
how's the guest or do they like me? So now
you get the chef walk would go around and you
see the table. I would come out and talk to
the tables. But now today to know that our chefs
are always in the dining room, that's where they should be,
are they anyhow, it's fun.
Speaker 1 (14:01):
It's a lot of fun. Yeah, it's awesome. I'm a
fan of it for sure. It's still early days. But
how's the partnership with bane Capito going so far?
Speaker 3 (14:10):
Sure?
Speaker 2 (14:11):
I tell you we're thrilled their engagement. One the cultural alignment,
I would say, this is what when we went through
the process with them, we chose Baine to be Frank.
We pursued them because the cultural alignment. We knew who
they were, we knew what they had to offer. Getting
their attention was always the biggest thing. We're a small brand, look,
(14:31):
they're big company, massed experience, but we're glad to at
least have their tension, get it and then go through.
Speaker 3 (14:37):
The process with them.
Speaker 2 (14:38):
And going through the whole diligence actually validated why we
wanted to partner with them. So I said, it's early
days of September, but I tell you we're from day one.
They've been engaged with our entire team. We went to
Brazil how our first board meeting the entire team came,
which was a lot of fun and just we communicate
on WhatsApp, the Fogo Mundo we call the folk communication channel,
(15:01):
what's up there, And that's all by the team, the
general managers and managers.
Speaker 3 (15:04):
We don't do it. We just get to see it.
They blew up and loved it.
Speaker 2 (15:08):
Whenever Bane people are in our restaurants, that goes wild,
you know, socially, goes viral within our own communication platforms,
which we love. So they're connected with the team already.
Speaker 3 (15:19):
Again.
Speaker 2 (15:19):
We'll have our global leadership conference coming up this next
week in San Antonio, with all our international partners, all
our gms and sales managers and the bin teams coming
to it, which again just shows their commitment to their
portfolio companies, their engagement from the tip of the spear
to the executive team. I couldn't say anything more that
we're just excited about this next chapter of growth with
(15:40):
bank capital, really excited.
Speaker 1 (15:43):
And can you comment on when they would like to
take the company public?
Speaker 2 (15:47):
Sure, you know, I would say they're long, they know
the business. We're both mutually aligned that Look, let's just
build a business and we'll know the right time. I
think that's the way we approach it. But I would
say this personally. You know, after a minute, for two
years trying to s one, I just told the team,
look for the next twenty four months, let's just keep
continuation of our brand. So when you look back, you know,
(16:09):
five years, six years, you keep going, Look, we're everything
we're telling you, we have already achieved, and we can
show you a clear path. So for us, we'll have
plenty of new restaurants, a lot more restaurants ramping. We'll
hit some key milestones upcoming, and I'd like to time
that by time we go publicly close to if Bane's ready,
and we're in alignment obviously, but we'll have our restaurants
(16:33):
in the next two or three years. We'll have more
new restaurants ramping than our core. We'll have three year visibility,
which you already have today, three visibility to pipeline.
Speaker 3 (16:44):
We'll have over ten.
Speaker 2 (16:44):
Thousand team members, we'll be close to our first billion
in revenue, and we'll be close to our fiftieth year anniversary.
So all those things are really big for a small
company that's looking to the next fifty years. And we
know we have a very clear plan for the next
thirty years growth that our algorithm long term algorithm of
ten to fifteen percent earnings growth. We feel very comfortable
(17:07):
we're achieving that and better, we still feel like the
next twenty five thirty years we have visibility of that.
Speaker 3 (17:13):
So that's what's great. By the way, it's all free.
Speaker 2 (17:15):
Cash flow or cash flow generation. We grow organical, we
always have, so you know, we're not trying to grow
into earnings. We are driving earnings, and our GNA leverage
is all improving as we talked about before. Our brand
building is also just coming to lights. Our tailwind is
only going to get stronger, but we want to just
(17:35):
make sure our value creation.
Speaker 3 (17:37):
Plan is all in place.
Speaker 2 (17:39):
We're aligned with Bain and you know, really focus discipline, growth,
and when we're ready, I'll call you first and let.
Speaker 1 (17:46):
You know I appreciate it. Let's get into the development plans.
How many restaurants do you have today? What's a split
between company owned and franchised, and what do you think
the preferred split is?
Speaker 3 (17:59):
Sure?
Speaker 2 (18:00):
Right now, we're eighty five restaurants. At the end of
the year globally, eleven were franchised, so, you know, franchises
everything besides Brazil in the US, we're from Brazil, a
Brazilian company growing in the US, and now we're planning
flags internationally with really strong operating and strategic partners. We're
(18:20):
not trying to open a bunch of restaurants. We're trying
to find a great partner that loves our brand like us,
who wants to operate and execute, and we're long term
and have facilities. So we'd like to say we're leveraging
now the Americas. We got Canada through Central South America
lined up, We've got our first partner in Asia opening up,
and then we've already got a partner in the Middle
East who's growing, and we've signed a partner in Turkey.
(18:43):
So we feel like the major international markets that align
with our brand that we know will do well, will
basically grow organically there and you'll start to see those
come up to South America Central. But i'd say the
proper mix for US, we go, look, it's going to
be ten year, but I would say five years from
now you might be opening We might be opening just
(19:04):
as many international capital light restaurants as we are domestically.
But really the cash generation is going to be from
our domestic growth. But this to us is about brand positioning.
Today we're the category leader in this space. We're kind
of leading the category, and then really our view is
these strategic cities we're going to is about being a
(19:25):
category leader Globally. We are already an international brand. We're
not concerned about international. We're just basically growing organically international,
like we have been doing for twenty six years in America.
So I think the mixed long term will probably you know,
when you get you know, fully built out, it's thirty
thirty percent international franchise. But as you know, we also
(19:46):
think opportunistically that some point now in the future could
also be an opportunity to buy back strategic buybacks as well.
Speaker 3 (19:52):
That's how we think of it.
Speaker 2 (19:54):
Right now, we're using our focus as our free cash
flow is really driving stronger terms in America, in Brazil.
Brazil is growing organically, so as America yep.
Speaker 1 (20:04):
And then international business. You know, obviously it's very high margin,
which is nice and i'd assume it allows you to
grow a little bit faster, you have less headaches in
terms of regulation.
Speaker 3 (20:14):
You're a copper cap everything. You know, on a balance,
she just gets stronger.
Speaker 2 (20:17):
And look, one reason we want to go public, and
you know we want we feel very good, you know Bain,
we're aligned with Bain on value creation. But look post
public and Bain's monetization. You know, we always look to
the future, and this is why we always say we
would love to just be an alpha in somebody else's
portfolio and just really we get to that organic growth
(20:40):
like we're talking about curve. You know, six, seven, eight
years from now will be we should be buying back shares,
issuing dividends and growing at fifteen percent. And that's what
we think we can do if we do this right.
Along with like you said, the international mix, capital light piece,
along with our all that just adds up to high
efficient capital generation and just strong earnings growth long term.
Speaker 1 (21:02):
What's the development plans for this year? How do smaller
units fit into that plan? And what do you think
the total white space opportunity is? Sure?
Speaker 2 (21:12):
So you know, i'd say this this year we have
obviously the pipeline's full. I think we put announcement. We
got visibility through twenty six. Actually some in through twenty six,
but definitely twenty four to twenty five is pretty much done.
We say we're going to open ten to fifteen units
a year. We opened eleven last year company for international,
so we'd see that algorithm staying. So we feel very
(21:33):
confident we'll achieve that. But our small unit, first one
in the US, we open the first one in Rio
and Rio Baha and them all was five thousand square
foots doing really well. The returns in Brazil and that
are doing tremendous. We have international partners all be opening
and we're from four to six thousand square foot units
based off that unit, and then the return hurles on
(21:56):
that initially are strong. Then we're going to open our
first domestic five thousand square foot unit at the World
Trade Center, so you're going to be invited at to
see that, see what that experience looks like. We're opening
a six thousand square foot this year in downtown Seattle
along with a rooftop lounge on a tenth floor, so
again driving different occasion, leveraging the same asset, great economics
(22:18):
in that box, huge demand that we look to capture,
so we go back to the site is the most important,
the demographic and the demand, and then we really work
hard on the economics to make sure that we are
minimum hurdle is a forty percent return, so all that
has to go through that rigorous process to get the underwriting.
Good news is in twenty three all of our new
(22:40):
classes at restaurants, we've averaged about fifty seven percent return,
So our outperforming our demand hurdle. We're investing where we
say we're going to invest on average about four million,
and we're driving great returns. So we see more of that,
and the proof points of the smaller box just goes
back to how deep we can penetrate an urban market.
Speaker 3 (22:59):
As you know, we have eighteen thousand square foot.
Speaker 2 (23:02):
Location in midtown doing really well, so going down the
World Trade Center is another proof point of capture rate
and brand leverage, and then we're excited about that. And
so that leads to the white space question and the
s one we have it. I would say we'd say
we'll have well over three hundred in the white space.
We think long term we could be six hundred. But
(23:23):
I go back to it still early stage, but we
still feel very good about how we're building. And remember
we don't have prototypes. We're not constrained by prototype. I
don't need three acres of land in an eighty five
hundred square foot box. We think about, hey, how much capital,
how what's the demand? How much capital we should spend
in minimum we should minimum it to two times revenue
(23:44):
to investment, and how do I drive the best experience?
Speaker 3 (23:47):
And that's the creative part we use.
Speaker 2 (23:49):
That's where we really work hard at to give the
guests the best experience where they most likely are going
to be gravity and how does that map out for
what we call the market planning, so we can build
a brain and leverage the brand equity and improve our.
Speaker 3 (24:03):
Asset utilization at the same time.
Speaker 2 (24:05):
And all that it has been eleven years of work
and give you an example that in La market, we've
just opened our tenth location, so that's the biggest market,
most saturated. In that same market, I think there's over
twenty two cheesecakes, So we're not trying to overpenetrate, but
that market, every time we open a unit, we have
record sales in that market. So it goes back to
(24:25):
the awareness is growing. Since we're convenient, trial is growing
in frequency. So that's all part of the strategy of development.
If you would brand.
Speaker 1 (24:33):
Yeah, yeah, as you know, I visited the Willibrook location.
It's beautiful. So so it sounds like you don't have
you know, a prototype, which which is pretty cool is
do you use an AUV number or do you talk
about a sales per square foot or maybe kind of both,
just you know for our listeners.
Speaker 2 (24:53):
Sure so well, so generically, look, you've seen you twenty
three and we shared an ICR. Look we you know
twenty nineteen reverenced seven point seven. We're averaging about ten
point four million right now. Our demand hurdles. We're looking
at a demand of well over eight million before we
build a restaurant. So we're not trying to just plant flags.
We're just brand building to make sure that those restaurants
(25:15):
do high volume. A lot of work goes into that,
and this is why we know our pipeline takes three
years to develop, and now we have three years of visibility.
And you know, everything we just spoke to has been working.
It's been in the works for eleven years. Nobody just
showed up and did it, and again for twenty six
years in America, and for brand leverage forty five years.
(25:36):
So all that is just a continuation that we'd like
to say incrementally improving. So if you think about that,
in twenty nineteen or even before ten years ago, our
restaurants averaged about fourteen thousand square foot our eighteen thousand
square foot location in Manhattan. Now we're averaging about between
seven and eight thousand a foot and we're doing higher volumes,
so asset utilization's gone up. We've invest a lot of
(26:00):
design and engineering around redoing our entire kitchen to put
our attributes up front, the culinary attributes you see the
Peninsula grill up front. We've layered some of the materials,
simplified our back of the house operation, built beautiful bar fogos.
Even if you've been to paramus, we've got the next
level lounge, so we use We've gone from about fifty
(26:20):
percent of our space being back of the house to
about twenty to twenty five percent, so our whole revenue
per square footage has just gone up by fifty percent.
But we focus on revenue and experiences in space, So
we like to say we transform space with great design,
too great to make experiences more enjoyable. The operating model
(26:44):
overa is dove where we lack. Before there were big
boxes and the experience was lacking. So that's what we've
transformed the last six years in a new box. Like
you said, Willebrook and all that, those are timeless, warm
and approachable designs and they're more in a more suitable environment.
What I love is you get to see the grill
and the chef do their art form and come out
and serve you. That's the part that we love.
Speaker 1 (27:07):
Very cool. You know, we touched on the low turnover
rates that you have, So what percentage of the new
store gms are brought in from other Phogo restaurants.
Speaker 2 (27:19):
That's a great question every one of us all. So
we promote from within, even if we bring outside talent.
We look they got to want to be part of it,
to join the culture, be part of it. Because our
model is different. It's not like any other restaurant model.
You've got to learn the guest flow, you got to
understand how the model works.
Speaker 3 (27:37):
It's very nuanced.
Speaker 2 (27:40):
So once you get it, it's a maturity curve and
I would say an experienced curve to get up there
to proficiency. Now we have high potential talent from outside
that gets it really quick. So it's really dependent on
an individual. But I'd say remember our GM's average with
us or over ten years. Our area directors are over
twenty years. Regional directors have been with us thirty so
(28:02):
that retention rate, a skill set and tho those we
call anybody who don GM or mentors, so that mentoring
is really critical. And that's why we say is we
don't our industry. We talk about labor. I always talk
about labor as an investment. We never talk about labor
as a cost. It's a percentage of P and L.
But we every the way we think of as our
(28:23):
first dollar revenue goes to people. That's training, hiring, staffing,
and just what you said, how do you become a GM?
You got to invest in it every day, and because
we're growing, we can pull talent up from within and
it's really exciting to see.
Speaker 3 (28:38):
And I tell you we talked about development.
Speaker 2 (28:41):
So getting back to your human capital retention, we don't
build our human We don't build a site pipeline until
we have visibility for three years of our GM pipeline.
The GM has to have succession underneath them. The assistant
manager has to have team members stepping up to their role.
And so the continuity of leadership at every level cultivates
our culture, the experience, and then we open the restaurant.
Speaker 1 (29:04):
That's what we say.
Speaker 2 (29:05):
First dollar goes to team people, second dollar revenue goes
to guest experience. Third dollar, Hey, what are we doing
our community, our local store? And then we always say
what's left is we'll go back to Bay and ask
permission to a rigorous process to reinvest in a new restaurant.
That's kind of how we approach the business. And by
the way, our gms know that model. That's why revenue
(29:25):
is the most important thing.
Speaker 1 (29:27):
That's very smart. And you know I work with publicly
traded companies, so I don't think they have the luxury
maybe of planning out their people plans before their actual
development plan. So kudos to you and the team that
that's very cool and not something I don't think I've
(29:47):
ever heard, and I've been in this business for quite
some time.
Speaker 2 (29:53):
It's as you know, we're in hospitality. People are most
important metrics. That's the thing that I think people forget.
You can't engineer that out and say you've hit your margin.
Well you got to fix your model, and you sterioally
need people to do it. If you take people out,
that's fine. Then go in the vending machine business.
Speaker 1 (30:10):
That's awesome for sure. Let's change years a little bit.
How are you planning to boost Seamstar sales and traffic
this year? You have anything new in the pipeline?
Speaker 2 (30:19):
Sure, well, I would just say, you know, we've got
innovation that keeps coming. So the seasonal stuff we do. Obviously,
our indulgent platform we rolled out right before COVID with
our dry age Tomahawk took off like crazy and we
hit the pandemic. Now we'd also then we had wagu
and the pipeline, and again we did the opposite during
during COVID. We didn't take things away. We actually added
(30:41):
Wagoo and went upstream and just said, look, we're going
to focus on hospitality. We didn't change our dining rooms.
We just focused on that. So that platform indulgent took
off during COVID, we expanded it, we had a Rabbi strip,
and then that platform just again really strong. So if
we think about that ramping, it's ramping into this year.
(31:03):
Every year it's getting better. We're going to add a
new attribute to that. So we're testing this year whole
fresh seafood again. Our culinary attribute of slow roasting over
open flame creates a salty bark because all we do
is salt. Simply about how we butcher, We rest the meat,
we age it properly, and then slow roasted with salt.
So that's the craveability that salty bark is a culinary
(31:26):
attribute we own. What we want to own is fresh
seafood is doing the same thing with oil and salt
and just blistering fish. So blistering and salty bark are
those cravable attributes that drive differentiation. So seafoods our next
big unlock fresh seafood. Excited about that. We're looking at Brenzeno,
but I'll keep you post on that. So we think
(31:46):
that's another I would say, a frequency driver, another way
to indulge and or just have a pescatarian and you
know this might be our product line.
Speaker 3 (31:56):
No menu.
Speaker 2 (31:57):
We can accommodate any diet tribe. They're vegetarian, you're keito,
your pescatarian. We're just rounding that out and that's part
of the joy. And again that goes back to our
demographic eighty seven percent millennial gen Z, forty two percent female,
a very ethnic group. And we have a family segment
of it too, about twenty six percent of our uses family.
(32:18):
So all that demographics opposite of steakhouse. So when you
drive this innovation goes back to Cajun celebration. Again, food
discovery all the time within what we do. So that's
a ramp, indulgent ramp. And then we do we're doing
wine dinners. This is only our second year. This is
starting our third year and twenty four wind dinners. Those
are growing immensely. We do four year, We're probably going
(32:41):
to eventually go to six. But those wine dinners and
our bar events we do monthly are bringing in about
forty to fifty percent of the use. It's our new people,
new to our new trial. So that's a huge I
would say strategic advantage of driving occasions for somebody who
is aware but hadn't tried, so it becomes an entry
(33:02):
point of trial. And again you take those bar events
of wine and wagou whiskey and dry age, or you
go to you know, our VK Wind Dinner which is priced,
you know, value pricing compared to everybody else's wind inner,
and you get the full complement, strong value. But you
learn about great South American minds or great California wines,
and those are still ramping and they're meaningful because as
(33:26):
you know, our our liquor mix is about fourteen percent
because of our velocity, right we turn a table in
an hour, but our bar foco platforms new and growing,
so fourteen percent liquor mix. And our new restaurants like
Wilbrook and you tried that and Paramise, they're averaging close
to twenty. So the new design, the new training, so
(33:47):
we know that's a ramp lift. Our private I would
say large group is about fourteen percent as well. We
have peers doing twenty twenty five percent. So we're just
now starting on that with the new design, a better.
Speaker 3 (34:00):
Space, new new equipment.
Speaker 2 (34:02):
And fully staffed sales team, which we staffed during the COVID.
We totally ramped up with that and all that's paying off.
So we think that's going to grow to about twenty
percent as well. So all that is, you know, tailwinds
to the brand. So excited about that side.
Speaker 3 (34:16):
Of the innovation.
Speaker 1 (34:17):
Good stuff. Everybody loves a good wine dinner.
Speaker 3 (34:19):
I know I do. That's right by the way.
Speaker 2 (34:21):
South America wind is all half price. You got to
try a bottle of Milkala, It's ninety seven rated, it's
half price. It's best way to have wine. So all day,
happy are on South America.
Speaker 1 (34:32):
All right, I have to check that out. That's good stuff.
All right. I think we're going to wrap it up there.
Thanks again, Where where can the audience go to find
a nearboat nearby? Fogo? And what social media platforms is
the brand big on?
Speaker 2 (34:44):
So we're big on Instagram again. Brand love is big
and again and well I love it. You'll see our
consumer's voice advocates of our brand. So just you know,
you could see a lot of brand on socially, so
obviously Instagram is big for us. And then I would
just say for the best way is just go fogo
dot com and you know we'll put all the latest
(35:06):
news and where we're going next and love to host
you there. Look forward to seeing you, Mike. You're going
to get an invite to all these openings opening up,
but you're welcome anytime. But appreciate all your time and
thanks for all you do for our industry and you
always appreciate your insights.
Speaker 1 (35:22):
Sure thing. Yeah, I'm looking forward to that World Trade
Center opening for sure. I'd like to thank the audience
for tuning in. If you like the episode, please share
with your friends and colleagues. Check back in a couple
of weeks. I'll be having a discussion with executive consultant
Ray Johnson.
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