May 4, 2024 16 min read

The Signs are Everywhere

The Signs are Everywhere
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Friends of Branded!

Happy Saturday and I hope everyone had a great week.

What do the investment firms Blackstone Group and Pershing Square mean to you or make you think?

For those less familiar with either of these investment companies, Blackstone is the world’s largest alternative asset manager with more than $1 trillion in assets under management (AUM). Pershing Square is an incredibly successful hedge fund management company known widely as an elite activist investor.

Regardless of whether you think highly or less so of these firms (for avoidance of any doubt, I think highly of them), I’ve never heard anyone refer to them as “dumb money.” Ever.

So, why am I opening this week’s edition of the H^2 with these two titans of the financial industry? It’s b/c of two specific things I read about each of them this week.

Blackstone acquired Tropical Smoothie Café for an estimated $2 billion. Pershing Square shared that 36% of its portfolio are in two well-known restaurant stocks, Chipotle Mexican Grill and Restaurant Brands International (RBI).

As an active investor in the world of emerging hospitality technology, innovation, and restaurant brands, there’s one comment I hear more than any other when introducing Branded’s investment strategy: “restaurants are very risky.”

Yes, yes they are, but it’s an asset class that Branded not only loves and has great conviction & confidence in, but one that deserves far greater attention of capital.

I had the privilege this week of attending a new-to-Branded in-person event hosted by our friends at Source50 Summits.

Unlike the vast majority of the conferences Branded attends, this was not a hospitality or technology industry event, the event was industry agnostic. Source50 Summits bring together an ensemble of investment professionals across a wide spectrum of asset classes and industries. For Schatz and me, it gave us the opportunity to not only learn about the areas of interest and focus of other investors, but to also hear their thoughts and reactions to the sector that Branded is exclusively focused on.

In the spirit of give and take, this summit also afforded Branded the opportunity to speak and engage with these professionals about the digital transformation underway in the world not only of restaurants, but the hospitality industry at large.

The one comment I tried to get across in each of our meetings (other than an apology for my bringing them into this weekend ‘read’ and its lack of brevity) was that every single person at the event (and every single person we know), will consume food & beverage, every day, for the rest of their lives. How and where we each do it will of course vary broadly and will continue to change and evolve, but like oxygen and gravity, it’s a permanent, consistent and necessary part of our respective lives.

Restaurants are risky. Yes, yes they are, but not at the threshold of the urban myth that was shared in last week’s H^2 edition that 90% of restaurants fail within its first year (the actual percentage is 17%).

More importantly and maybe again in connection with the summit I attended, while the allocation of capital to the consumer markets is widely embraced (and that’s typically divided into four different categories: food, beverages, transportation, and retail), it’s again the restaurant industry that garners the most suspicion and / or concern when it comes to the deployment of capital.

And that’s again why I shared the above little factoids about Blackstone and Pershing (if I can call a $2 billion acquisition “little”). For these larger firms, investments by Pershing in Chipotle and RBI may represent a flight to quality and a justified bet on their sustained performance. For Blackstone, this is a bet on a company that’s experiencing an impressive growth trajectory and something I love about the brand, they have a loyal and I dare say, cult-like following. Blackstone knows a thing or two about helping companies accelerate and despite Tropical Smoothie’s strong growth-to-date (they opened 175 new locations in 2023), there’s a great deal of white-space for this company penetrate.

And this is what excites me about roadmap we’re on and the digital transformation that’s underway. In this environment, multi-brand platforms and growth-oriented investors are looking at the QSR (quick serve restaurant) sector as the place to invest capital. These QSR models require fewer employees, are on-brand and feed (pun intended) the continued demand for off-premises dining and requires lower capital expenditures.

Don’t get me wrong, Branded loves itself some full-service amd experiential dining (and we had a wonderful dinner with new friends on Thursday night at Tulia Mercato in Naples, I see you gentlemen...I see you 😊), but our tech-strategy is far more critical for the success of QSR brands that are operating with thinner margins (you knew this was coming back to the embracement of technology and innovation, right?).

The QSR space is where we expect to see the most M&A activity. For restaurant platforms that feel their corporate foundation is solid and are prepared to take it on, the opportunity to grow via acquisitions and to expand into new territories and markets is incredibly attractive right now. Building new stores has an obvious capital expenditure associated with it, but converting existing restaurants into new units for strong brands has many potential advantages.

You don’t need to look too far back in history to the play Cava executed with its acquisition of Zoes Kitchen to see the value in M&A market for emerging brands to accelerate growth. Of course, Cava’s acquisition of Zoes had an elite team behind it, including Ron Shaich, the founder, and former CEO of Panera Bread, but at the time, Mediterranean cuisine was having mixed results.

Cava was on the radar of restaurant experts and earned top positions on Fishbowl’s emerging brands chart in both 2017 and 2018 (respect, AO), but Zoes was experiencing same-store sales declines and Noon Mediterranean filed for Chapter 11 bankruptcy protection.

My point, Cava’s acquisition of Zoes proved to be a winning move and b/c ‘imitation is a heightened form of flattery,’ expect to see that play run again by others.

Branded believes two themes will continue to playout here.

First, emerging QSR brands, the New Kids on the Block, will represent an important and very visible component of growth. I’m not shy about sharing my enthusiasm for Josh Halpern’s Big Chicken, and Gregg Majewski’s Craveworthy Brands. These emerging brands, along with other emerging players, are not taxed with legacy technology stacks and can leverage the currently available tools to engage with guests and focus on operational efficiencies that will drive value for franchise owner / operators.

Second, we’re going to see more distressed deals.

I’ve written often that the hospitality industry is comprised of some the nicest, hardest working, creative and agile people I’ve seen anywhere. But we’re also a wonderfully competitive industry and given how saturated the market is (customers have an abundance of options), I get to bring Darwin’s law of evolution and specifically “natural selection” into this week’s Top of the Fold (that’s a first).

You think I’m being too dramatic here? Maybe, but the law of evolution is playing out and only those individuals (restaurant companies) most adapted to their environment will survive and thrive. This continues to be a challenging environment for the restaurant industry (labor costs and supply chain issues alone are enough to keep restauranteurs up at night), so the restaurant companies with their respective houses in order will be looking at distressed deals for growth (again, the “Cava + Zoes” playbook).

The M&A activity in the restaurant and specifically, the QSR space, will continue and make for a most interesting 2024. Technology and hospitality are more than ever before incredibly connected, so we’re going to see a spike in M&A activity in the tech space as well (and for the same reasons).

The QSR and specifically the emerging QSR brands are demanding a more integrated and seamless tech stack.

Technologists, give the people (your customers) what they want.

Now let's go back to that natural selection thing and those distressed companies!

There are some banged-up tech companies out there and despite the fact that they may having a strong product, size and scale matter, so soft-landings with well-established ResTech platforms will help create a broader tech offering which will win favor from operators.

Yes, this week and as a result of my attending a strong event with an engaged and enthusiastic group of investment professionals, I wanted to share my thoughts and expectations for the balance of the year in the world of emerging tech, innovation and brands, but also the hospitality industry in general.

We’re a fragmented industry (more than any other large industry I know), and while I expect some awesome and interesting coming together of brands and tech companies, we’ll still be the most fragmented industry when this year comes to a close. Change is hard and takes time, but the roadmap and the direction are clear, and I find all of that truly exciting.

Over the next few weeks, Branded will be returning to our usual programming (the restaurant industry events) and we’re exciting to see old friends and make new ones out at Food on Demand next week in Vegas and then in Chicago for the National Restaurant Association’s Big Show.

While I'm looking ahead to these industry event, I want to end this week's Top of the Fold by saying how much I enjoyed my time at this new event (for Branded), Source50 Summit. The discussions we had about alternative asset classes and how this event was the starting point for future discussions with our new friends for Source50 around potential areas of cooperation and collaboration with Branded.

It was great fun being down here in Naples with this crew and I look forward to seeing many of you in Wisconsin later this summer!

It takes a village.

Next week, I expect the Shoutout section will be used to announce our two latest investments and portfolio companies joining our Branded Bunch. As we’re completing the onboarding of these companies, I was feeling a little nostalgic about our very first investment, PourMyBeer and as the article below by our friends at PourMyBeer make clear, this self-pour solution is most certainly NOT limited to alcohol (and the company now also operates under the name PourMyBev).

It’s not lost on me that this was a specific company I spoke quite a bit about this week while I was down in Naples for the Source50 Summit (so maybe it wasn’t all about nostalgia). 😊

When people ask me about automation and specifically innovations (where hardware meets software) that are going to impact the industry, I know there are some big things happening in the world of robotics and I can’t wait to see how these innovations improve and create much needed efficiencies.

However, as an investor and a firm believer that operators need solutions that can address the most pressing pain points, challenges and seize on opportunities in the very near, if not immediate term, when given the opportunity to recommend or boast about our labor-saver, guest-engagement & experience creator, data collector, as well as waste & theft eliminator, I always love to share Branded’s enthusiasm for the world leader in in self-pour beverage solutions.

Branded was a customer of this small but mighty company, then an investor & member of the board, and now its biggest cheerleader!

Our friends at PourMyBeer contributed their own piece of thought leadership this week and I’m proud to share their article with you below. Whether you want to use this self-pour solutions company for serving alcohol or non-alcohol (as the article below will illustrate) to your guests, there's no finer or stronger solution in the market.

Enhancing the Guest Experience with Non-Alcoholic Self-Pour Beverage Offerings.

In recent years, self-pour technology has gone from a niche, venue-specific beverage model to a proven revenue driver for a wide spectrum of business types. Bars, hotels, country clubs, stadiums, and more are seeing the fruitful results of implementing self-pour technology.

The best part is that self-pour isn’t limited to beer, wine, or cocktails. Non-alcoholic beverages like cold brew and nitro cold brew coffee, iced tea, mocktails, and kombucha are all valid self-pour options served by self-pour locations worldwide.

The benefits are clear. Offering up non-alc options diversifies your beverage program and provides a more inclusive experience for your customers. Let’s take a closer look at how non-alcoholic self-pour offerings are helping businesses drive additional revenue and enhance the guest experience.

Understanding the Rise in Non-Alcoholic Beverage (Coffee, Tea, Kombucha) Demand

Demand for cold beverages has skyrocketed in recent years. Cold brew coffee and other iced beverages are the main drivers of this trend. According to NCA’s fall 2023 National Coffee Data Trends (NCDT) report, the popularity of cold brew coffee has grown 300 percent since 2016 and regular consumption of it increased by 60 percent since 2019.* At the enterprise level, QSR Magazine reported that cold drinks now account for 75 percent of all Starbucks’ sales.**

Who is responsible for such a significant increase? Cold brew coffee has surged in popularity among younger consumers who prefer its convenience and richer flavors over traditional hot coffee.

According to a 2021 Mintel report, the ready-to-drink coffee category is rapidly expanding, with sales expected to exceed US$5 billion by 2023. Notably, 60 percent of Gen Z consumers opt for ready-to-drink cold coffee, surpassing the 49% who choose brewed ground coffee.***

Alternatively, Kombucha, a probiotic-rich fermented beverage, is also experiencing significant growth in the market. Its health benefits, marketed as a product that eliminates toxins, boosts energy, and immune system and metabolic health, align perfectly with a growing class of health-conscious consumers—especially among younger millennials and Gen Zers.

This trend highlights how implementing cold brew and kombucha offerings into your beverage program can be advantageous to meet your guests’ needs and boost profits.

The Persuasive Power of a Self-Pour Non-Alcoholic Beverage Program

Conscious consumption has kicked off a new conversation around drinking and gathering culture. For those limiting or eliminating their alcohol intake, non-alc options like cold brew, mocktails, and kombucha are preferred options. With PourMyBeer’s technology, beverage businesses can diversify their offerings to cater to a growing community of consumers looking to diversify their drinking habits. This inclusive act promotes greater trust and engagement between a business and its consumers.

The question now is how to get started. PourMyBeer is here to transform your bar, office, hotel, or clubhouse experience. With a variety of tap options and cutting-edge self-pour technology, they offer an efficient, cost-effective, and engaging solution to elevate the experience for your guests.

Obtain Your Self-Pour Solution

Now that you’re on the hunt for a self-pour solution, you’ll need to consider the best option that best fits your space and brand aesthetic.

PourMyBeer’s 2-Tap Mini Self-Pour Station offers unmatched flexibility and efficiency in beverage service. Its compact, mobile design saves space while delivering a fully self-serve experience. Equipped with various payment solutions, it streamlines operations and removes the necessity for dedicated staff. This system empowers venues of all kinds to provide a diverse selection of draft beverages including non-alcoholic ones, elevating customer satisfaction and boosting revenue potential with minimal overhead costs.

Curate a Beverage Selection That Resonates with Your Audience

Once you’ve decided to implement self-pour technology into your space, it’s time to curate a beverage program that appeals to your customers. Whether you choose to provide alcoholic or non-alcoholic beverages, finding the right choices for your customers is paramount to your self-pour success. 

Consider your space, customer demographics, and any limitations that may exist. Are you a hotel with a desire to offer non-alcoholic options? Consider cold brew (or nitro cold brew) and kombucha as a healthy and easy way to provide value to your guests. After you know what beverages to offer, it’s time to find the right vendors that fit your budget.

Train Staff and Promote the New Offerings to Maximize Its Impact

The last piece to the puzzle is to train your staff and market your new self-pour offerings to your guests. Get your staff up to speed on how the technology works to help guests should they need assistance. Inform them on how to properly change kegs and gas tanks so that there is no disruption in service.

Once your team is equipped to service the station when needed, equip them with talking points about the service and its ease of use. Have them spread the word and even offer a free sample on the house. Next, leverage your marketing channels to showcase the new service. Highlight it on social media with videos of customers taking it for a spin. Tag your vendors so that they can further promote your service to their audience, too.

The Benefits Are Clear — Diversify Your Beverage Offerings with Self-Pour Technology

Self-pour technology is revolutionizing the beverage industry, providing businesses with a flexible and efficient way to cater to consumer demands for diverse drink options while driving revenue. Offering non-alcoholic beverages like cold brew coffee, iced tea, mocktails, and kombucha through self-pour technology is a great way to enhance the guest experience and provide a more inclusive environment for all customers.

With PourMyBeer’s innovative self-pour technology, businesses can provide a diverse selection of draft beverages, including non-alcoholic ones, to boost customer satisfaction and revenue potential with minimal overhead costs. By curating a beverage program that resonates with your audience and promoting your new self-pour offerings to your staff and customers, you can maximize the impact of this cutting-edge technology and take your business to the next level.

* Report: Cold brew coffee popularity spikes 300% (source)

** Cold Drinks Now Represent 75 Percent of Starbucks’ Sales (source)

*** US Coffee and RTD Coffee Market Report 2021 (source)

Speaking of OG Partners, this bonus Shoutout goes to one of Branded Restaurant's original (and still going strong) tech stack partners - Restaurant365.

Not only are our restaurants current customers of Restaurant365, but we've also had a blast this year partnering with the team on The Hospitality Hangout Podcast (we see you AE)! Schatzy and I spent the day in Boston last February recording not one but six episodes of our podcast LIVE from the Restaurant365 Restaurant Transformation Tour - the highlight being our conversation with Co-Founder Morgan Harris! If you missed it, you can tune in here.

For our New York City and Tri-State hospitality and foodservice operators, connections and friends, this next one is for you! We often joke that we have to travel out of state to conferences to connect with our local and neighboring restauranteurs and friends, but next week, the party is coming to New York City!

We're excited to head to the Restaurant365 Cocktails & Conversations on Thursday May 9th at New York Institution, Gallaghers Steakhouse! We hope to see you there as we connect with other leading local operators on how they're facing the challenges in the restaurant industry (and of course sip some spirits and break bread together)!

You can register through the link below, or clicking HERE.

Calling all NYC/Tri-State Operators!

Hear from leading local operators on how they're facing the challenges in the restaurant industry over happy hour and dinner at Gallaghers in NYC!

Click to Register

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 Tracy Kim, CEO of DIG.

Tracy tells us about her journey from a pre-med student at Stanford and earning her MBA at Harvard Business School and her subsequent leap into the hospitality sector, culminating in her leadership role at DIG. Fast forward, Tracy dishes out how DIG has ‘bowled over’ their audience and positioned itself as the go-to solution for lunch and dinner. Tracy also shares how DIG has used data and technology to modify their approach to capturing new audiences. Plus, why culture is more than just training and the importance of a truly dedicated team.

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

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About ACG New York

Founded in 1954, ACG is the premier M&A deal-making community with a mission of driving middle-market growth. ACG’s global network operates within 61 local markets worldwide and comprises more than 100,000 middle market professionals who invest in, own and advise growing companies. ACG provides events, conferences, bespoke meetings, deal-sourcing forums, unique experiences, educational seminars, and numerous benefits to non-members and members alike.

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Satisfy your thirst for knowledge? Look no further! It's time to dive into our brand-new segment: "Ask The Headline"! 🎉

📅 We'll be answering YOUR questions every week. And here's the best part: you can choose to stay anonymous or receive a fabulous shout-out when we feature your question!

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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