The Fast and The Furious

Friends of Branded!

Happy Saturday and I hope you had a great week.

This past holiday season, my daughter and I took to the streets of Manhattan for a one-day shopping excursion to buy presents for the matriarch of our family. Truth be told, several of the items on list (most of them?) were provided to me by my wife (no judgements please). 

One of the stops was at Steve Madden, over in Times Square (a neighborhood that most native New Yorkers respectfully try to avoid during the height of the holiday season). I had never shopped at a Steve Madden store before and when the salesperson helping me said she had the size and color of the boots my wife wanted, I felt a sense of victory and believed that this stop was going to be among our shortest of the day.

That was until this salesperson effectively executed an upsell by telling me that I could acquire a second pair of footwear at a 50% discount as long as they were the same or lower price as the boots I was buying.

My wife only had one pair of Steve Madden shoes on her list, so off to the men’s section I went and a with a pair of black loafers I left.

This week, I bumped into a friend at Isabelle’s Osteria who had spent over a decade working at Steve Madden. I proudly showed him my first pair of Madden shoes that I was wearing and how much I was enjoying them. He responded, without hesitation, that Steven Madden was the king of the “Fast Follower” strategy and how the brand’s entire business model was built around high-speed imitation and identifying emerging trends from high-end luxury runways or street style and rapidly bringing accessible versions to market. I’m not a fashion-forward guy (I have many items of clothing in my closet that are older than most of the members of the Branded team), so this was all very new and interesting information to me. 

My friend’s comment got me thinking about the hospitality industry and I admit one of my favorite quotes from the 19^thcentury Irish playwright and poet, Oscar Wilde, "Imitation is the sincerest form of flattery that mediocrity can pay to greatness” (and for whatever it’s worth, Guinness and Oscar Wilde are on my Top 10 List of the things to love about Ireland).

Let’s dive into this (it took me long enough to get here this week, right?) 

Everyone loves a first mover, but in the world of investing, it’s rare that anyone wants to fund a first mover twice.

In hospitality, we romanticize about the pioneer, and the concept that “changed everything.” But let’s not kid ourselves, the real money is almost always made by the fast second. That’s right, it’s the operator, who shows up right after, clipboard in hand, taking copious notes and quietly asking: what actually worked here? Let’s call it what it is: Hospitality isn’t a first mover advantage business; it’s a fast follower monetization machine.

The first mover spends capital educating the customer (guest), building operational muscle memory the hard way and making very public (and expensive) mistakes.

The fast second, on the other hand, reverse engineers the model, strips out inefficiencies, and scales with discipline, not experimentation.

What does the above really mean? The first mover writes the textbook, while the fast second turns it into a franchise manual. 

Friends, you’ve seen this movie before.

Fast casual? The playbook was proven, and then it was optimized. Coffee? The third place became a thousand different formats. Delivery? The idea wasn’t the win, logistics density was. POS? Hardware didn’t die; it got financialized.

Same script. Different category. 

Hospitality is uniquely wired for fast seconds b/c margins are thin and experimentation is expensive. Operations are complex and mistakes compound quickly. Consumers are habitual and once behavior is learned, it’s transferable. And maybe most importantly, capital is impatient and proof matters more than vision.

Here’s where the rubber meets the road, first movers prove possibility, while fast seconds monetize predictability.

So once something works, even imperfectly, the industry doesn’t ask “who did it first?” It asks: “who can do it better, cheaper, and at scale?”

I’m clearly seeking some kind of external motivation this week, b/c now I’m bringing the French philosopher and writer Voltaire into this week’s Top of the Fold with some of his words of wisdom, “don’t let perfect be the enemy of the good,” (and in the spirit of fairness, while Voltaire doesn’t make my Top List of the things I love about France, I’ll share that 1,600 different cheeses, fresh baguettes and world-class wines are pretty darn good reasons to love France!).

Now let’s bring it forward b/c we’re watching the imitation game happen again in real time.

Look at what’s happening with reservation platforms and how they’re shifting from booking tools to revenue engines. Checkout what’s going on with guest data and how it’s moving from collection to closed-loop attribution. And our industry’s putting green (driving is for show and putting is for dough), the back-of-house and how tech is evolving from dashboards to decision-making systems.

The first wave of ResTech built tools, but this current wave is building outcomes.

Wearing my investor hat, here’s where it gets dangerous. Investors love the narrative of “category creator” (like Buddy the Elf loves syrup), but hospitality rarely rewards originality. It rewards optimization. Of course, backing the first mover feels visionary, but backing the fast second usually gets you EBITDA.

For operators, this is the cheat code and while I know there will be those that frown at me for saying this, you don’t need to invent the future. You need to recognize when the future is already working somewhere else and import it intelligently.

That’s the game, imitate the playbook, fix the flaws, and scale the version that actually prints money.

In hospitality, sorry, not sorry, timing beats originality. Yes, the first movers get the headlines, but the fast seconds get the margins. And let’s call for what it is, in business, margins win.

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While Sysco’s announcement that it will acquire Restaurant Depot, at a price tag of $29 billion, is admittedly just a little bit larger than the deals Branded focuses on, this was too big and I dare say too important not to make it into this week’s Deal Room. 

Let’s be clear, Sysco isn’t just making an acquisition, it’s making a confession. Sysco is acquiring Restaurant Depot in order to enter the cash-and-carry wholesale market (a $60 to $70 billion segment) built around independent, price-sensitive operators.

Said a different way, the largest distributor in the world just admitted its core model isn’t enough anymore.

The old model, trucks, contracts, predictable ordering, isn’t enough in a world where operators are scraping for margin and making purchasing decisions in real time. Restaurant Depot gives Sysco something it never had, walk-in demand, price-sensitive behavior, and high-frequency operator touchpoints. 

This is bigger than distribution. It’s a shift to multi-channel sourcing, real-time pricing intelligence, and owning the independent operator. Consider Sysco’s move here as a hedge against the structural pressure on distribution. Sysco’s traditional delivery model is facing margin compression and demand volatility.

Restaurant Depot has no trucks or last-mile costs. It does, however, have faster inventory turns and higher margins. Restaurant Depot thrives with independents, multi-unit scrappy operators, and price-sensitive buyers. These are the same operators who are using multiple vendors, mixing delivery & self-sourcing, and optimizing daily based on cash & demand. I’ll make a bold prediction and say the “one distributor relationship” is dead as operators will increasingly try (b/c they need) to arbitrage supply chains in real time.

Sysco is positioning itself for a more volatile, margin-tight restaurant economy. Restaurant Depot grew during COVID b/c it’s business wins when operators are stressed (and Restaurant Depot has been doing a lot of winning lately b/c stress on operators is high).

For investors, the signal is clear, margin is migrating away from logistics and toward data & behavior. The winning platforms will combine delivery, warehouse, and digital procurement.

If you takeaway one thing from this week’s Deal Room, it’s that the next battleground isn’t chains, it’s the fragmented, high-frequency independent operators (and Restaurant Depot gives Sysco direct access to independents).

How did Wall Street react to this acquisition announcement? Sysco’s stock dropped by about 15%. That’s understandable as the deal is massive (about 75% of Sysco’s market cap) and this creates leverage concerns and integration risk. But here’s the big takeaway, standing still in food distribution is riskier than swinging big (and Sysco just swung BIG).

Branded’s takeaway from this announcement, Sysco isn’t just buying Restaurant Depot, it’s acquiring a different customer. Food delivery is about scale. Cash-and-Carry is about control and in a world where operators are fighting for every dollar, control wins!

The battlefield is shifting to the independent operator and Branded has a small army of ResTech portfolio companies that are independent operator centric.

Want to learn more and / or discuss? Please click here (or contact me directly).

You can also read more about the acquisition here: Sysco to acquire Restaurant Depot for $29.1B

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