January 23, 2024 • 29 mins
Mexican fast casual is the only dining category that doesn’t have a list of 20 mature competitors slugging it out for market share, CEO of Modern Restaurant Concepts John Cywinski tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Cywinski sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss Qdoba Mexican Eats’ growth opportunity and plans to accelerate new-store development to 100 restaurants a year. He also comments on Qdoba’s move to national marketing, margin-expansion opportunities, the health of the US consumer and the emerging Modern Market Eatery fast-casual chain.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:22):
Welcome to Chopping it Up. I'm your host, Mike Hammon,
the senior restaurant and food service analyst at Bloomberg Intelligence.
Today we're joined by John Siwinsky, CEO of Modern Restaurant Concepts.
Thanks for doing this, John.
Speaker 2 (00:35):
Hey, appreciate Mike looking forward to it for sure.
Speaker 1 (00:38):
Can you start out about your career background and what
attracted you to MRC.
Speaker 2 (00:44):
Yeah. Sure. For the prior I joined Modern Restaurant Concepts,
which owns Qdoba in Modern Market eatery two brands about
a year ago. For the six years prior to that,
I was president for Apple's Grown Bar, my second stint
with Applebee's. Before that, I was president of KFC with
(01:07):
Young Brands, and prior stints with McDonald's, Burger King, the
Walt Disney Company, And I was a franchise e for
a short period of time in Chicago for Duncan Brands
and Sonic, owning and operating ten restaurants, which was my
little entrepreneurial gig for a period of time, and I
(01:27):
decided to jump back into the corporate world.
Speaker 1 (01:31):
Good stuff. So let's start with Modern Market. How many
stores does the chain have? Where is it strong geographically?
And what service model does it employ.
Speaker 2 (01:40):
Yeah, Modern market Eatery is a small, better for you
fast casual brand. Started in Denver. We have thirty one units.
The majority of those are in the Denver kind of
broader Colorado area. We've branched out into Dallas. We have
five units in Dallas, we have three Phoenix, we have
(02:01):
three in Austin, We have one at the University of
Notre Dame, and we have a couple of units in
Denver International Airport. And so our plan there is to
expand pretty rapidly. We brought in our first franchise e.
Most of those units are company owned, but our first
franchise e this past year. He's the second largest Applebee's
(02:22):
franchise e, a fellow named John Rolf and a good
friend of mine, and he acquired the Austin market and
we'll be bringing in other franchisees here soon as well.
Speaker 1 (02:34):
All right, great stuff. In terms of those growth plans,
are you going to continue to build company owned stores
or are you just focused on selling markets to franchisees
at this point?
Speaker 2 (02:45):
Yeah, primarily franchise ee development. We just opened our first
drive through unit in Colorado Springs and that's a company
owned unit. But the in John Rolf just opened his
first unit in Kansas City. So I think the vast
majority of any new unit development will come through our
franchise partners.
Speaker 1 (03:06):
Okay, great, Any any other markets that that are really
attractive to you right now?
Speaker 2 (03:13):
Yeah? If you think about the profile of the brand,
is a female, skew, family oriented, perhaps you know, suburban,
slightly upscale. You think about markets like Denver, Austin, Dallas, Phoenix,
where we currently have a footprint. Other markets that come
(03:34):
to mind would be Salt Lake City, Nashville, Kansas City, Charlotte,
North Carolina. And so we've We've got I think much
of that Mike's going to be driven by the franchise
partners that step into the brand and where they have
a base of operations. But you know, the brand plays
(03:54):
very well where it where it exists today, AUVs are
about two million dollars, very very healthy unit economics, and
we're now looking to scale it pretty rapidly.
Speaker 1 (04:06):
Okay, cool. How big are the units? How much do
they cost to build?
Speaker 2 (04:11):
Yeah? About a million dollar costs to build twenty five
to twenty eight hundred square feet. All of them are
for the most part end cap units, and as I mentioned,
we just opened our first drive through end cap so
that'll be interesting to see how we execute the brand,
which does have a heavy off premise mix and portability
(04:34):
is outstanding for the brand. So yeah, good, very solid
sales to investment ratio. Unit economics are attractive. We need
to determine the next five markets and heavily penetrate those,
and so we have significant franchise interest. We will probably
(04:55):
Mike refranchise Dallas, and we have significant interest in the
state of Colorado, where we've got you know, we're kind
of ubiquitous in Denver. People know the brand quite well.
You get outside of Denver and people don't know the
brand yet. So that's our challenge or our opportunity.
Speaker 1 (05:18):
Cool. Yeah, two to one sales to investment ratio is
very attractive in terms of building the brand awareness. Is
social media a big part of that?
Speaker 2 (05:26):
Yeah, I think the you know, we we have a
pretty savvy digital marketing team and it you know, it
becomes a little more challenging in a market like Dallas
when you nearly have five units that are kind of
geographically dispersed. But you know, we invest a pretty meaningful
amount on an ongoing basis to drive awareness and trial.
(05:48):
Once we get him into the restaurant, the rest of
it kind of takes care of itself. It's a terrific menu,
you know, it's very I would categorize it as perhaps
a little more contemporary version of a of a era
and you know very much, you know, freshly prepared, culinary
driven concept. Cool.
Speaker 1 (06:07):
Yeah, I haven't had a chance to visit, but next
time I'm in Denver, I'll definitely check it out. Or Dallas.
Speaker 2 (06:12):
Yeah, we have nothing in your backyard, but we will
at some point. Yeah.
Speaker 1 (06:16):
Cool, just online. You know, when I was doing my research,
the restaurants looked really nice, for sure.
Speaker 2 (06:23):
Yeah, they're beautiful. They you know, they are very attractive
suburban units you would find them to. Most of them
have been built within the past ten years. So it's
a new concept and a in one that we scale.
We plan to scale pretty quickly. Nice.
Speaker 1 (06:40):
All right, So let's talk about Kenoba a little bit.
I covered Jack in the Box. So this is a
story I'm familiar with. Let's let's start with the big issues.
As when I was a customer, QESO was always like
a big highlight for me, and when I was covering it.
I always wondered why it didn't play prominent role in
(07:01):
the marketing. Has that been a point of emphasis since
it went private?
Speaker 2 (07:06):
Well, yeah, I think then interesting history. And I've been
with the brand now for a year. The brand is
owned by Butterfly Equity based in La Terrific, absolutely terrific partners,
you know, a big part of the reason I joined
and left Applebee's to do so. We have seven hundred
and fifty restaurants. We're in forty five of the fifty states.
(07:29):
Our largest markets would be where we started in Colorado.
We've got I think eighty five units in Colorado. We've
got sixty units in Wisconsin, We've got sixty in Michigan.
We're very strong in the Midwest, and then we've got
white space in many of those other geographies. Average unit
volume is one point six million dollars. Union economics are strong,
(07:52):
i'd say restaurant level E, but the MIC probably in
the eighteen to twenty percent range, you know, contingent upon
your volume. Our plan here is to double the size
of this brand pretty aggressively. So to move from seven
hundred and fifty to fifteen hundred units, to move from
one point six million AAV to two million AAV and
(08:15):
to approach a three billion dollar system. And you mentioned marketing,
and the brand has never really been a national marketer,
even though we've got pretty meaningful scale, not Chipotle like scale,
they've got three thousand plus restaurants, but we peacefully coexist
in this Mexican, very attractive Mexican fast casual space. And
(08:36):
next year, probably late next year, you'll see the brand
become a pretty meaningful national marketer for the first time.
So for the first time, we'll have an opportunity to
tell our story, to find who we are, what we
stand for, how we are differentiated, and we're looking forward
to that. Our franchise partners are very enthusiastic about exposing
(09:00):
the brand to America. Even though it's pretty well known.
I'm not sure everyone knows where their closest Qdoba is,
and so we've been a culinary marketing or culinary ops
driven concept to date, and our plan is to introduce
marketing here in short order. As a matter of fact,
we just retained Leeoverurnett Advertising out of Chicago as our
(09:25):
agency of record and they'll be our partners. We developed
content moving forward.
Speaker 1 (09:30):
Okay, nice Yeah, I was. I frequented the brand a
good bit in my twenties and when I was living
in Hobok and there was one Hoboken one up the street.
Speaker 2 (09:41):
Right. Well, yeah, that's a that's a franchise market for us.
We're eighty percent franchised at the moment. We did a
good amount of refranchising last year and early this past year.
Our fiscal year ends in September, and so we're into
our fiscal twenty four as we speak, and we're eighty
(10:03):
percent franchise. We'll get to ninety plus percent. Believe in
the asset light model, and we have eighty five you know,
absolutely terrific partners.
Speaker 1 (10:13):
Okay, cool, And i'd imagine, you know, I'd imagine why
the franchises would be excited about the national marketing. I mean,
we've seen some chains actually, you know, absolutely explode once
once they turned on that national marketing. Sonic is one
that that really comes to mind.
Speaker 2 (10:31):
Yeah, I think, you know, I've experienced it firsthand, and
I've witnessed it with other brands, and our franchisees understand it.
At some point when you're when you're in forty five
states and you have seven hundred and fifty plus restaurants
that you've got the scale. There's kind of an inflection
point right where you need to move from a local
marketer to a national marketer. We're there, and we've got
(10:53):
a very compelling story, and we've got tremendous momentum. I mean,
one of the things, honestly, that I found very tracted.
It was the first question I asked the Butterfly team
when I was talking with him, is tell me about
your past. You know, ten or twenty years. The brand's
been around for twenty years of comp sales, and they
pulled out a chart and showed me, and I'm looking
(11:13):
at it here, seventeen in the past twenty years positive
comp sales and post COVID MIC, you know, the brand
performed exceptionally well, up eleven percent and twenty one, twelve
percent and twenty two last year. And our fiscal year
again ends September thirty. We're up six percent in this
(11:36):
fiscal year through three months. That momentum continues, so there's
organic growth here. I attribute that to the we're in
the sweet spot of the fast casual category Mexican. For me,
Mexican fast casual is the absolute sweet spot the most
attractive category out there, and it it's also a unique
(11:59):
one for me when I again to study it, and
like you, I know this industry. Well, you've got you know,
almost four hundred thousand QSR restaurants out there. You've got
two hundred and twenty two hundred and thirty thousand casual
dining restaurants out there. They're only thirty about thirty five
thousand fast casual restaurants in Mexican. Fast casual is the
(12:19):
only category that I know of that doesn't have a
list of twenty mature competitors, you know, slugging it out
for market share battle. You've got Chipotle at number one,
You've got Kudoba as a clear number two, and then
you've got a few others. So it's probably you know
where QS are and casual dining where twenty years ago,
(12:40):
That's where Mexican fast casual is at the moment. There's
a tailwind, there's a lot of organic growth. Chipotle's got
three thousand ish units, we've got seven hundred and fifty.
You'll probably see you know, ten to fifteen thousand units
in Mexican fast casual over the next decade.
Speaker 1 (12:58):
Yeah, it is definitely a hot category. I love Mexican food.
I like to joke around that I was Mexican in
a past life. I make a mean me and margarita
MI guacamole's pretty love it pretty damn good man.
Speaker 2 (13:10):
Yeah, but not as good as not as good as
the case.
Speaker 1 (13:12):
So you can get that case Oman, Yeah, I know
I can't. I wouldn't even try. I wouldn't even try
to say.
Speaker 2 (13:17):
It's yeah, it's fascinating to me. The other thing I
did is, I, you know, I hopped on a YouTube
and started looking at all these college kids, you know
where we've got a strong presence, and you know what
they like to do on Friday and Saturday night. Since
they'll go out and have a couple of drinks and no, no,
they'll get on camera and do a little taste stats.
Who's got the better burrito? You know, Chipotle or Qdo,
But who's got the better caso and guac and chips?
(13:40):
Pretty entertaining stuff.
Speaker 1 (13:42):
Cool. I'll have to check it out. So same Star
sales have been good over the last few years.
Speaker 2 (13:47):
That's great.
Speaker 1 (13:48):
Do you have any plans that you're willing to share
about driving seam Star sales and AUV games? Over the
next couple of years.
Speaker 2 (13:55):
Yeah, the portfolio of seven point fifty is in in
really good shape. So you know, under prior ownership, pretty
meaningful remodeling has taken place. There are we own one
hundred and sixty five of the seven hundred and fifty restaurants, Mike,
and we are remodeling half of that portfolio as we speak.
(14:19):
That's kind of the last component of the portfolio that
needs to be remodeled. Scope of that is about two
hundred and twenty thousand dollars per unit we're investing in
and we're placing digital menu boards in every one of
our company owned units and expect that to expand into
our franchise system. But we'll prove it out the business
(14:39):
case for our franchise partners. First, we're looking at some
innovative new kitchen equipment that enables pretty meaningful innovation moving forward.
And then you know the marketing lever as I mentioned,
you know, we're very good on the culinary front. We've
got you know, everything is freshly prepared, cleaning ingredients. You know,
(15:01):
we don't have microwaves all of our you know, there's
a customization is a very meaningful part of who we are.
People love the fact that they can build their own
burrito or bowl, or taco or casada. We've got some
products on a menu that you wouldn't find it at
Chipotle as well. So we've got lots of levers, and
(15:24):
certainly national marketing would be one of those. In scale
continuing to grow, we are This past year, Mike, we
opened up oh I'm doing this for memory, about thirty
five new units. I think we closed about fifteen units,
so maybe a net twenty new units. This fiscal year,
(15:45):
we plan to open about a net fifty and then
next year we're going to scale the seventy five plus
and our objective is to be putting one hundred net
new units in the ground on an annual basis. Have
the white space for that. We have just shy of
four hundred commitments contractual commitments from our existing franchise partners,
(16:09):
and we also have significant demand from external franchise ees.
So those who may be in the you know, in
the QSR world or the casual dining world, we're looking
to diversify their portfolios move into Mexican fast casual. What's
interesting is if you want in the Mexican fast casual
as a franchise e. You can't get there via Chipotle.
(16:30):
There are one hundred percent company owned, as you know,
and so it's interesting as I look at my eighty
five partners in all the white space that we have,
they want to grow, and I've also got these external
parties who want in, and so how we kind of
navigate existing partners and new partners as we build out
(16:52):
all these geographies is a pretty meaningful strategic opportunity for us.
When I look at a map, while we've got eighty
plus restaurants in the state of Colorado, I've got only
twenty in the state of Texas and about the same
amount in the state of Florida. So we've you know,
those are states that should have you know, eighty plus
(17:13):
units quite easily, the same way. You know, I look
at the Chicago market, We've got you know, only a
handful of restaurants there. So you'll see us pretty aggressively
develop those markets that where we have a presence today,
but we just don't have meaningful scale yet.
Speaker 1 (17:30):
How big is your off premise business and what kind
of lift do you expect off of the remodels.
Speaker 2 (17:36):
Delivery is a very important part of our business. I'd say,
you know, if I look at our off premise business,
third party delivery would be the largest component of that.
You know, probably sixteen eighteen percent. Digital orders on our
website and app would be an out of twelve percent.
Catering is our fastest growing and our most profitable segment
(17:59):
at about ten percent, so you know, thirty eight to
forty percent off premise. In the initial I mentioned that
we're remodeling about eighty five units. We're deploying about twenty
about thirty million dollars in capital as we speak this
fiscal year. Much of that around the remodels, but the
(18:20):
first eight or ten that we remodeled just completed in Boston.
In the initial results that we're seeing there right out
of the gate are very impressive. But then again, keep
in mind, I don't think the Boston restaurants had been
touched from an asset perspective for probably fifteen to twenty years.
So yeah, very meaningful. You know, I won't quantify it
(18:44):
other than to say our expectation would be not a
low single digit, but a very high single digit lift
from that investment. Good stuff.
Speaker 1 (18:56):
It sounds like the relationship with your franchisees is pretty
strong too. Has it been that way since since you arrived?
Speaker 2 (19:02):
Well, you know, I believe in franchise partnerships. That's really
all that I've done. Most of my work has been
with public companies, larger brands, you know, McDonald's and Applebee's
and KFC, all of which your asset, you know, ninety
plus percent asset light Applebe's, we were one hundred percent franchised.
And it's the only way I know how to do
(19:23):
business is you have smart strategic partners. It's their livelihood.
They've got everything at risk, and some of them have
other concepts. So we do have multi brand franchisees. But
given the fact that we only had eighty five mic,
it's pretty easy to gather everyone in a room, have
(19:46):
a strategic discussion, make some decisions and move forwards. So
we have a like every brand, we have an advisory board,
the q DOVA Franchise Association. Those are eight terrific partners
who represent a large percent and of the system. And
we have a unique profile. You know, we have the
largest franchise has one hundred units, our second largest as
(20:09):
sixty and then we at the other end of the spectrum.
We've got a good number of franchisees, we have one,
two or three, So that's interesting. You know, it's different
than what I had at Applebee's, where I only had
you know, approximately thirty partners and they were all very
large scale franchisees. So I enjoy that partnership. And they're
(20:32):
energized by the momentum they have. They understand the opportunity.
They all want to grow. We all have. You know,
we have an aligned mission here, which is you know,
incremental profitable growth. And the track record here is good.
I think you know, they had two prior owners. If
you go back in time, you had Jack in the
Box a long time ago, and you had Apollo most recently.
(20:56):
And so Butterfly is they've got about four to five
billion under management. That's our private equity firm. They are
fully committed to the restaurant space and couldn't be more
enthusiastic about what's happening here at Qdoba good stuff.
Speaker 1 (21:15):
Are you in the franchisees having any issues finding quality
real estate right now?
Speaker 2 (21:20):
Well, you know, I think the issues are maybe related
to you know, and everyone has them access to capital.
It's pretty you know, it's expensive right now, and so
finding real estate is not an issue. I mean we are,
we're looking for twenty four hundred square foot end caps.
The build out on a qdoba is eight hundred thousand dollars.
(21:43):
You know, with a one point six million AUV, it
might take you three years to get to a one
six AUV, but that two to one sales to investment
ratio is very attractive. The cash on cash return is
very attractive, and so development quant comes quite naturally here.
There was a hiatus, you know, during COVID, so you
(22:05):
know this predates me. But if you know, if COVID
hit in March of twenty twenty, i'd say twenty twenty,
twenty one and twenty two, we're pretty quiet ears on
the development front, obviously related to COVID, but we've you know,
we've kickstarted new restaurant development in Earnest here and expect
that to escalate up to about one hundred net new
(22:28):
units a year.
Speaker 1 (22:30):
It's exciting. Are there any margin expansion opportunities at the
restaurant level to note?
Speaker 2 (22:38):
Yeah? Yeah, many. It's say we have a terrific supply
chain team led by Paul Senwitz. Store in a constant
mode of evaluating P and L opportunities cost reduction without
compromising quality. We have pretty good scale, so we leveraged
that scale with our our vendor partners. You know, the
(23:00):
biggest level we have on a margin expansion is revenue
growth and so and there's a bit of an inflection
point if I look at our portfolio, Mike, and you know,
if I look at units with one point six million
av average, I look at those that are in the
kind of the one two to one four range, they
(23:23):
need to get to one five to one six to
have the type of cash flow that we like. And
then once you get north of one point six million,
your unit level economics become very very attractive. And so
revenue growth. And the good news is, you know, we've
got it meaningfully that momentum that I mentioned over three
(23:44):
years and it continues as we speak. So we're always
looking to reduce costs within the P and L as
we drive revenue on the top line. And we have
a number of initiatives in place to do that.
Speaker 1 (23:58):
Okay, good stuff, And what do you see it from
the consumer right now? You know, from our data, we've
seen kind of a slowdown. We got we're lapping some
difficult year over year comparisons here for the next couple
of months. What do you see it from the consumer?
Speaker 2 (24:12):
Yeah, you know, I went into the year candidly, you know,
coming out of Applebee's and casual dining expecting some sort
of recessionary environment. I think we've got it. Inflation and
interest rates and student loan debt and price of gas
and just price of goods in general has hit the consumer.
(24:34):
Our consumer is it's actually very similar to applebee you know,
we're a We're not an affluent guest. We're very much
Middle America in that respect. I mean, the if I
look at demographics, Mike, you'd probably find an equal split,
you know, for those with household income under fifty thousand,
as you would you know, those in the kind of
(24:55):
fifty to one hundred thousand dollars range. But I haven't
seen any impact here. It's uh, you know, we did
feel it in casual dining, but here in the fast
casual category, in particular in Qdoba, I haven't seen any
headwinds yet. I expected the consumer to economize, whether that's
(25:19):
you know, a lower check or less frequency. But our
traffic is strong, our sales are strong. We are pretty
you know, pretty good value, So we're value oriented brand.
Maybe that's part of it, but I have not seen
anything yet that would suggest a recessionary environment is impacting
(25:42):
our our business model. And so I think that speaks
to the category. You know, the category and I and I,
you know, we do participate with black Box. So when
I look at those, when I look at you know
twenty you know, fiscal twenty one being up eleven percent,
fiscal twenty two being up twelve percent, fiscal twenty three
being up six percent, in each of those year years,
(26:05):
we outperformed the black Box casual or fast casual average
comp sales performance as well. So we're overperforming. And I
think the combination of customization and convenience and value with
freshly prepared meals plays pretty well.
Speaker 1 (26:23):
Yeah, that's great, and I'd say some of your competitors
are probably are saying similar things, that there's there's kind
of a trade down from full service into that fast
casual segment.
Speaker 2 (26:35):
Yeah. I actually, if you had asked me which category
I think is likely to be impacted the hardest or
the worst, you know, I think that's casual dining. I
think guests will naturally trade down into either fast casual
or QSR and cut back on those you know, pretty
expensive sit down casual dining occasions.
Speaker 1 (26:56):
Yeah, I'm you know, drinks, appetizers, desserts, tip, yea, all
that adds up pretty quick.
Speaker 2 (27:03):
I agree with you.
Speaker 1 (27:04):
We've been writing, we've been writing the same and that's
what we've seen in the black box data. Really is
that you've seen you know, quick service and fast casual
actually improve from October to November and you know, looking
like they're and you know, at the expense of casual dining,
which is continued.
Speaker 2 (27:20):
To Yeah, it's really it's we're very bullish, you know.
It's a it's a strange environment. You and I have
lived through the you know, I think the three funkiest
years in our professional careers here and then now we've
got an election year, so god knows what that brings.
But from a business, you know, fundamental perspective, our business
fundamentals are rock solid. I see nothing to indicate a
(27:44):
slow down in organic growth, which is which is great.
Speaker 1 (27:48):
All right, We're going to end that there on a
high note. I like it, And yeah, this is going
to be a crazy year. We'll see what twenty twenty
four has in store for us.
Speaker 2 (27:58):
But this was great.
Speaker 1 (28:00):
Thanks again for doing it. Where can the audience go
to find a nearby MRC restaurant? And which social media
platforms are each of the brands big on.
Speaker 2 (28:11):
Yeah, we're on all of them, so you know again,
Kidova is everywhere, right. I think the challenge with the
Kidova brand is we need more penetration in many of
those states and markets, which is our plan moving forward.
And then modern market Eatery is essentially a Colorado based concept,
(28:32):
very accessible. You can also access that brand in Austin
or Dallas or Phoenix, but it's an emerging brand and
so more to come on that front. But I really
appreciate you taking the time, Mike. It's good to chat.
Happy New Year. Yeah, appreciate your investment every time you
go out to Kidoba, so thank you.
Speaker 1 (28:52):
Enjoy the case so for sure, man, I always do.
And a big thanks to the audience for tuning in.
If you liked the episode, please subscribe and leave a review.
Check back in in a couple of weeks. I'll be
speaking with Barry mcgow and the CEO of Fogo of
the show.
Speaker 2 (29:10):
H h H
Welcome to Chopping it Up. I'm your host, Mike Hammon,
the senior restaurant and food service analyst at Bloomberg Intelligence.
Today we're joined by John Siwinsky, CEO of Modern Restaurant Concepts.
Thanks for doing this, John.
Speaker 2 (00:35):
Hey, appreciate Mike looking forward to it for sure.
Speaker 1 (00:38):
Can you start out about your career background and what
attracted you to MRC.
Speaker 2 (00:44):
Yeah. Sure. For the prior I joined Modern Restaurant Concepts,
which owns Qdoba in Modern Market eatery two brands about
a year ago. For the six years prior to that,
I was president for Apple's Grown Bar, my second stint
with Applebee's. Before that, I was president of KFC with
(01:07):
Young Brands, and prior stints with McDonald's, Burger King, the
Walt Disney Company, And I was a franchise e for
a short period of time in Chicago for Duncan Brands
and Sonic, owning and operating ten restaurants, which was my
little entrepreneurial gig for a period of time, and I
(01:27):
decided to jump back into the corporate world.
Speaker 1 (01:31):
Good stuff. So let's start with Modern Market. How many
stores does the chain have? Where is it strong geographically?
And what service model does it employ.
Speaker 2 (01:40):
Yeah, Modern market Eatery is a small, better for you
fast casual brand. Started in Denver. We have thirty one units.
The majority of those are in the Denver kind of
broader Colorado area. We've branched out into Dallas. We have
five units in Dallas, we have three Phoenix, we have
(02:01):
three in Austin, We have one at the University of
Notre Dame, and we have a couple of units in
Denver International Airport. And so our plan there is to
expand pretty rapidly. We brought in our first franchise e.
Most of those units are company owned, but our first
franchise e this past year. He's the second largest Applebee's
(02:22):
franchise e, a fellow named John Rolf and a good
friend of mine, and he acquired the Austin market and
we'll be bringing in other franchisees here soon as well.
Speaker 1 (02:34):
All right, great stuff. In terms of those growth plans,
are you going to continue to build company owned stores
or are you just focused on selling markets to franchisees
at this point?
Speaker 2 (02:45):
Yeah, primarily franchise ee development. We just opened our first
drive through unit in Colorado Springs and that's a company
owned unit. But the in John Rolf just opened his
first unit in Kansas City. So I think the vast
majority of any new unit development will come through our
franchise partners.
Speaker 1 (03:06):
Okay, great, Any any other markets that that are really
attractive to you right now?
Speaker 2 (03:13):
Yeah? If you think about the profile of the brand,
is a female, skew, family oriented, perhaps you know, suburban,
slightly upscale. You think about markets like Denver, Austin, Dallas, Phoenix,
where we currently have a footprint. Other markets that come
(03:34):
to mind would be Salt Lake City, Nashville, Kansas City, Charlotte,
North Carolina. And so we've We've got I think much
of that Mike's going to be driven by the franchise
partners that step into the brand and where they have
a base of operations. But you know, the brand plays
(03:54):
very well where it where it exists today, AUVs are
about two million dollars, very very healthy unit economics, and
we're now looking to scale it pretty rapidly.
Speaker 1 (04:06):
Okay, cool. How big are the units? How much do
they cost to build?
Speaker 2 (04:11):
Yeah? About a million dollar costs to build twenty five
to twenty eight hundred square feet. All of them are
for the most part end cap units, and as I mentioned,
we just opened our first drive through end cap so
that'll be interesting to see how we execute the brand,
which does have a heavy off premise mix and portability
(04:34):
is outstanding for the brand. So yeah, good, very solid
sales to investment ratio. Unit economics are attractive. We need
to determine the next five markets and heavily penetrate those,
and so we have significant franchise interest. We will probably
(04:55):
Mike refranchise Dallas, and we have significant interest in the
state of Colorado, where we've got you know, we're kind
of ubiquitous in Denver. People know the brand quite well.
You get outside of Denver and people don't know the
brand yet. So that's our challenge or our opportunity.
Speaker 1 (05:18):
Cool. Yeah, two to one sales to investment ratio is
very attractive in terms of building the brand awareness. Is
social media a big part of that?
Speaker 2 (05:26):
Yeah, I think the you know, we we have a
pretty savvy digital marketing team and it you know, it
becomes a little more challenging in a market like Dallas
when you nearly have five units that are kind of
geographically dispersed. But you know, we invest a pretty meaningful
amount on an ongoing basis to drive awareness and trial.
(05:48):
Once we get him into the restaurant, the rest of
it kind of takes care of itself. It's a terrific menu,
you know, it's very I would categorize it as perhaps
a little more contemporary version of a of a era
and you know very much, you know, freshly prepared, culinary
driven concept. Cool.
Speaker 1 (06:07):
Yeah, I haven't had a chance to visit, but next
time I'm in Denver, I'll definitely check it out. Or Dallas.
Speaker 2 (06:12):
Yeah, we have nothing in your backyard, but we will
at some point. Yeah.
Speaker 1 (06:16):
Cool, just online. You know, when I was doing my research,
the restaurants looked really nice, for sure.
Speaker 2 (06:23):
Yeah, they're beautiful. They you know, they are very attractive
suburban units you would find them to. Most of them
have been built within the past ten years. So it's
a new concept and a in one that we scale.
We plan to scale pretty quickly. Nice.
Speaker 1 (06:40):
All right, So let's talk about Kenoba a little bit.
I covered Jack in the Box. So this is a
story I'm familiar with. Let's let's start with the big issues.
As when I was a customer, QESO was always like
a big highlight for me, and when I was covering it.
I always wondered why it didn't play prominent role in
(07:01):
the marketing. Has that been a point of emphasis since
it went private?
Speaker 2 (07:06):
Well, yeah, I think then interesting history. And I've been
with the brand now for a year. The brand is
owned by Butterfly Equity based in La Terrific, absolutely terrific partners,
you know, a big part of the reason I joined
and left Applebee's to do so. We have seven hundred
and fifty restaurants. We're in forty five of the fifty states.
(07:29):
Our largest markets would be where we started in Colorado.
We've got I think eighty five units in Colorado. We've
got sixty units in Wisconsin, We've got sixty in Michigan.
We're very strong in the Midwest, and then we've got
white space in many of those other geographies. Average unit
volume is one point six million dollars. Union economics are strong,
(07:52):
i'd say restaurant level E, but the MIC probably in
the eighteen to twenty percent range, you know, contingent upon
your volume. Our plan here is to double the size
of this brand pretty aggressively. So to move from seven
hundred and fifty to fifteen hundred units, to move from
one point six million AAV to two million AAV and
(08:15):
to approach a three billion dollar system. And you mentioned marketing,
and the brand has never really been a national marketer,
even though we've got pretty meaningful scale, not Chipotle like scale,
they've got three thousand plus restaurants, but we peacefully coexist
in this Mexican, very attractive Mexican fast casual space. And
(08:36):
next year, probably late next year, you'll see the brand
become a pretty meaningful national marketer for the first time.
So for the first time, we'll have an opportunity to
tell our story, to find who we are, what we
stand for, how we are differentiated, and we're looking forward
to that. Our franchise partners are very enthusiastic about exposing
(09:00):
the brand to America. Even though it's pretty well known.
I'm not sure everyone knows where their closest Qdoba is,
and so we've been a culinary marketing or culinary ops
driven concept to date, and our plan is to introduce
marketing here in short order. As a matter of fact,
we just retained Leeoverurnett Advertising out of Chicago as our
(09:25):
agency of record and they'll be our partners. We developed
content moving forward.
Speaker 1 (09:30):
Okay, nice Yeah, I was. I frequented the brand a
good bit in my twenties and when I was living
in Hobok and there was one Hoboken one up the street.
Speaker 2 (09:41):
Right. Well, yeah, that's a that's a franchise market for us.
We're eighty percent franchised at the moment. We did a
good amount of refranchising last year and early this past year.
Our fiscal year ends in September, and so we're into
our fiscal twenty four as we speak, and we're eighty
(10:03):
percent franchise. We'll get to ninety plus percent. Believe in
the asset light model, and we have eighty five you know,
absolutely terrific partners.
Speaker 1 (10:13):
Okay, cool, And i'd imagine, you know, I'd imagine why
the franchises would be excited about the national marketing. I mean,
we've seen some chains actually, you know, absolutely explode once
once they turned on that national marketing. Sonic is one
that that really comes to mind.
Speaker 2 (10:31):
Yeah, I think, you know, I've experienced it firsthand, and
I've witnessed it with other brands, and our franchisees understand it.
At some point when you're when you're in forty five
states and you have seven hundred and fifty plus restaurants
that you've got the scale. There's kind of an inflection
point right where you need to move from a local
marketer to a national marketer. We're there, and we've got
(10:53):
a very compelling story, and we've got tremendous momentum. I mean,
one of the things, honestly, that I found very tracted.
It was the first question I asked the Butterfly team
when I was talking with him, is tell me about
your past. You know, ten or twenty years. The brand's
been around for twenty years of comp sales, and they
pulled out a chart and showed me, and I'm looking
(11:13):
at it here, seventeen in the past twenty years positive
comp sales and post COVID MIC, you know, the brand
performed exceptionally well, up eleven percent and twenty one, twelve
percent and twenty two last year. And our fiscal year
again ends September thirty. We're up six percent in this
(11:36):
fiscal year through three months. That momentum continues, so there's
organic growth here. I attribute that to the we're in
the sweet spot of the fast casual category Mexican. For me,
Mexican fast casual is the absolute sweet spot the most
attractive category out there, and it it's also a unique
(11:59):
one for me when I again to study it, and
like you, I know this industry. Well, you've got you know,
almost four hundred thousand QSR restaurants out there. You've got
two hundred and twenty two hundred and thirty thousand casual
dining restaurants out there. They're only thirty about thirty five
thousand fast casual restaurants in Mexican. Fast casual is the
(12:19):
only category that I know of that doesn't have a
list of twenty mature competitors, you know, slugging it out
for market share battle. You've got Chipotle at number one,
You've got Kudoba as a clear number two, and then
you've got a few others. So it's probably you know
where QS are and casual dining where twenty years ago,
(12:40):
That's where Mexican fast casual is at the moment. There's
a tailwind, there's a lot of organic growth. Chipotle's got
three thousand ish units, we've got seven hundred and fifty.
You'll probably see you know, ten to fifteen thousand units
in Mexican fast casual over the next decade.
Speaker 1 (12:58):
Yeah, it is definitely a hot category. I love Mexican food.
I like to joke around that I was Mexican in
a past life. I make a mean me and margarita
MI guacamole's pretty love it pretty damn good man.
Speaker 2 (13:10):
Yeah, but not as good as not as good as
the case.
Speaker 1 (13:12):
So you can get that case Oman, Yeah, I know
I can't. I wouldn't even try. I wouldn't even try
to say.
Speaker 2 (13:17):
It's yeah, it's fascinating to me. The other thing I
did is, I, you know, I hopped on a YouTube
and started looking at all these college kids, you know
where we've got a strong presence, and you know what
they like to do on Friday and Saturday night. Since
they'll go out and have a couple of drinks and no, no,
they'll get on camera and do a little taste stats.
Who's got the better burrito? You know, Chipotle or Qdo,
But who's got the better caso and guac and chips?
(13:40):
Pretty entertaining stuff.
Speaker 1 (13:42):
Cool. I'll have to check it out. So same Star
sales have been good over the last few years.
Speaker 2 (13:47):
That's great.
Speaker 1 (13:48):
Do you have any plans that you're willing to share
about driving seam Star sales and AUV games? Over the
next couple of years.
Speaker 2 (13:55):
Yeah, the portfolio of seven point fifty is in in
really good shape. So you know, under prior ownership, pretty
meaningful remodeling has taken place. There are we own one
hundred and sixty five of the seven hundred and fifty restaurants, Mike,
and we are remodeling half of that portfolio as we speak.
(14:19):
That's kind of the last component of the portfolio that
needs to be remodeled. Scope of that is about two
hundred and twenty thousand dollars per unit we're investing in
and we're placing digital menu boards in every one of
our company owned units and expect that to expand into
our franchise system. But we'll prove it out the business
(14:39):
case for our franchise partners. First, we're looking at some
innovative new kitchen equipment that enables pretty meaningful innovation moving forward.
And then you know the marketing lever as I mentioned,
you know, we're very good on the culinary front. We've
got you know, everything is freshly prepared, cleaning ingredients. You know,
(15:01):
we don't have microwaves all of our you know, there's
a customization is a very meaningful part of who we are.
People love the fact that they can build their own
burrito or bowl, or taco or casada. We've got some
products on a menu that you wouldn't find it at
Chipotle as well. So we've got lots of levers, and
(15:24):
certainly national marketing would be one of those. In scale
continuing to grow, we are This past year, Mike, we
opened up oh I'm doing this for memory, about thirty
five new units. I think we closed about fifteen units,
so maybe a net twenty new units. This fiscal year,
(15:45):
we plan to open about a net fifty and then
next year we're going to scale the seventy five plus
and our objective is to be putting one hundred net
new units in the ground on an annual basis. Have
the white space for that. We have just shy of
four hundred commitments contractual commitments from our existing franchise partners,
(16:09):
and we also have significant demand from external franchise ees.
So those who may be in the you know, in
the QSR world or the casual dining world, we're looking
to diversify their portfolios move into Mexican fast casual. What's
interesting is if you want in the Mexican fast casual
as a franchise e. You can't get there via Chipotle.
(16:30):
There are one hundred percent company owned, as you know,
and so it's interesting as I look at my eighty
five partners in all the white space that we have,
they want to grow, and I've also got these external
parties who want in, and so how we kind of
navigate existing partners and new partners as we build out
(16:52):
all these geographies is a pretty meaningful strategic opportunity for us.
When I look at a map, while we've got eighty
plus restaurants in the state of Colorado, I've got only
twenty in the state of Texas and about the same
amount in the state of Florida. So we've you know,
those are states that should have you know, eighty plus
(17:13):
units quite easily, the same way. You know, I look
at the Chicago market, We've got you know, only a
handful of restaurants there. So you'll see us pretty aggressively
develop those markets that where we have a presence today,
but we just don't have meaningful scale yet.
Speaker 1 (17:30):
How big is your off premise business and what kind
of lift do you expect off of the remodels.
Speaker 2 (17:36):
Delivery is a very important part of our business. I'd say,
you know, if I look at our off premise business,
third party delivery would be the largest component of that.
You know, probably sixteen eighteen percent. Digital orders on our
website and app would be an out of twelve percent.
Catering is our fastest growing and our most profitable segment
(17:59):
at about ten percent, so you know, thirty eight to
forty percent off premise. In the initial I mentioned that
we're remodeling about eighty five units. We're deploying about twenty
about thirty million dollars in capital as we speak this
fiscal year. Much of that around the remodels, but the
(18:20):
first eight or ten that we remodeled just completed in Boston.
In the initial results that we're seeing there right out
of the gate are very impressive. But then again, keep
in mind, I don't think the Boston restaurants had been
touched from an asset perspective for probably fifteen to twenty years.
So yeah, very meaningful. You know, I won't quantify it
(18:44):
other than to say our expectation would be not a
low single digit, but a very high single digit lift
from that investment. Good stuff.
Speaker 1 (18:56):
It sounds like the relationship with your franchisees is pretty
strong too. Has it been that way since since you arrived?
Speaker 2 (19:02):
Well, you know, I believe in franchise partnerships. That's really
all that I've done. Most of my work has been
with public companies, larger brands, you know, McDonald's and Applebee's
and KFC, all of which your asset, you know, ninety
plus percent asset light Applebe's, we were one hundred percent franchised.
And it's the only way I know how to do
(19:23):
business is you have smart strategic partners. It's their livelihood.
They've got everything at risk, and some of them have
other concepts. So we do have multi brand franchisees. But
given the fact that we only had eighty five mic,
it's pretty easy to gather everyone in a room, have
(19:46):
a strategic discussion, make some decisions and move forwards. So
we have a like every brand, we have an advisory board,
the q DOVA Franchise Association. Those are eight terrific partners
who represent a large percent and of the system. And
we have a unique profile. You know, we have the
largest franchise has one hundred units, our second largest as
(20:09):
sixty and then we at the other end of the spectrum.
We've got a good number of franchisees, we have one,
two or three, So that's interesting. You know, it's different
than what I had at Applebee's, where I only had
you know, approximately thirty partners and they were all very
large scale franchisees. So I enjoy that partnership. And they're
(20:32):
energized by the momentum they have. They understand the opportunity.
They all want to grow. We all have. You know,
we have an aligned mission here, which is you know,
incremental profitable growth. And the track record here is good.
I think you know, they had two prior owners. If
you go back in time, you had Jack in the
Box a long time ago, and you had Apollo most recently.
(20:56):
And so Butterfly is they've got about four to five
billion under management. That's our private equity firm. They are
fully committed to the restaurant space and couldn't be more
enthusiastic about what's happening here at Qdoba good stuff.
Speaker 1 (21:15):
Are you in the franchisees having any issues finding quality
real estate right now?
Speaker 2 (21:20):
Well, you know, I think the issues are maybe related
to you know, and everyone has them access to capital.
It's pretty you know, it's expensive right now, and so
finding real estate is not an issue. I mean we are,
we're looking for twenty four hundred square foot end caps.
The build out on a qdoba is eight hundred thousand dollars.
(21:43):
You know, with a one point six million AUV, it
might take you three years to get to a one
six AUV, but that two to one sales to investment
ratio is very attractive. The cash on cash return is
very attractive, and so development quant comes quite naturally here.
There was a hiatus, you know, during COVID, so you
(22:05):
know this predates me. But if you know, if COVID
hit in March of twenty twenty, i'd say twenty twenty,
twenty one and twenty two, we're pretty quiet ears on
the development front, obviously related to COVID, but we've you know,
we've kickstarted new restaurant development in Earnest here and expect
that to escalate up to about one hundred net new
(22:28):
units a year.
Speaker 1 (22:30):
It's exciting. Are there any margin expansion opportunities at the
restaurant level to note?
Speaker 2 (22:38):
Yeah? Yeah, many. It's say we have a terrific supply
chain team led by Paul Senwitz. Store in a constant
mode of evaluating P and L opportunities cost reduction without
compromising quality. We have pretty good scale, so we leveraged
that scale with our our vendor partners. You know, the
(23:00):
biggest level we have on a margin expansion is revenue
growth and so and there's a bit of an inflection
point if I look at our portfolio, Mike, and you know,
if I look at units with one point six million
av average, I look at those that are in the
kind of the one two to one four range, they
(23:23):
need to get to one five to one six to
have the type of cash flow that we like. And
then once you get north of one point six million,
your unit level economics become very very attractive. And so
revenue growth. And the good news is, you know, we've
got it meaningfully that momentum that I mentioned over three
(23:44):
years and it continues as we speak. So we're always
looking to reduce costs within the P and L as
we drive revenue on the top line. And we have
a number of initiatives in place to do that.
Speaker 1 (23:58):
Okay, good stuff, And what do you see it from
the consumer right now? You know, from our data, we've
seen kind of a slowdown. We got we're lapping some
difficult year over year comparisons here for the next couple
of months. What do you see it from the consumer?
Speaker 2 (24:12):
Yeah, you know, I went into the year candidly, you know,
coming out of Applebee's and casual dining expecting some sort
of recessionary environment. I think we've got it. Inflation and
interest rates and student loan debt and price of gas
and just price of goods in general has hit the consumer.
(24:34):
Our consumer is it's actually very similar to applebee you know,
we're a We're not an affluent guest. We're very much
Middle America in that respect. I mean, the if I
look at demographics, Mike, you'd probably find an equal split,
you know, for those with household income under fifty thousand,
as you would you know, those in the kind of
(24:55):
fifty to one hundred thousand dollars range. But I haven't
seen any impact here. It's uh, you know, we did
feel it in casual dining, but here in the fast
casual category, in particular in Qdoba, I haven't seen any
headwinds yet. I expected the consumer to economize, whether that's
(25:19):
you know, a lower check or less frequency. But our
traffic is strong, our sales are strong. We are pretty
you know, pretty good value, So we're value oriented brand.
Maybe that's part of it, but I have not seen
anything yet that would suggest a recessionary environment is impacting
(25:42):
our our business model. And so I think that speaks
to the category. You know, the category and I and I,
you know, we do participate with black Box. So when
I look at those, when I look at you know
twenty you know, fiscal twenty one being up eleven percent,
fiscal twenty two being up twelve percent, fiscal twenty three
being up six percent, in each of those year years,
(26:05):
we outperformed the black Box casual or fast casual average
comp sales performance as well. So we're overperforming. And I
think the combination of customization and convenience and value with
freshly prepared meals plays pretty well.
Speaker 1 (26:23):
Yeah, that's great, and I'd say some of your competitors
are probably are saying similar things, that there's there's kind
of a trade down from full service into that fast
casual segment.
Speaker 2 (26:35):
Yeah. I actually, if you had asked me which category
I think is likely to be impacted the hardest or
the worst, you know, I think that's casual dining. I
think guests will naturally trade down into either fast casual
or QSR and cut back on those you know, pretty
expensive sit down casual dining occasions.
Speaker 1 (26:56):
Yeah, I'm you know, drinks, appetizers, desserts, tip, yea, all
that adds up pretty quick.
Speaker 2 (27:03):
I agree with you.
Speaker 1 (27:04):
We've been writing, we've been writing the same and that's
what we've seen in the black box data. Really is
that you've seen you know, quick service and fast casual
actually improve from October to November and you know, looking
like they're and you know, at the expense of casual dining,
which is continued.
Speaker 2 (27:20):
To Yeah, it's really it's we're very bullish, you know.
It's a it's a strange environment. You and I have
lived through the you know, I think the three funkiest
years in our professional careers here and then now we've
got an election year, so god knows what that brings.
But from a business, you know, fundamental perspective, our business
fundamentals are rock solid. I see nothing to indicate a
(27:44):
slow down in organic growth, which is which is great.
Speaker 1 (27:48):
All right, We're going to end that there on a
high note. I like it, And yeah, this is going
to be a crazy year. We'll see what twenty twenty
four has in store for us.
Speaker 2 (27:58):
But this was great.
Speaker 1 (28:00):
Thanks again for doing it. Where can the audience go
to find a nearby MRC restaurant? And which social media
platforms are each of the brands big on.
Speaker 2 (28:11):
Yeah, we're on all of them, so you know again,
Kidova is everywhere, right. I think the challenge with the
Kidova brand is we need more penetration in many of
those states and markets, which is our plan moving forward.
And then modern market Eatery is essentially a Colorado based concept,
(28:32):
very accessible. You can also access that brand in Austin
or Dallas or Phoenix, but it's an emerging brand and
so more to come on that front. But I really
appreciate you taking the time, Mike. It's good to chat.
Happy New Year. Yeah, appreciate your investment every time you
go out to Kidoba, so thank you.
Speaker 1 (28:52):
Enjoy the case so for sure, man, I always do.
And a big thanks to the audience for tuning in.
If you liked the episode, please subscribe and leave a review.
Check back in in a couple of weeks. I'll be
speaking with Barry mcgow and the CEO of Fogo of
the show.
Speaker 2 (29:10):
H h H
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.