Jun 8, 2024 14 min read

The First Rule of Fight Club

The First Rule of Fight Club
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Friends of Branded!

Happy Saturday and I hope you had a great week!

I’ve shared with the H^2 audience often the folks I enjoy reading, but I’ve tried to limit the “what's Jimmy reading” exclusively to the hospitality industry.

One newsletter / bog I very much enjoy is ZeroHedge by Mr. Tyler Durden (although I suspect that’s NOT the author’s real name).

In the spirit of the 1999 film Fight Club, which is described by cultural critics Henry Giroux and Imre Szeman as a failed critique of the consumerist culture and how it shapes male identity and ignores how neoliberal capitalism has dominated and exploited society.

The above was pretty heavy for a Saturday morning. Sorry about that. 😊

To bring this to lighter place, while the film failed to meet the studio’s expectations at the box office, it did find commercial success with its home video release and established itself as a cult classic. In 2009, The New York Times dubbed Fight Club as the “defining cult movie of our time.”

But how did ZeroHedge manifesto writer Tyler Duden make it into this week’s H^2?

Its b/c of his article, A "Restaurant Apocalypse" Is Starting to Sweep Across America, And That is Really Bad News for The U.S. Economy.

This article and specifically the headline was sent to me by a myriad of folks (and I sincerely appreciate being thought of when there’s news about the good, bad, and otherwise in the restaurant and hospitality industry).

In addition to the article (or maybe consistent with the article), we also witnessed some other negative headlines most recently including the 56-year-old chain Red Lobster filing for Chapter 11 bankruptcy protection and Rubio’s Coastal Gill doing the same.  There’s been a great deal written on Red Lobster and more will come about that collapse. I particularly like and want to call attention to industry veteran Jim Klass and his LinkedIn post on the subject (spoiler alert: it wasn’t the endless shrimp promotion).

Back to the Tyler Durden article, which highlights visits to sit-down restaurants has dropped by about 5% in 2023 compared to 2022 and the trends we’re seeing in the industry:

  • Americans are eating out less as inflation weakens the dollars in their pocket, which is leading to some harsh consequences for restaurants across the country.
  • Visits to sit-down restaurants were down nearly five percent in 2023 from the year prior, according to location analytics firm Placer.ai.

I’ve shared ugly truths in the H^2 before and this moment will be among the most important. So, here we go, the ugly truth: there are too many restaurants in our country and too many options for guests to choose from.

To be crystal clear, I agree with Mr. Durden’s thesis that Americans are feeling financial stress and that rising food costs are impacting the restaurant industry. No challenge or issue with his argument on this subject.

Where I take a different point of view or maybe have a different perspective is that I think it’s healthy and necessary. Again, we have too many restaurant seats to fill, and the saturation makes it harder for restaurant operators to manage their business (relative to other industries that are not nearly as saturated or fragmented).

Let me go a little further (and I promise, I’m in a good mood despite the apparent harshness of my writing today). Warren Buffet famously said that “only when the tide goes out do you discover who’s been swimming naked.”

Not all restaurants are the same (that’s one of my Captain Obvious statements) and there are both great operators and terrible ones (and everything in between). During good times, great operators deliver strong performances, and they also do a better job at surviving and battling through times that are more difficult.

While I know the image below includes a different quote by Mr. Buffet, I felt like I could get away with a two-for-one here and the one below is also really important and part of Branded’s thinking.

This week, in an enthusiastic investment committee meeting we had at Branded, there was a discussion (which included some healthy tension) about the state of consumer demand when it comes to dining. One of our subject matter experts highlighted that in NYC, for example, it's not uncommon to see several restaurants on the same block where one might be overflowing and others empty. Knowing how to successfully manage and operate restaurants was this SME's point b/c the demand for dining-out remains clear and present.

And that’s my point about the decline in restaurant visits over and a 5% decline being looked at as a “Restaurant Apocalypse.” Yes, there are closures and failures, but there’s also some awesome success stories clearly taking place.

I quickly pulled into the H^2 the Future 50: The Ranking from our friends at Restaurant Business Online along with The 27 Fastest-Growing Quick-Service Chains in America by friend of Branded and the great Danny Klein and his QSR Magazine.

Here’s a factoid that I think offers a challenge to the idea of the consumer being so beleaguered – consumer spending was up 7% year-over-year among the top 50 restaurant chains compared to 5% within the overall industry. Restaurant sales rose 12% in 2023 even though traffic is 8% below its pre-pandemic levels.

There are countless stories and examples of successes in the restaurant industry and the National Restaurant Associations’ $1 trillion in sales forecast for 2024 is among the strongest indicators of an asset class that is expanding, not contracting.

My dear friend and brother from another mother, my Mr. Wolf, would tell me that if you’re standing still, you’re falling behind. When I watch the actions and strategic decision that some brands are making while others are not, it’s clear that you can’t paint this industry with a single brush. There are winners and there are losers (and I’m sorry, not sorry, there are no participation trophies).

Yes, California’s $20 minimum wage for fast-food workers and the overall operating environment for restaurants were certainly factoids in Rubio’s closing of 48 restaurants, but this company was struggling and had weak sales for years. With attribution to our friend Mr. Jonathan Maze and his article in Restaurant Business Online, according to Rubio’s statement, “the closings were brought about by the rising cost of doing business in California. While painful, the store closures are a necessary step in our strategic long-term plan to position Rubio’s for success for years to come.” I find that statement more than a little self-serving.

I’m not throwing shade here, but Rubio’s sales started declining in 2017. That sales decline accelerated during the pandemic, prompting the company’s 2020 bankruptcy and Rubio’s has been closing units since.

Re-visiting and channeling my inner Warren Buffet, Rubio’s didn’t compare favorably to other fast-casual Mexican chains. According to Technomic, Rubio’s has averaged a 1.1% decline in system sales the past five years, while on average, fast-casual Mexican chains averaged 10.4% growth over that period.

None of the above is meant to suggest that the environment for operating restaurants isn’t a challenging one (and for the readers of the H^2 that are operators, I know the industry has NEVER been an easy one and that this current environment is just that much harder).

The pandemic was of course brutal and the inflationary period that followed forced us to raise prices and that’s impacting our guests. Add to that wage increases, such as what CA did with its $20 minimum wage for fast-food workers, and the headwinds are severe.

But if the headwinds are severe, does that create tailwinds as well? Does the proverb "one man’s trash is another man’s treasure" apply here? Probably not exactly, but my overarching point is that for technology and innovation companies that are addressing the biggest and most pressing pain points for operators, the above mentioned (severe) headwinds are tailwinds for technologists that have platforms that address these biggest challenges.

The pandemic resulted in the suspending of in-person dining, which was a BOOM for venues that had their off-premises dining options in place as well as the technology platforms that could help address and make more efficient off-premises dining (please note, at the time the pandemic came crashing down on our shores, about 50% of restaurants weren’t online).

I feel like Chandler Bing right now when I ask the question, could there BE a better environment for our partners at Bite Kiosk and its technology solution for operating in today’s environment? What about our partners at PourMyBev and its industry leading self-pour beverage solution which reduces overhead by 75%! Both of these portfolio companies specifically address labor and also increase sales.

RIP Matthew Perry

I’ve referenced Sun-Tzu before and I’m bringing him into the H^2 again here: in the midst of chaos, there is also opportunity.

Chaos offers us all the opportunity to learn something and not every bad situation is bad. Chaos creates and leads to opportunities. In the world of foodservice and hospitality, this challenging environment represents an opportunity to explore and even embrace change.

For an industry filled with people that are as creative, gritty, and hardworking as hospitality, the possibilities are endless. You want a real-time and big-person example, look at what McDonald’s is doing in bringing back the $5 meal in the US to lure back price-sensitive customers. Is this move by McDonald's the ultimate answer or solution? Of course not, but it's an example of a brand that isn't standing still and is making things happen.

Mr. Wolf would approve!

It takes a village.

The shoutout section of the H^2 continues to be akin to our “Family Table” at our restaurants where you can expect to see some of our most important and longstanding insiders.

In that spirit and sticking with that theme, this week we not only get to highlight an organization that is near and dear to our heart, but one that involves some our favorite industry folks, and that very much includes Branded’s partner and our CMO, Julie Zucker.

Those of you who follow Branded's Social Megaphone (or have been included/targeted in LinkedIn's algorithm of Restaurant Operators and Tech Leaders), you may have noticed a few weeks ago in the wake of the NRA’s Big Show in Chicago, there’s been an array of fun photo content around a spin class led by our friend Geoff Alexander, President & CEO of Wow Bao.

The first Sizzle & Spin event had it all - we had fun, we worked up a sweat (me more than most), and we laughed. But most importantly, the purpose of this event was to raise money and awareness for two incredible organizations (LEAD - Leadership, Exploration and Development and the GLEAM Network) led by two equally incredible people (Amy Hom & Carin Stutz).

$10k raised and 10k impressions later, I think it's fair to say the event was a success. Raising money is one thing, but to see an organization in action is quite another, leading me to another well-deserved shoutout this week.

This week on Thursday, LEAD hosted an event in Chicago (at Hayden Hall - shoutout to our friends Gregg Majewski, Kristin Albert & Kim DeCarolis and the Craveworthy Brands team) that focused on developing emerging leaders in the hospitality space.

Did you know that we are at a 15-year high in turnover for general managers (“GM”) in restaurants? And it’s even worse than that, as people aren’t just leaving their brands, they’re leaving the industry.

Friends, colleagues, leaders, and influencers - how can we work together to change this number?

I'll LEAD (pun intended) you to a first step to answering that important question!

The mission and goal of LEAD | Leadership, Exploration and Development and the GLEAM Network is to ensure all future Hospitality and Foodservice workers know that there is not just a path from the kitchen to the boardroom, but a wonderful network of industry mavens, legends, experts, and heroes willing to help.

And now to our partner and Branded's CMO Partner Julie Zucker! Julie led a panel at the event alongside friends and colleagues Geoff Alexander, Samuel Stanovich, Joseph Monastero & Katy Stocks as they discussed the impacts of their journey and how others can get there. You can find more of Julie's takeaways from the panel here.

For more information on LEAD or GLEAM - you can visit gleamnetwork.net or you can send us a note and we'd be happy to connect you directly!

As my dad always drills into his sons and now grandchildren, "it’s nice to be important, but it’s important to be nice." Giving back and helping our industry is both important and nice (and right thing to do)!

The second shoutout this week goes to our friends and partners at PourMyBev and PourMyBeer!

How did these specific (and impressive) brands get left in this image?!?

Given this company was already mentioned in the Top of the Fold, I’m willing to wager that it won’t take a great deal of predictive analytics or AI to guess what Branded will be zeroing in on next with respect to capital deployment and investment focus, but this is neither the time nor place for that. 😊

This shoutout goes to “PMB” and our friends at Total Food Service did a fantastic job writing about How Self-Pour Solutions Elevate Hospitality!

It’s with pride and gratitude that I want to share their article with all of you:

How Self-Pour Solutions Elevate Hospitality (totalfood.com)

I agree with so many points raised in the article, that I’d like to invite the team from Total Food to join me for an adult libation!

As the article makes clear, self-pour technology isn’t a new concept as guests have been using it for DECADES!

The article is important b/c one of the biggest criticisms of self-pour is that it takes away and detracts from the hospitality experience. This argument falls short for so many reasons ranging from the types of venues that can benefit from self-pour technology to the fact that self-pour offers guests a differentiated and social experience that they value.

This is not to mention that self-pour addresses the industry single biggest challenge and the shifting demands from consumers.

Pulled directly from the article (and placed here b/c I know the percentage of H^2 readers that will and will not click the link above), you’ve heard of the film the "Rise of the Apes." Well Total Food presents The Rise of Self-Pour Technology!

Self-pour technology lets guests be their own bartenders. Popular in bars, breweries, restaurants, hotels and more, thousands of businesses prefer it for faster service, less waste, and reduced labor costs.

Brewpubs and breweries use it for beer flights, where smaller pours are needed, while hotels aim to enhance their guest experiences and operate a beverage program with little overhead or staff.

Overall, self-pour boosts operational efficiency, saves on costs, and expedites beverage service while providing important data that operators can use to make better business decisions.

There’s so much in the article and I hope operators, more than anyone else, gives it a read.

I also invite you to inquire about the time I tried to market the PMB self-pour system to an operator that took particular pride in the relationship between his brand’s staff and its guests. I didn’t get the sale, but I proved to him that I was right! 😊

I’m ending this second shoutout with my attempt at dropping some knowledge!

Mic drop!

Readers of the Hospitality Headline, that are interested in learning more about Branded’s portfolio companies, investment strategies and future opportunities, are invited to explore becoming part of our Access Hospitality Network.

In today’s episode of Hospitality Hangout, Michael Schatzberg, “The Restaurant Guy,” and Jimmy Frischling, “The Finance Guy,” are joined by two returning guests, Christi Ravneberg, Senior Director of Media Intelligence and Custom Content for Informa Connect and Joe Donnelly, President of Media and Events at Informa Connect.

Christi and Joe dive into the Informa Connect intelligence platform, stirring the pot by surveying operator and retailer audiences. They whip up in-depth reports on technology, labor, and the major challenges operators are chewing over today. The guests dish out key trends from the Restaurant Tech Outlook report.

You can tune in on SpotifyAppleAmazoniHeart, or your favorite listening platform!

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That’s it for today!

See you next week, (about the) same bat-time, same bat-channel.

It takes a village!

Jimmy Frischling
Branded Hospitality Ventures
235 Park Ave South, 4th Fl | New York, NY 10003

Branded Hospitality Ventures ("Branded") is an investment and advisory platform at the intersection of food service, technology, innovation and capital. As experienced hospitality owners and operators, Branded brings value to its portfolio companies through investment, strategic counsel, and its deep industry expertise and connections.

Learn more about Branded here: Branded At-A-Glance

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