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JANUARY 2025
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Does Private Equity Deserve Its Bad Rep?
It is impossible to work with restaurant franchisors or franchisees without seeing the many ways private equity investors are shaping the industry. I do not work inside the world of private equity, so I am saying right upfront: I don’t know what the hell I’m talking about here. This is just me spouting off. However, while it’s sometimes obvious that private equity investors know more than I do, I am also sometimes surprised by how much less they know. We have seen real success stories when private equity investors take over brands, bringing in access to capital that owners just didn’t have before. Franchisors and franchisees can do a lot with that.
with a mountain of debt, and then takes the cash from the loan and runs, leaving the business to service the loan with
cash flow. And because they haven’t personally guaranteed the debt — well, if it doesn’t make it, it doesn’t make it. They got paid on the front end. Examples of this investment style are all over the headlines, from Red Lobster to Boston Market, giving rise to attacks from critics in the industry, like one that appeared recently in Restaurant Finance Monitor: “All brands are just one or two private equity decisions from becoming Ruby Tuesday.” If you are selling your business to private equity investors in that camp, you need to decide that you don’t care. And, of course, you never know. If the investors are saying they are not going to pillage the business, are they telling you the truth? Are they being transparent about the way they see the future? Or are they describing their options in a way they know will be the most palatable to the seller? We have seen private equity buy franchisors and franchisees based on growth targets that are just spit-out-your-coffee aggressive. They are signing development agreements that they cannot possibly meet. Even if they could afford to build new restaurants as quickly as promised, and even if they had the resources to do so, they still could never find the real estate fast enough. These aggressive contracts are driven by ignorance, inexperience, or some agenda I don’t understand. My constant advice to my clients is: Don’t sign contracts you do not believe you can actually fulfill. It’s just a bad idea. If you know there’s no way, then don’t do it — regardless of how attractive it is upfront. Make sure you are left with enough liquidity to go on the offensive and realistic growth targets you believe you can meet. That is the only path to what we all should want — a win-win.
The primary question when partnering with private equity is this: Are they in it for long-term growth — or a quick buck?
We just participated as a sell side M&A firm in the sale of a seven-restaurant group, Wings ’N More Restaurant & Bar, to a private equity outfit called Goode Partners LLC, a firm with a long track record of investing in restaurants and other consumer brands. My client, the brand’s owner and operator sold his restaurants, the concept, and the brand to Goode Partners. This is the group that bought Chuy’s Fine Mexican Foods in 2006 when the company only had eight restaurants and grew it to 40 locations and a market value of $420 million. In addition to getting cash consideration, my client kept his owned real estate which he leased to the buyer and received a tiny piece of the future operating company. This is a great example of a private equity investment group with sophistication and experience that will do more with the business than otherwise could have been done. I was excited for my client, who will benefit from a share of the potential upside, leases from great tenants, and a good sale price. Also, this is a legacy play — a way for my client to make the most of what he had built. This business he started decades ago will be taken to the next level.
– Nate Riordan
Contrast that with a crew that basically goes in and buys a restaurant group like some 1980s-style Gordon Gekko, loads it up
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Marketing the Macabre Liquid Death’s Daring Ascent At first glance, not much about 42-year-old Mike Cessario stands out. Like many in his generation, he’s heavily tattooed and likes to wear band T-shirts. Depending on your age or sensibilities, you’re likely to either pass him on the street without giving him much thought or walk to the other side to avoid him. Either way, your preconceptions would be wrong — dead wrong. Cessario’s the man behind Liquid Death, a name you’ve likely seen on your supermarket shelves. Although you’d expect someone with his aesthetics to fill his company’s aluminum cans with alcohol, he’s made a fortune by selling good old-fashioned … water ?! MURDERING THIRST — AND THE MARKETPLACE Cessario revolutionized the beverage industry by adhering to the philosophy that the best way to someone’s wallet is through their eyes. With its provocative, skull-emblazoned cans and promise to “murder your thirst,” Liquid Death has exceeded expectations of what a water company could achieve. It has grown from a cheeky concept to a $1.4 billion business in just five years , proving that just about anything will sell if given the right spin. THE BRAIN BEHIND THE BRAND Liquid Death’s leader had already mastered the art of millennial- focused marketing long before his brand dominated the field. In addition to collaborating with influencers Steve-O (“Jackass”) and Travis Barker (Blink-182), Cessario’s viral promotion skills helped drive the success of the Netflix shows “House of Cards” and “Stranger Things.” Now at the helm of an outrageously successful company, he readily admits his upward climb has resulted mainly from choosing what he describes as “the dumbest possible name” for a safe and healthy beverage. As he told CNBC, “If someone I knew saw [one of our cans] in a store, I’m pretty sure they’re going to have to pick that up and be like, ‘What is this?’ And once someone picks something up, you’ve basically won.”
Wild flavor and food pairings have never been more popular. Fueled by social media and foodies’ passion for culinary adventures, chefs of all stripes are combining unlikely flavors and textures. Fast food restaurants are a perfect setting to field-test these novelty foods. Research shows diners are more open to unfamiliar foods if they are prepared in ways similar to foods they enjoy, and also if they resemble their favorite foods. That sense of familiarity no doubt fueled the success of some innovative fast-food offerings, such as McDonald’s Egg McMuffin and Taco Bell’s Breakfast Crunchwrap. Fast-food chains have hopped on the wild-flavor trend. When Burger King offered a $1 million prize in a competition to create the most popular new Whopper offering, finalists in the fray submitted a Fried Pickle Ranch Whopper drenched in pickle ranch dressing, a Maple Bourbon BBQ Whopper topped with (you guessed it) maple bourbon BBQ sauce, and a Mexican Street Corn Whopper buried in a corn spread and crunchy tortilla chips. Burger King is no newcomer to startling flavor combos. In 2012, the chain briefly offered a bacon sundae: Picture a bowl of soft- serve drizzled with chocolate and caramel, then topped with real bacon crumbles. One public radio critic wondered whether to call the dish “brilliant or tragic.” Another memorable example is Tim Horton’s Buffalo latte. The Canadian chain briefly offered this odd combo in Buffalo, New York, in 2017, blending fresh brewed espresso, steamed milk, mocha, and buffalo wing sauce. Pizza Hut’s Hot Dog Bites Pizza debuted in Asia before reaching the U.S. in 2015. This odd-looking entree sports a border wall of mini-pigs-in-a-blanket around a pepperoni pizza, served with a mustard dipping sauce. The item was discontinued in the U.S. in 2016. In another peculiar-looking item that lasted about a year, Taco Bell launched the Waffle Taco in 2014, a taco-shaped waffle packed with eggs and meat. The boldest flyer of all may have been Sonic’s Pickle Juice Slush. Moving well beyond familiar flavors, this beverage combined the “flavor of a salty dill pickle with a sweet slush ... that tastes like you’re sipping it right out of the pickle jar,” the chain said. Sipping pickle juice right out of the jar? More people might enjoy that than you think. After offering it briefly in 2018, Sonic re- introduced Pickle Juice Slush for an encore in 2022. Pickle Juice Slush, Anyone? Fast-Food Fliers
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“All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.” — Martin Luther King, Jr.
Delivery Shakeup Winners and Losers in Delivery and Takeout
Third-party food delivery services are growing like mad, and the trend, led by younger diners ages 18–34, shows no signs of slowing. Consumers are ordering takeout and delivery food about as often as they dine in at a restaurant — about 3–5 times a month, according to a 2024 survey of 850 customers. Who is winning this horse race? Customers rate independent restaurants highest on service, including accuracy, speed of delivery, and freshness of their food. Chain restaurants are No. 2, followed by convenience stores, according to InTouch Insight. The leading third-party delivery services are consolidating their dominance. A staggering 21 million U.S. customers downloaded the No. 1 mobile app, DoorDash, in 2023, nearly twice as many as Uber Eats and three times as many as Grubhub. That may be at least partly because DoorDash outperformed the others by a wide margin on order accuracy, according to the InTouch survey.
surveyed say ordering directly from the restaurant is at least somewhat important.
• Get it there fast. Asian restaurants score highest on speed of delivery. Some delivery services strive for as many as seven or more deliveries per hour — a bone-chilling rush in the context of the crowded streets and highways that delivery drivers must travel in many areas. • Let them have it their way. Burger chains lead the pack in allowing customers to personalize their orders, with 100% of customers surveyed saying they could do so. That compares with 95% of Mexican restaurant customers and 89% at Asian restaurants.
• Get it there fresh. Many restaurants have alienated
customers by delivering fries that have turned soggy, ice cream that has melted, or pizza as cold as cardboard. Successful delivery is based on preparing items to remain appetizing throughout the delivery process, including ultra- cold storage for cold desserts.
Here are four other factors separating the winners from the also‑rans.
• In-house ordering systems are favored. Given a choice, most diners would rather use a restaurant’s own delivery channel than a third-party app, according to a 2024 survey by Toast, a cloud-based management system. 42% of those
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In This Issue 1
Private Equity Showdown: Villains, Heroes, or Both? Wild Fast-Food Flavor Combos, Past and Present
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‘Murdering’ the Competition
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Leaders, Laggards in the Race to Deliver Dinner Best Practices for Handling Food Safety Scares
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Best Practices for Handling Food Safety Scares Fast Food Under Fire
When a fast-food customer gets food poisoning, the news travels faster than wildfire.
chain’s image and forced 43 locations to close. After hiring a new CEO, Brian Niccol, away from Taco Bell, Chipotle mounted an aggressive marketing campaign, focusing on its fresh ingredients and restaurant-style preparation techniques. The chain hired a respected director to film a documentary in its kitchens and used it to promote its food preparation practices. Niccol flooded marketing channels with promotions of new menu items, online ordering, and delivery deals. By 2019, consumers had mostly forgotten the food-poisoning scare. By the time Niccol left Chipotle to head Starbucks last August, he was regarded as an industry superstar. In addition to being prepared to handle allegations of foodborne illness, operators must be vigilant in preventing such problems. Pressure to speed up delivery and drive-through service can tempt employees to take food-handling shortcuts. Training them in safe practices can prevent cross-contamination of kitchen surfaces and implements. Some companies, including Taco Bell and Arby’s, use electronic scanners to detect contaminants remaining on employees’ hands after washing. Also, some restaurants have added paid sick leave to encourage ailing employees to stay home.
In the age of social media, a food contamination scare can deeply damage a brand’s hard-won image in a matter of hours, and regaining customers’ trust can be a slog. A look at how McDonald’s and Chipotle handled damaging outbreaks shows the value of a swift, transparent response and an aggressive investment in positive messaging to eclipse the bad news. After an E. coli outbreak tied to onions on McDonald’s Quarter Pounder sickened 104 people and killed one customer last year, the chain said it would spend $65 million to help the franchisees who were most directly harmed and an additional $35 million on marketing. The company is stepping up Value Meal promotions, initiating an Every Day Affordable Program, and promoting full- margin packages, including its Collector’s Meal. The company also is expanding its loyalty program and online ordering systems.
Chipotle’s top brass took similar steps after a series of food- contamination outbreaks between 2015 and 2017 crushed the
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