April 10, 2025 • 23 mins
Authentic Restaurant Brands wants to be national, but it’s going to get there by being regional across the country, CEO Alex Macedo tells Bloomberg Intelligence. In this episode of the Choppin’ It Up podcast, Macedo sits down with BI’s senior restaurant and foodservice analyst Michael Halen to discuss the company’s unique strategy of acquiring strong regional brands and helping them improve sales and profit instead of supercharging unit growth. He also comments on the M&A market and why it’s become increasingly difficult to scale up national brands in a cost-effective way.
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Episode Transcript
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Speaker 1 (00:13):
Welcome to Chopping It Up.
Speaker 2 (00:14):
I'm your host, Mike Halon, the senior Restaurant and Food
Service analyst at Bloomberg Intelligence. Our Research and that a
bi's five hundred analysts around the globe can be found
exclusively on the Bloomberg terminal.
Speaker 1 (00:26):
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify.
Speaker 2 (00:30):
Today we're joined by Alex Mercedo, co founder and CEO
of Authentic Restaurant Brands.
Speaker 1 (00:36):
Thanks for joining us, Alex.
Speaker 3 (00:38):
My pleasure. Michael, good to be here with you.
Speaker 2 (00:41):
Please tell me a little bit about your career journey
and then how Authentic Restaurant Brands or ARB came to be.
Speaker 3 (00:49):
Well. I've been involved with food and beverage since I
started my career at ABNBEV. For the last fifteen years
or so, i've been working mostly with restaurants, and twenty
eleven I joined burg King, where I was president for
about seven years of North America. After that, I became
the global president of Tim Morton's for a couple of years,
(01:11):
and then for the last four years, I've been a
partner at Garnett Station Partners, with private equity group based
out of New York where I work in several of
our investments. In one of these investments is Authentic Restaurant Brands,
which I co founded with Alex and Matt and the
Garnet Station Group about four years ago. And it's become
(01:34):
so exciting, so big, and really so successful quickly that
about a month ago I stepped into the role of
CEO of Authentic Restaurant Brands. So I've been working with
restaurants now for the most part of my career.
Speaker 2 (01:49):
And you have a unique kind of niche here with ARB.
Can you talk about how you're looking for brands but
it's not necessarily the next big thing, you know, it's
it's it's brands that you know, maybe aren't going to
be national brands at some point.
Speaker 3 (02:06):
That that's that's exactly it. So in our thought process
when we put together ARB was that there is some
magical brands that have very deep ties with their communities,
but their regional and scope right and because of regional
in scope, sometimes they get overlooked by the big groups
or by you know, someone from California will never know
(02:28):
what the good brand is to get pizza in Ohio
and the good sports bar in Philadelphia and so on,
and we thought that we'd build a holding company to
acquire regional brands that are extremely extremely well run, uh
and then have our team of experts and veterans work
with these brands, you know, to bring the latest in
data science technology, you know, financial practices and so on.
(02:51):
Because we thought, listen, these brands, even if they're very
well run, because they're limited in size and regional, perhaps
they don't have the latest and greatest when it comes
to the latest systems to run restaurants. And sure enough,
that's what we found. And we've been very successful in
partnering with these brands, keeping the management teams which are great,
and just deploying more resources when it comes to you
(03:14):
than the latest technology to find new sites, or the
technology to analyze your menu architecture and find the gaps
in the menu architecture, perhaps to organize your data your
data management system a little bit better so that you
can find some insights on everyday sales. And that's what
we've done now for three and a half years, and
we're up to five brands. We just acquired Tabin the Square,
(03:35):
which is a very successful Polish casual brand from you know,
the New England area that gets US a billion in
sales and around one hundred and fifty million dollars in
EP of that. So it's a fairly relevant business made
up of relatively small regional brands.
Speaker 2 (03:52):
Yeah, the first time we spoke at the ICR conference
back in January, I thought this was refreshing. You know,
I kind of got tired of hearing everybody trying to
track down the next.
Speaker 1 (04:01):
To pole, which is not an easy thing to do, clearly.
Speaker 3 (04:06):
And you know what, I think a lot of this
thought comes perhaps from my experience managing very large and
complex restaurant systems, mostly of which we're building the eighties
and nineties. So if you look at the big national
brands in the United States, you know, the vast majority
of them we're building the eighties and nineties, and then
a few in the two thousands and so on. It's
become increasingly difficult to scale up and build national brands
(04:31):
in a cost effective way. Media costs are extremely expensive,
it's difficult to find sites like it was easier back
in the day. So our thought is, you know, let's
take these brands that are national, make them better where
they operate. Certainly, start building more but you know, we're
not going to take a brand that's in Pennsylvania and
take it all the way to Arizona. What we'll do
is we'll find what the authentic restaurant brand is of
(04:54):
Arizona and we'll try to acquire that brand and we
just you know, build it media. So we want to
be national, but we're going to get there by being
regional all over the country. That's kind of our mandrend
where we think about going.
Speaker 1 (05:07):
That's cool.
Speaker 2 (05:07):
Well, expanding it in concentric circles is back.
Speaker 3 (05:10):
I guess, well, it's about twenty minutes and not twenty
hours a way. That's what we always tell our teams.
If you can drive twenty minutes, that's okay to get
the next site. Now if you have to drive twenty
hours or take a two hour flight there, that might
be a little bit.
Speaker 1 (05:25):
You know.
Speaker 3 (05:25):
We have a great example. We acquired this company called
Poetropic Call. I don't know how familiar you are, but
Poetropic Call is like the original you know brand in Florida.
We sell grilled chicken. It's it's a mix of fast
casual and drive through. And I'm in QSR because there's
a big drive through component, but it's an elevated quality
(05:45):
of food served quickly, fresh and hot. And you know,
we have around one hundred and twenty locations in Florida
right and this brand has tried to expand naturally in
the past without much success. And then we get asked
all the time. So we bought Poetrypic, are you going
to try to take it to Texas or California and
Arizona again? And said, no, we're not. And people get
really surprisable. So I wonder why did you acquire it? Well,
(06:07):
first of all, because we've thought a lot of saw
a lot of opportunity to make it even better where
it is. But second, if you think about it, in
the state of Florida alone, we have one hundred and
twenty Poetry Pic calls which have more than average, more
than three and a half million dollars a box. There's
nine hundred and fifty McDonald's, there's over five hundred Burgons,
and over five hundred Wendy's. We could probably double the
size of Poetry Pical in the state of Florida without
(06:30):
taking you know, many risks at a very high volume.
So so that's kind of the mindset that we have
you know, to be nimble. We have been able to
stay under the radar until this last acquisition, but now
we've become sizable enough that we're starting to tell our
story and it's been it's been a lot of fun.
Speaker 1 (06:47):
Can you talk about just name the other brands that
are in your.
Speaker 3 (06:50):
Portfolio, so we have we have five brands. The first
brand that we acquired was Primanti Brothers from the western
Pennsylvania region, mostly focused on Pittsburgh. Primanti Brothers has been
around for more than ninety years. Is a very iconic
sandwich and it's a true namestake where it is right
so that's where people go to hang out and watch sports,
(07:13):
and you know, it's really a staple of that part
of the country. We have Mambo Seafood, which is, you know,
a Mexican theme family restaurant based out of Houston that
we recently expanded into San Antonio. We have PJ. Wellhelm's,
which is a sports bar casual dining concept for families
that's based out of Philadelphia and the region. We have
(07:35):
Portrait Pical one hundred and twenty locations in Florida, primarily
grilled chicken, rice and beans. And then we recently acquired
a tavern and is where which is in New England
right now? What all these brands have in common? We look,
we have a very very very difficult criteria for a
restaurant to become an AARB restaurant. So first of all,
(07:55):
high volumes relative to the pure set. Second, high margins
relative to the pure set. Third, we look for brands
that have been around for more than twenty years. And
this for us is key because we don't want the
latest fad. We want, you know, brands that have survived
the test of time and the different cycles. But most
of all, most important for us, we look for brands
(08:18):
that have fans, not guests. So we have a proprietary
way of measuring brand loyalty that we roll out in
each one of these brands that we're measuring, But we
also do by Google reviews and so on, and we
take brands that people truly love and that are truly
part of their routine. We have evidence of at least
(08:38):
three of our five brands people having tattoos that are
about the brands swihear in their body, So it's kind
of unique. You don't get that a lot for most
restaurant concepts in the world.
Speaker 1 (08:52):
Yeah, that's very cool.
Speaker 2 (08:54):
I've never been to a Primanti Brothers, but I've heard
that they especially have a very strong cult following there.
Speaker 3 (09:00):
They do. It's it's wild, and it's tied, you know,
to the Steelers and to the Pirates, and there's a
whole there's a whole thing. It's you step in. You know.
Our guests in that area, they have their permit, is right,
because you know, we have more than forty locations, but
it's like their permane is as an extension of their
living effectively. So it's a really really cool relationship that
(09:24):
a lot of our guests have with our brands.
Speaker 2 (09:26):
Yeah, and they are avid sports fans. Between the Steelers
and the Penguins.
Speaker 3 (09:33):
Great market, it's a great market for a brand like
Promants for sure.
Speaker 1 (09:37):
Very cool.
Speaker 2 (09:38):
So are you keeping the founders on to help run
the business or is that you know, I guess.
Speaker 1 (09:43):
A case on a case by case basis.
Speaker 3 (09:45):
That's on a case by case basis we do because
we only buy great brands, or we tied to only
buy great brands that are very well run. You know.
Our our mode is to keep the management team on board,
so we do that all the time. Now the founder
staying that really depends on you know, where the founder's
(10:06):
mind's at. And you know, so for example, at Tavern
in the Square, which we just acquired earlier this year,
the founder state he remains a CEO. He's now a
partner at ARB, not only a partner at Tavern in
the Square, and it's great working with him. A true entrepreneur, brilliant,
full energy, great team leader for Mombo for example. You know,
(10:28):
the founder, we still talk to him once or twice
a month. We when we have questions. He's still very present.
He's very proud of what he built at PJ. Wellehems,
you know, not the founder, but you know the CEO.
Now we have a new CEO, which was part of
the natural process, but the CEO when we bought the business,
that was the CEO for decades before. He's on our board,
(10:48):
so you know, I get to speak with him at
least once a month. So we try to keep we
try to keep everyone that wants to stay along for
the ride along for the ride. Now it's that's on
a case by case basis, and but we do we
do try to keep for sure, the management team entirely
when we acquire one of these brands.
Speaker 1 (11:06):
Great, what's the sweet spot for a target in terms
of annual ebada?
Speaker 3 (11:10):
So our sweet spot has changed a little bit now
that we've gotten a little bit bigger. But I'd say
we look for you know, fifteen to twenty five million
dollars and edit, that is probably where we would feel
comfortable now. And it looks like we can acquire a
brand every you know, nine to twelve months. Is I
(11:31):
think something that we can do and when we can
digest very easily. Now, one thing, Michael, that happened that
we've learned that happens is we have we've built a
system that actually is self learning. So you know, our
playbook from the first business was based on our previous experience.
Right when we acquire the second business, we had our
previous experience plus the first business. And so now that
(11:55):
we're we're on the fifth business, it's become like a
lot more intelligence. So we get to the results that
we need to get much quicker and you know, with
less friction. And I think this is just going to
continue to evolve. Right. So the other thing is we
don't we built a corporate team at the ARB level,
So I have you know, reporting to me a team
(12:18):
that provides full support to the brands. We don't operate
the brands. We don't tell them what to do. We suggest,
we encourage, and we recommend based on industry best practice.
So we have a team on marketing analytics, we have
a team on technology, we have a team on finance,
and then we have a team that doesn't interact with
current brands but looks for the next big things on
(12:39):
business development. And then we bring to the brands, you know,
solutions for problems that they don't even know they have. Right, so,
let's say a brand wants to run a launch of
loyalty program. We say, listen, Brands like yours have followed
this path with more success than that path. If you
choose to follow this path, which we encourage, this is
(12:59):
this is the place book we recommend. Or sometimes you
say listen, we don't think you're ready to follow this path.
Now you have to hire more people, you have to
bring in a new system or whatever it is. So
it's not like just do everything at once or the playbook.
It varies depending on the stage that the brand when
we acquire it.
Speaker 2 (13:16):
So also i'd imagine part of your process is when
you're analyzing some of these chains, is like, who needs
help in these core competencies, whether it's you know, finance,
marketing or whatever, it might be.
Speaker 3 (13:28):
Right, Yes, so that's the mat you just touched. For us,
what's the magic sauce, which is this if we can
find brands that are very well run with amazing guest
satisfaction scores and high margins, but still during the diligence process,
we find gold everywhere. Right. And the sense that you know,
(13:51):
whether it's database management, you know, back of the house, technology, accounting, whatever,
the perfect scenario for us is something that's already magical
that we find that we know that we're going to
find so much more to be able to drop drop
you know. The top line and the reason that I
think we can do this perhaps better than some of
our peers is in my team, my direct team, we
(14:15):
only have restaurant veterans and you know, industry experts, so
we are not, uh, we don't have a private equity mindset.
We're very proficient in finance by all means, even you know,
we just got John Howie uh as our CFO, who's
done amazing things in his career. But John is a
restaurant guy, Like I'm a restaurant guy. Now we're partnering,
(14:35):
you know, we're owned by their Net Station Partners, which
and they're wiz you know, they're like wizards when it
comes to finance. So we have the advantage of having
them structure the deals and put together the deals. But
for us, but we kind of see things that perhaps
you know, other financial sponsors don't because we are true
restaurant people, and so we look at it from a
(14:55):
different angle. And when we see like the opportunity to
do a small tweak and the menu board or a
small tweak and how they run operations or start a
small tweak in operating hours, whatever it is, that's gold
for us when we're evaluating to buy a company.
Speaker 2 (15:11):
Yeah, that's cool man, And I could just see it,
you know, when you talk about your passion for the operations.
Speaker 3 (15:18):
No, there's things you might you won't believe. Like we
were looking at Poetrop McCallen. It's a seventy percent drive
through business, right, and then we went through to drive
through ones and we noticed that they didn't have numbers
on their top selling items, right, and that pretty much
fifty percent of the order taking was customized, which I
mean you can keep it customized. We'd imagine that one
(15:40):
out of every two cars, the guest has to relate
to the order taker in Spanish or Spanglish or English.
So it's very difficult through the order taking. So what
we did was the most basic thing ever. I mean,
you've ordered by number at burriy K McDonald's and Wendy's
for sure in your life. So we grew up. We
(16:00):
know what a number one is, what a number two is,
what the number three is. Guess what. They didn't have
that at puy trp call, so you know, we're very
shortly in. We ran our data engineers figured out on
that particular on our tropic chop goals and some of
our sandwiches, which were the top sellers and which combinations
work the best. We ranked them, we assigned numbers to them,
We tested it. We increased order accuracy by double digits,
(16:24):
and we shaved fifteen seconds off of dive dive drive
through times on average a day. Fifteen seconds on average
on one day with the amount of cars that we have,
that's a mountain, right, So it's doing It's not rocket science.
It's just based on our experience what we can see
that perhaps some others can't.
Speaker 1 (16:42):
Yeah, it's impressive.
Speaker 2 (16:43):
And fifteen seconds, right, that could eliminate a car or
two from the line, and it could be the difference
between somebody driving past the store or pulling in and ordering.
Speaker 3 (16:53):
Right, that's exactly I'll tell you another one, very simple one,
not rocket science. Again, we got the Puyer Trupic call
and during co COVID, you know, like most people, they
had reduced their operating hours from closing down at midnight
to eleven pm, right, but they had never moved it
back and everyone else did. Right, So we're like, any
(17:14):
reason why you guys didn't move back to twelve pm?
And no, we just fell through the cracks. We didn't, Okay,
so let's do that. And we did ensure enough, you know,
sales took off the roof and so it's it's not
but again there you have to be able to look
at it with those eyes, and it's you know, you're
not going to get that from a spreadsheet. You're going
(17:35):
to get that by visiting the restaurant, by understanding how
they operate, and by you know, interacting with the team.
Speaker 2 (17:40):
Yeah, it's awesome, that's why I tend to lean towards
strong operators in the CEO CEO role of the companies
I cover, although some there's some marketers that have done
a phenomenal job too, especially with franchise brands, all right.
Speaker 1 (17:54):
So I'd imagine there's a lot of targets out there, right.
Speaker 2 (17:58):
I mean, this is such a frag minted business across
the United States.
Speaker 3 (18:02):
It is. So there's two things that really help us. First,
it is a fragmented business. And you know, for whatever reason,
you know, some of the some of the players in
the market and the financial sponsors, space and all, they
kind of stay away from restaurants and casual dining in particular, right,
And we love that because we think that, you know,
(18:24):
we know how to operate in the system. So there's
I think we're in active conversations with you know, about
twenty brands. We're in real conversations with about five or
the twenty because this is a long term game, right,
And what's changed over time as you know, the founders
talk to each other and people see a little bit
of what we're doing is we're getting a lot of
(18:45):
incoming and a lot of inbounds, which we didn't in
the past. To be honest, when we started this it
was only three and a half years ago, but we can
feel the difference. People. Some of these founders of the
regional concepts, they kind of know who we are now.
They know that we keep the culture, that we the businesses,
that we actually add cost to the business, right, we
don't remove costs of the business, not our platform. And
(19:06):
they're all about growth and getting something that's already amazing
and making it just a little bit better. And that's
that's how we operate. We don't force store openings. Some
brands we don't even want to open right now. With
boetropycause since we bought it, we close fifty locations. We
have an open one maybe next year were an open
one or two and start that path. But we don't
have to follow you know, a standard you know, private
(19:28):
equity playbook by brand that you know come in slash
GNA open restaurants. No, we we can do whatever the
brand needs. At this point, Tavern and Square, we're probably
gonna open three or four this year out of a
base of twenty five. So that's really relevant right in
the percent phases. So it's going to depend from one
brand to the other cool.
Speaker 2 (19:47):
So it sounds like you're saving some money on investment
banking fees, which is good.
Speaker 1 (19:51):
What kind of multiples are you paying?
Speaker 3 (19:53):
We were able to get into these brands for very
attractive multiples. M'd say, on a blended average, we're below
seven times, which is kind of remarkable for the quality
of the brands that we're acquiring. And you know, just
if we continue to be an elite player and you know,
(20:16):
grow the top line on the bottom line how we've
been able to do in the last three and a
half years, I think that we could probably look at
some multiple expansion. But we're not a financial engineering impact.
We're an operating engineering company. We're not a financial engineering company.
We're focused exclusively on making the businesses better. Right, the
financial outcome, the multiple expansion, that's all. That's all a
(20:40):
function of running the companies better.
Speaker 2 (20:42):
Yeah, and I like that you're running them for the
long term, which is how they should be run.
Speaker 1 (20:47):
Who's your primary competition for these deals?
Speaker 3 (20:50):
You know, I get us that question a lot. I
don't think there's anyone that does it in a structured
way like we do it. I think, you know, Matt
Perlman and Alex loan. The founders at Garnett Station Partners.
You know, they're they're so visionary and you know, and
they're so thoughtful in the thought of them what they
(21:10):
do that they they were they built the ARB team
before or just as we were acquiring concerts, right, so,
and that's a very bold, you know, initiative to take that.
We talked a lot of people, Oh, I've always thought
about doing the regional stuff. Oh, that makes so much sense,
and we all, so, why didn't you do it? Because
we really didn't know how to start. And it wasn't
(21:32):
different with us. But you know, Alex and Matty, they
build our team. They brought me in, they brought the
team that reports to me, and you know, we put
our money where our mouse were upfront and and that
was the only way for us to really make sure
that we proved out the pieces and and it's worked.
(21:52):
From the beginning. We called the business Authentic Restaurant Brands, right,
We didn't change the name. That's what we set out
to do. We thought it made sense. You know how
some things make a lot of sense in theory, but
in practice they don't. Fortunately for us, this, you know,
the real life turned out to be very similar to
what we laid out on an Excel spreadsheet and a
(22:12):
powerboard presentation. But it's all because, you know, I think
Garnett's Station partners had really you know, the commitment to
build the Arab team and to build the business even
before we started operating as ARB. And that's really bold,
and that's turned out to be a very good decision.
Speaker 1 (22:32):
Yeah, for sure.
Speaker 2 (22:33):
And it's a little bit of a mote because I'm
sure others would like to kind of try to mimic
what you've created here.
Speaker 1 (22:39):
It's it's exciting, man.
Speaker 2 (22:40):
I think that's a perfect spot to wrap it up.
Thanks again, Alex, and I want to thank the audience
for tuning in. If you liked our discussion, please share
it with your friends and co workers. Check back soon
for an interview with Zach Oates, the founder and CEO
of Ovation.
Speaker 3 (23:00):
He
Welcome to Chopping It Up.
Speaker 2 (00:14):
I'm your host, Mike Halon, the senior Restaurant and Food
Service analyst at Bloomberg Intelligence. Our Research and that a
bi's five hundred analysts around the globe can be found
exclusively on the Bloomberg terminal.
Speaker 1 (00:26):
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify.
Speaker 2 (00:30):
Today we're joined by Alex Mercedo, co founder and CEO
of Authentic Restaurant Brands.
Speaker 1 (00:36):
Thanks for joining us, Alex.
Speaker 3 (00:38):
My pleasure. Michael, good to be here with you.
Speaker 2 (00:41):
Please tell me a little bit about your career journey
and then how Authentic Restaurant Brands or ARB came to be.
Speaker 3 (00:49):
Well. I've been involved with food and beverage since I
started my career at ABNBEV. For the last fifteen years
or so, i've been working mostly with restaurants, and twenty
eleven I joined burg King, where I was president for
about seven years of North America. After that, I became
the global president of Tim Morton's for a couple of years,
(01:11):
and then for the last four years, I've been a
partner at Garnett Station Partners, with private equity group based
out of New York where I work in several of
our investments. In one of these investments is Authentic Restaurant Brands,
which I co founded with Alex and Matt and the
Garnet Station Group about four years ago. And it's become
(01:34):
so exciting, so big, and really so successful quickly that
about a month ago I stepped into the role of
CEO of Authentic Restaurant Brands. So I've been working with
restaurants now for the most part of my career.
Speaker 2 (01:49):
And you have a unique kind of niche here with ARB.
Can you talk about how you're looking for brands but
it's not necessarily the next big thing, you know, it's
it's it's brands that you know, maybe aren't going to
be national brands at some point.
Speaker 3 (02:06):
That that's that's exactly it. So in our thought process
when we put together ARB was that there is some
magical brands that have very deep ties with their communities,
but their regional and scope right and because of regional
in scope, sometimes they get overlooked by the big groups
or by you know, someone from California will never know
(02:28):
what the good brand is to get pizza in Ohio
and the good sports bar in Philadelphia and so on,
and we thought that we'd build a holding company to
acquire regional brands that are extremely extremely well run, uh
and then have our team of experts and veterans work
with these brands, you know, to bring the latest in
data science technology, you know, financial practices and so on.
(02:51):
Because we thought, listen, these brands, even if they're very
well run, because they're limited in size and regional, perhaps
they don't have the latest and greatest when it comes
to the latest systems to run restaurants. And sure enough,
that's what we found. And we've been very successful in
partnering with these brands, keeping the management teams which are great,
and just deploying more resources when it comes to you
(03:14):
than the latest technology to find new sites, or the
technology to analyze your menu architecture and find the gaps
in the menu architecture, perhaps to organize your data your
data management system a little bit better so that you
can find some insights on everyday sales. And that's what
we've done now for three and a half years, and
we're up to five brands. We just acquired Tabin the Square,
(03:35):
which is a very successful Polish casual brand from you know,
the New England area that gets US a billion in
sales and around one hundred and fifty million dollars in
EP of that. So it's a fairly relevant business made
up of relatively small regional brands.
Speaker 2 (03:52):
Yeah, the first time we spoke at the ICR conference
back in January, I thought this was refreshing. You know,
I kind of got tired of hearing everybody trying to
track down the next.
Speaker 1 (04:01):
To pole, which is not an easy thing to do, clearly.
Speaker 3 (04:06):
And you know what, I think a lot of this
thought comes perhaps from my experience managing very large and
complex restaurant systems, mostly of which we're building the eighties
and nineties. So if you look at the big national
brands in the United States, you know, the vast majority
of them we're building the eighties and nineties, and then
a few in the two thousands and so on. It's
become increasingly difficult to scale up and build national brands
(04:31):
in a cost effective way. Media costs are extremely expensive,
it's difficult to find sites like it was easier back
in the day. So our thought is, you know, let's
take these brands that are national, make them better where
they operate. Certainly, start building more but you know, we're
not going to take a brand that's in Pennsylvania and
take it all the way to Arizona. What we'll do
is we'll find what the authentic restaurant brand is of
(04:54):
Arizona and we'll try to acquire that brand and we
just you know, build it media. So we want to
be national, but we're going to get there by being
regional all over the country. That's kind of our mandrend
where we think about going.
Speaker 1 (05:07):
That's cool.
Speaker 2 (05:07):
Well, expanding it in concentric circles is back.
Speaker 3 (05:10):
I guess, well, it's about twenty minutes and not twenty
hours a way. That's what we always tell our teams.
If you can drive twenty minutes, that's okay to get
the next site. Now if you have to drive twenty
hours or take a two hour flight there, that might
be a little bit.
Speaker 1 (05:25):
You know.
Speaker 3 (05:25):
We have a great example. We acquired this company called
Poetropic Call. I don't know how familiar you are, but
Poetropic Call is like the original you know brand in Florida.
We sell grilled chicken. It's it's a mix of fast
casual and drive through. And I'm in QSR because there's
a big drive through component, but it's an elevated quality
(05:45):
of food served quickly, fresh and hot. And you know,
we have around one hundred and twenty locations in Florida
right and this brand has tried to expand naturally in
the past without much success. And then we get asked
all the time. So we bought Poetrypic, are you going
to try to take it to Texas or California and
Arizona again? And said, no, we're not. And people get
really surprisable. So I wonder why did you acquire it? Well,
(06:07):
first of all, because we've thought a lot of saw
a lot of opportunity to make it even better where
it is. But second, if you think about it, in
the state of Florida alone, we have one hundred and
twenty Poetry Pic calls which have more than average, more
than three and a half million dollars a box. There's
nine hundred and fifty McDonald's, there's over five hundred Burgons,
and over five hundred Wendy's. We could probably double the
size of Poetry Pical in the state of Florida without
(06:30):
taking you know, many risks at a very high volume.
So so that's kind of the mindset that we have
you know, to be nimble. We have been able to
stay under the radar until this last acquisition, but now
we've become sizable enough that we're starting to tell our
story and it's been it's been a lot of fun.
Speaker 1 (06:47):
Can you talk about just name the other brands that
are in your.
Speaker 3 (06:50):
Portfolio, so we have we have five brands. The first
brand that we acquired was Primanti Brothers from the western
Pennsylvania region, mostly focused on Pittsburgh. Primanti Brothers has been
around for more than ninety years. Is a very iconic
sandwich and it's a true namestake where it is right
so that's where people go to hang out and watch sports,
(07:13):
and you know, it's really a staple of that part
of the country. We have Mambo Seafood, which is, you know,
a Mexican theme family restaurant based out of Houston that
we recently expanded into San Antonio. We have PJ. Wellhelm's,
which is a sports bar casual dining concept for families
that's based out of Philadelphia and the region. We have
(07:35):
Portrait Pical one hundred and twenty locations in Florida, primarily
grilled chicken, rice and beans. And then we recently acquired
a tavern and is where which is in New England
right now? What all these brands have in common? We look,
we have a very very very difficult criteria for a
restaurant to become an AARB restaurant. So first of all,
(07:55):
high volumes relative to the pure set. Second, high margins
relative to the pure set. Third, we look for brands
that have been around for more than twenty years. And
this for us is key because we don't want the
latest fad. We want, you know, brands that have survived
the test of time and the different cycles. But most
of all, most important for us, we look for brands
(08:18):
that have fans, not guests. So we have a proprietary
way of measuring brand loyalty that we roll out in
each one of these brands that we're measuring, But we
also do by Google reviews and so on, and we
take brands that people truly love and that are truly
part of their routine. We have evidence of at least
(08:38):
three of our five brands people having tattoos that are
about the brands swihear in their body, So it's kind
of unique. You don't get that a lot for most
restaurant concepts in the world.
Speaker 1 (08:52):
Yeah, that's very cool.
Speaker 2 (08:54):
I've never been to a Primanti Brothers, but I've heard
that they especially have a very strong cult following there.
Speaker 3 (09:00):
They do. It's it's wild, and it's tied, you know,
to the Steelers and to the Pirates, and there's a
whole there's a whole thing. It's you step in. You know.
Our guests in that area, they have their permit, is right,
because you know, we have more than forty locations, but
it's like their permane is as an extension of their
living effectively. So it's a really really cool relationship that
(09:24):
a lot of our guests have with our brands.
Speaker 2 (09:26):
Yeah, and they are avid sports fans. Between the Steelers
and the Penguins.
Speaker 3 (09:33):
Great market, it's a great market for a brand like
Promants for sure.
Speaker 1 (09:37):
Very cool.
Speaker 2 (09:38):
So are you keeping the founders on to help run
the business or is that you know, I guess.
Speaker 1 (09:43):
A case on a case by case basis.
Speaker 3 (09:45):
That's on a case by case basis we do because
we only buy great brands, or we tied to only
buy great brands that are very well run. You know.
Our our mode is to keep the management team on board,
so we do that all the time. Now the founder
staying that really depends on you know, where the founder's
(10:06):
mind's at. And you know, so for example, at Tavern
in the Square, which we just acquired earlier this year,
the founder state he remains a CEO. He's now a
partner at ARB, not only a partner at Tavern in
the Square, and it's great working with him. A true entrepreneur, brilliant,
full energy, great team leader for Mombo for example. You know,
(10:28):
the founder, we still talk to him once or twice
a month. We when we have questions. He's still very present.
He's very proud of what he built at PJ. Wellehems,
you know, not the founder, but you know the CEO.
Now we have a new CEO, which was part of
the natural process, but the CEO when we bought the business,
that was the CEO for decades before. He's on our board,
(10:48):
so you know, I get to speak with him at
least once a month. So we try to keep we
try to keep everyone that wants to stay along for
the ride along for the ride. Now it's that's on
a case by case basis, and but we do we
do try to keep for sure, the management team entirely
when we acquire one of these brands.
Speaker 1 (11:06):
Great, what's the sweet spot for a target in terms
of annual ebada?
Speaker 3 (11:10):
So our sweet spot has changed a little bit now
that we've gotten a little bit bigger. But I'd say
we look for you know, fifteen to twenty five million
dollars and edit, that is probably where we would feel
comfortable now. And it looks like we can acquire a
brand every you know, nine to twelve months. Is I
(11:31):
think something that we can do and when we can
digest very easily. Now, one thing, Michael, that happened that
we've learned that happens is we have we've built a
system that actually is self learning. So you know, our
playbook from the first business was based on our previous experience.
Right when we acquire the second business, we had our
previous experience plus the first business. And so now that
(11:55):
we're we're on the fifth business, it's become like a
lot more intelligence. So we get to the results that
we need to get much quicker and you know, with
less friction. And I think this is just going to
continue to evolve. Right. So the other thing is we
don't we built a corporate team at the ARB level,
So I have you know, reporting to me a team
(12:18):
that provides full support to the brands. We don't operate
the brands. We don't tell them what to do. We suggest,
we encourage, and we recommend based on industry best practice.
So we have a team on marketing analytics, we have
a team on technology, we have a team on finance,
and then we have a team that doesn't interact with
current brands but looks for the next big things on
(12:39):
business development. And then we bring to the brands, you know,
solutions for problems that they don't even know they have. Right, so,
let's say a brand wants to run a launch of
loyalty program. We say, listen, Brands like yours have followed
this path with more success than that path. If you
choose to follow this path, which we encourage, this is
(12:59):
this is the place book we recommend. Or sometimes you
say listen, we don't think you're ready to follow this path.
Now you have to hire more people, you have to
bring in a new system or whatever it is. So
it's not like just do everything at once or the playbook.
It varies depending on the stage that the brand when
we acquire it.
Speaker 2 (13:16):
So also i'd imagine part of your process is when
you're analyzing some of these chains, is like, who needs
help in these core competencies, whether it's you know, finance,
marketing or whatever, it might be.
Speaker 3 (13:28):
Right, Yes, so that's the mat you just touched. For us,
what's the magic sauce, which is this if we can
find brands that are very well run with amazing guest
satisfaction scores and high margins, but still during the diligence process,
we find gold everywhere. Right. And the sense that you know,
(13:51):
whether it's database management, you know, back of the house, technology, accounting, whatever,
the perfect scenario for us is something that's already magical
that we find that we know that we're going to
find so much more to be able to drop drop
you know. The top line and the reason that I
think we can do this perhaps better than some of
our peers is in my team, my direct team, we
(14:15):
only have restaurant veterans and you know, industry experts, so
we are not, uh, we don't have a private equity mindset.
We're very proficient in finance by all means, even you know,
we just got John Howie uh as our CFO, who's
done amazing things in his career. But John is a
restaurant guy, Like I'm a restaurant guy. Now we're partnering,
(14:35):
you know, we're owned by their Net Station Partners, which
and they're wiz you know, they're like wizards when it
comes to finance. So we have the advantage of having
them structure the deals and put together the deals. But
for us, but we kind of see things that perhaps
you know, other financial sponsors don't because we are true
restaurant people, and so we look at it from a
(14:55):
different angle. And when we see like the opportunity to
do a small tweak and the menu board or a
small tweak and how they run operations or start a
small tweak in operating hours, whatever it is, that's gold
for us when we're evaluating to buy a company.
Speaker 2 (15:11):
Yeah, that's cool man, And I could just see it,
you know, when you talk about your passion for the operations.
Speaker 3 (15:18):
No, there's things you might you won't believe. Like we
were looking at Poetrop McCallen. It's a seventy percent drive
through business, right, and then we went through to drive
through ones and we noticed that they didn't have numbers
on their top selling items, right, and that pretty much
fifty percent of the order taking was customized, which I
mean you can keep it customized. We'd imagine that one
(15:40):
out of every two cars, the guest has to relate
to the order taker in Spanish or Spanglish or English.
So it's very difficult through the order taking. So what
we did was the most basic thing ever. I mean,
you've ordered by number at burriy K McDonald's and Wendy's
for sure in your life. So we grew up. We
(16:00):
know what a number one is, what a number two is,
what the number three is. Guess what. They didn't have
that at puy trp call, so you know, we're very
shortly in. We ran our data engineers figured out on
that particular on our tropic chop goals and some of
our sandwiches, which were the top sellers and which combinations
work the best. We ranked them, we assigned numbers to them,
We tested it. We increased order accuracy by double digits,
(16:24):
and we shaved fifteen seconds off of dive dive drive
through times on average a day. Fifteen seconds on average
on one day with the amount of cars that we have,
that's a mountain, right, So it's doing It's not rocket science.
It's just based on our experience what we can see
that perhaps some others can't.
Speaker 1 (16:42):
Yeah, it's impressive.
Speaker 2 (16:43):
And fifteen seconds, right, that could eliminate a car or
two from the line, and it could be the difference
between somebody driving past the store or pulling in and ordering.
Speaker 3 (16:53):
Right, that's exactly I'll tell you another one, very simple one,
not rocket science. Again, we got the Puyer Trupic call
and during co COVID, you know, like most people, they
had reduced their operating hours from closing down at midnight
to eleven pm, right, but they had never moved it
back and everyone else did. Right, So we're like, any
(17:14):
reason why you guys didn't move back to twelve pm?
And no, we just fell through the cracks. We didn't, Okay,
so let's do that. And we did ensure enough, you know,
sales took off the roof and so it's it's not
but again there you have to be able to look
at it with those eyes, and it's you know, you're
not going to get that from a spreadsheet. You're going
(17:35):
to get that by visiting the restaurant, by understanding how
they operate, and by you know, interacting with the team.
Speaker 2 (17:40):
Yeah, it's awesome, that's why I tend to lean towards
strong operators in the CEO CEO role of the companies
I cover, although some there's some marketers that have done
a phenomenal job too, especially with franchise brands, all right.
Speaker 1 (17:54):
So I'd imagine there's a lot of targets out there, right.
Speaker 2 (17:58):
I mean, this is such a frag minted business across
the United States.
Speaker 3 (18:02):
It is. So there's two things that really help us. First,
it is a fragmented business. And you know, for whatever reason,
you know, some of the some of the players in
the market and the financial sponsors, space and all, they
kind of stay away from restaurants and casual dining in particular, right,
And we love that because we think that, you know,
(18:24):
we know how to operate in the system. So there's
I think we're in active conversations with you know, about
twenty brands. We're in real conversations with about five or
the twenty because this is a long term game, right,
And what's changed over time as you know, the founders
talk to each other and people see a little bit
of what we're doing is we're getting a lot of
(18:45):
incoming and a lot of inbounds, which we didn't in
the past. To be honest, when we started this it
was only three and a half years ago, but we can
feel the difference. People. Some of these founders of the
regional concepts, they kind of know who we are now.
They know that we keep the culture, that we the businesses,
that we actually add cost to the business, right, we
don't remove costs of the business, not our platform. And
(19:06):
they're all about growth and getting something that's already amazing
and making it just a little bit better. And that's
that's how we operate. We don't force store openings. Some
brands we don't even want to open right now. With
boetropycause since we bought it, we close fifty locations. We
have an open one maybe next year were an open
one or two and start that path. But we don't
have to follow you know, a standard you know, private
(19:28):
equity playbook by brand that you know come in slash
GNA open restaurants. No, we we can do whatever the
brand needs. At this point, Tavern and Square, we're probably
gonna open three or four this year out of a
base of twenty five. So that's really relevant right in
the percent phases. So it's going to depend from one
brand to the other cool.
Speaker 2 (19:47):
So it sounds like you're saving some money on investment
banking fees, which is good.
Speaker 1 (19:51):
What kind of multiples are you paying?
Speaker 3 (19:53):
We were able to get into these brands for very
attractive multiples. M'd say, on a blended average, we're below
seven times, which is kind of remarkable for the quality
of the brands that we're acquiring. And you know, just
if we continue to be an elite player and you know,
(20:16):
grow the top line on the bottom line how we've
been able to do in the last three and a
half years, I think that we could probably look at
some multiple expansion. But we're not a financial engineering impact.
We're an operating engineering company. We're not a financial engineering company.
We're focused exclusively on making the businesses better. Right, the
financial outcome, the multiple expansion, that's all. That's all a
(20:40):
function of running the companies better.
Speaker 2 (20:42):
Yeah, and I like that you're running them for the
long term, which is how they should be run.
Speaker 1 (20:47):
Who's your primary competition for these deals?
Speaker 3 (20:50):
You know, I get us that question a lot. I
don't think there's anyone that does it in a structured
way like we do it. I think, you know, Matt
Perlman and Alex loan. The founders at Garnett Station Partners.
You know, they're they're so visionary and you know, and
they're so thoughtful in the thought of them what they
(21:10):
do that they they were they built the ARB team
before or just as we were acquiring concerts, right, so,
and that's a very bold, you know, initiative to take that.
We talked a lot of people, Oh, I've always thought
about doing the regional stuff. Oh, that makes so much sense,
and we all, so, why didn't you do it? Because
we really didn't know how to start. And it wasn't
(21:32):
different with us. But you know, Alex and Matty, they
build our team. They brought me in, they brought the
team that reports to me, and you know, we put
our money where our mouse were upfront and and that
was the only way for us to really make sure
that we proved out the pieces and and it's worked.
(21:52):
From the beginning. We called the business Authentic Restaurant Brands, right,
We didn't change the name. That's what we set out
to do. We thought it made sense. You know how
some things make a lot of sense in theory, but
in practice they don't. Fortunately for us, this, you know,
the real life turned out to be very similar to
what we laid out on an Excel spreadsheet and a
(22:12):
powerboard presentation. But it's all because, you know, I think
Garnett's Station partners had really you know, the commitment to
build the Arab team and to build the business even
before we started operating as ARB. And that's really bold,
and that's turned out to be a very good decision.
Speaker 1 (22:32):
Yeah, for sure.
Speaker 2 (22:33):
And it's a little bit of a mote because I'm
sure others would like to kind of try to mimic
what you've created here.
Speaker 1 (22:39):
It's it's exciting, man.
Speaker 2 (22:40):
I think that's a perfect spot to wrap it up.
Thanks again, Alex, and I want to thank the audience
for tuning in. If you liked our discussion, please share
it with your friends and co workers. Check back soon
for an interview with Zach Oates, the founder and CEO
of Ovation.
Speaker 3 (23:00):
He
Host
Michael Halen
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