The Lines They are a Blurring

Friends of Branded!

Happy Saturday and I hope you had a great week.

It was announced this week that Potbelly Sandwich Shop has been acquired by RaceTrac, one of the largest privately held convenience store retailers in the US in an all-cash deal for $566mm (I always believe it’s important to highlight all-cash transactions. No stock, cash-money!). 😊

Much has been written about this M&A deal and let’s not kid ourselves, even at a price-tag of over half a billion dollars, in the world of banking and M&A, one could say this deal is nice, not thrilling, but nice.

In an effort not to bury the lead, I’m not in that camp.

To be fair, size matters and when Roark Capital is out acquiring Subway for $9.5bn, and Blackstone is out acquiring Jersey Mike’s for about $8bn, a $500mm transaction can understandably not get an awesome amount of attention. Respect.

But that’s not where Branded is coming out on this deal between Potbelly and RaceTrac. So let me use this week’s Top of the Fold to say that I find this deal to be absolutely interesting, meaningful and yes, I’ll go there, I find it THRILLING!

First, let’s set the stage and introduce you to Potbelly Sandwiches, (a) b/c I think it’s important and (b) b/c I know it makes FOB and the CEO at Bite Kiosk, Brandon Barton, roll his eyes at my digressions.

Potbelly Sandwich Shop unofficially started in 1971 as the side-show at an antique store called Hindsight in the Lincoln Park neighborhood of Chicago by Peter Hastings.

The store had an old potbelly stove, and Mr. Hastings began using it to make toasted sandwiches to serve his customers (I’m not going to lie, I like antique shopping, and I like toasted sandwiches. The Hindsight antique shop with a side-hustle of toasted sandwiches would have earned a weekly visit from the Frischling Family!).

In 1977, Mr. Hastings partnered with the Turano Baking Company, a company founded by Mariano Turano who came to this country from Calabria Italy, with the sole purpose of making a better life for his family. Mr. Turano bought a small bake shop on the westside of, you guessed it, Chicago, where he focused on making the same old-fashioned Italian Round Bread he baked in Italy.

This “little bake-shop-that-could” started making a big impression and that motivated Mariano’s brothers Carmen & Eugenio, to partner with him and form Campagna Turano Bakery. The Brothers Turano would soon become one of the most popular Italian bakeries in the Chicagoland area.

I bet you didn’t get any of the above from CNBC’s article on RaceTrac’s acquisition of Potbelly! Just saying. 😊

So back to the question of why this $500+ million M&A deal thrills me and has me so fired up. Great question. Let’s go!

I find this acquisition quite simply to be one of the boldest and statement making examples of the blurring of the lines and convergence taking place in our industry.  The hospitality industry is moving away from the long-established segmentation by verticals and the opportunities this is creating are awesome.

Operators & investors - if you take only one thing away from this week’s Top of the Fold, it’s that the lines that separate restaurant & foodservice verticals are being redrawn. You don’t have to believe me, but it would be a mistake not to investigate this transformation for yourselves.

I’ll go further (b/c why walk when you can run) and say that the lines that have long existed in the hospitality industry that delineate foodservice options for guests & customers are no longer just being blurred, but they’re now being eviscerated.

RaceTrac buying Potbelly isn’t just a financial transaction, it’s a symbol of how the “boundaries” between what used to be clear and distinct food channels are eroding.

I’m old enough to remember how distinct and clear the boundaries used to be among (i) restaurants, (ii) grocery stores, and (iii) convenience stores (“c-stores”). I also remember the limited and simple menu offerings at stadiums & arenas and even the limited offerings were at school and other cafeterias.

But it’s not about my age and what I remember that matters, it’s about what you remember.

I don’t think there’s a single reader of the H^2 that isn’t old enough to remember when c-stores were seen as places to go for gas, beverages, and packaged goods.

RacTrac’s acquisition of Potbelly isn’t just another sign that c-stores are moving in the direction or closing the gap with quick-service restaurants, but I dare say is the boldest statement yet they’re going head-to-head with QSRs and fast casual restaurants for meal occasions.

You want to talk about meeting your guests where they’re at? Your guests have made it clear that for a large percentage of their meals, they want speed, convenience, and consistency.

To my friends in QSR and fast casual segments of the market, your guests are no longer drawing a hard line between a “restaurant visit” and a “c-store stop.” If they can get a fresh, high-quality sandwich at the same place where they can fill-up their gas tank (okay or charge their EV) or a grab a drink, they will do exactly that!

With this acquisition, RaceTrac didn’t just buy some menu items to add to its shelves, they bought a brand!

Potbelly has a story (remember our friends Peter & Mauricio?), they’ve got a neighborhood vibe, an established loyalty program and delivery / digital ecosystem, and a recognizable logo (insert joke about Cracker Barrel here? nah…skip it, that’s been played).

Potbelly’s guests may have their next (or very first) experience next to a gas pump or at a standalone unit next to a highway. The location and context may be changing, but this brand carries an identity and RaceTrac just accelerated something all brands need to be mindful of, a “channel-less” future.

Restaurant brands need to exist across multiple formats and that includes inline stores, drive-thrus, ghost kitchens (yes, that term still exists and is still relevant), airports, stadiums and now, c-stores! It goes without saying (and we all know it’s important to often say what goes without saying) that to succeed in these different formats requires the brand to deliver a consistent product experience (and that is a very hard thing to do!).  

The most important takeaway from RaceTrac’s acquisition of Potbelly is about the need for brands to own of the customer’s mealtime decision.

Location, location, location might be the three most important things in real estate, but to win the customer’s mealtime decision is no longer just about the location of the transaction.

Partnerships, co-locations, and brand licensing deals can open up new channels without the need for massive capital expenditures.

For investors, the most valuable brands are ones that travel well and I’m not talking about wheels-up travel, I’m talking about brands that can travel across formats and dayparts.

In this most competitive vertical that is c-stores, RaceTrac may not be the largest in this segment of the market (although they’re a top 5 or so player in this vertical), and but they’ve just made a statement, and the Branded Team loves this acquisition of Potbelly.

If I were in the c-store vertical or the QSR & fast casual one, I’d take notice and in the spirit of imitation being a heightened form of flattery, I’d explore your own path to expand where & how you can meet your guests and create your own channel-less future.

If you’d like to discuss these and other strategies, you know what to you. Call me, maybe.

TRAVEL ALERT: Starting this Sunday, the Branded Team will be down in Orlando at Informa Connect’s FSTEC 2025.

This industry event, where restaurant innovation meets foodservice technology, has been on our short-list of the “MAJORS” and specifically the list of conferences we show-up for. We value how this event brings forward-thinking restaurant operators and emerging & cutting edge-edge technology providers together. It’s this combination of operators and technologists that when aligned, creates a flywheel that Branded loves cultivating and working with. This event plays so well into our operator-centric investment thesis, and we value our relationship with the good people and our friends at Informa.

We know there’s nothing easy about events like FSTEC not just existing, but doing so at such a high level. We appreciate what the Informa Team does, and we’ll be coming in hot with our amazing partners from Adyen, Amazon business, Toast, Ziosk, DirecTV For Business National Accounts, and CBS Northstar.

We couldn’t do what we do without our partners and the creative thinking that comes from this group to make sure our time spent together at events is both meaningful and memorable.

I look forward to seeing many old friends and making new ones at FSTEC 2025!

It takes a village.