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Aug 20, 2022 • 15 min read

THE THREE AMIGOS

Newsletter
The Death of Sysco (and Other Broadliners). Silicon Valley Handing $350 Million to WeWork Founder Adam Neumann Is Sign of VC Apocalypse. Why emerging managers are a critical part of a well rounded venture portfolio.
Jimmy Frischling Jimmy Frischling
THE THREE AMIGOS
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Friends of Branded!

Happy Saturday.

Did I write last week that we had successfully worked out the kinks with our new distribution platform? My apologies. I meant to say that I was listening to the legendary rock band The Kinks while I was trying to sort out the issues with our new distribution platform. 😊

Despite our distribution issues, I’m thrilled at the commitment you continue to show this casual newsletter as demonstrated by last week’s 67% open rate. I understand that back in school a 67% would be considered a very poor grade, but in the world of newsletters, I’m told that’s pretty…pretty…pretty good. The entire Branded team appreciates and values this community, and we’ll continue to work hard to make sure these weekend reads are worthy of your time!

Finally, just a reminder about Branded’s Access Hospitality Network. This is our very own investment club & community that will be afforded unique and differentiated investment opportunities. Commentary shared with the Network will focus on the M&A and Capital Markets associated with this industry and this emerging alternative asset class. Access Hospitality is exclusively for qualified and accredited investors. There are no dues or membership fees. Members of the Network will benefit from specialized publications, thought leadership, proprietary deal access, exclusive events and more!

If you’re interested in joining The Network, please click the link: Access Hospitality - powered by Branded Hospitality Ventures.

Okay…as always…LFG!!!

MARKET COMMENTARY

This weeks' Market Commentary Quick-Fire features articles that caught my eye combined with some Branded commentary and insights.

It’s rare that I pull an article from LinkedIn into the Weekend Update Quickfire, but this post by Debra Bachar was too interesting not to share (and what a title!!!).

Whether you believe the article’s thesis that the business model of foodservice broadliners is dead, I think its fair to say that technology is the great equalizer and that the foodservice industry specifically is ripe for a disruption.

A few years ago (and before the pandemic), Schatz and I were at a conference and heard a speaker say that the only industry further behind foodservice and hospitality in terms of embracing technology and innovation was the coalmining industry. Whether that’s true or not (and I heard from many coalminers living on the UES of Manhattan challenging this perceived position that they were in fact behind us), pre-pandemic, I don’t think anyone would disagree that our industry was incredibly slow to embrace technology. Doing things like we’ve always done them was part of our industry’s charm.

When it comes to procurement and the supply side of the industry, we have long embraced a vertically integrated model. This model places the manufacturer at one end of the spectrum and the operator at the other (and never shall the two meet). Broadliners reside in the middle purchasing and moving inventories. The article does a great job highlighting the problems and challenges associated with this vertically integrated business model which is associated with a myriad of intermediaries each with its own costs and fees.

The vertical model was already under pressure pre-COVID and like Branded has been screaming to anyone that will listen, the pandemic has changed nothing, but accelerated EVERYTHING. The article goes onto say that the broadliners’ value proposition to manufacturers is out of date and essentially obsolete. Technology and innovation is the driver that is “flipping vertical models to horizontal one” and that makes it all about the platforms. This article could have been sponsored by Branded b/c we’re extremely enthusiastic about addressing the pain points associated with the over-reliance of this antiquated vertical model. Branded views the procurement space as being of critical importance to operators and we’ve now backed two emerging technology companies that are addressing these issues.

Cut+Dry was created to provide distributors, their customers and their suppliers with a single digital platform to make food commerce a more enjoyable, more profitable and less wasteful experience. Simple is also solving the friction among these three constituents (manufacturers, distributors and restauranteurs) by bringing them together on it fully integrated digital marketplace.

Cut+Dry and Simple are both platforms that are trying to help these three distinct, but also highly connected players succeed together by their respective leveraging technology. Sounds like the making of a tremendous bromance.

It was hard to miss the news this week that the infamous Adam Neumann successfully received $350mm for his new apartment management company Flow. I very much agree with the author’s take that this investment by one of the world’s leading VCs, Andreessen Horowitz, represents a positive sign that there are investors out there who are not doom-and-gloom about the economy. I will respectfully disagree, however, with the author’s position that this investment is an embarrassment for venture capital, Silicon Valley and the tech industry.

Whether or not you agree with the business and challenges that Mr. Neumann’s Flow will attempt to capitalize on in the real estate market by creating a housing community that is more soulful, engaging and where renters can have some equity stake is something I’ll leave to all of you to consider for yourselves. I’m a free markets person and I’ve got big love for entrepreneurs and risk-takers. I’ll also say there was a relatively brief moment in my career where I was a tenant (I know…they called in “member”) of WeWork. Overall, I must say I enjoyed my experience as a member and found it to be helpful to have access to office space in such an agile and flexible way. I’ve talked about other businesses where it’s great to be a customer, but I just wouldn’t want to be an owner (please see any of the commentary on my love, as a customer, of Urbanfetch and Kozmo.com).

My issue with the article is the negativity thrown at the VC industry and specifically at one of our industry’s leading players. To be clear, VC investing is akin to gambling. I know it’s frowned upon to use the word “gambling” in the world of high finance and investment management, but investing in early-stage companies is about making “bets” and more often than not, risky bets. VCs are judged on the success of these bets and the ability to deliver returns to their stakeholders.

Anyone who spends time with me knows about my respect and admiration for Milton Friedman, the American economist who received the 1976 Nobel Memorial Prize in Economic Sciences. As Friedman remarked in an interview with Phil Donahue in 1979 (I didn’t see it live, I was too busy watching an episode of The Love Boat), “The world runs on individuals pursuing their separate interests.” I’m a huge believer in self-interest and that it should not be confounded with selfish.

The article here projects what Neumann and Andreessen believe are the core problems with the US housing market and specifically the insufficient amount of housing in our country that results in rents skyrocketing. It challenges Andreessen for not being interested in “real solutions to America’s housing shortage.” Respectfully, is solving America’s housing shortage and bringing down rents Andreessen’s job, investment thesis or aligned with their self-interest of delivering superior returns to its investors? I think we all know the answer to the question I just put forward.

With respect to Neumann being “handed” $350mm and how this is embarrassing for the VC industry, this reminded me of an experience I had back in the mid-90s. A portfolio manager for a MAJOR investment firm took a view and positions that didn’t work out. The losses were massive. This PM soon left the firm and after a relatively short break from the industry, he emerged at another MAJOR investment firm in essentially the same role. When asked by a journalist about his new position, he said his new firm asked him one question in the interview process – “what did you learn from losing all that money.” I’m obviously not privy to the answer he provided, but it landed him the big position and the opportunity to go after it again. As Americans, we love the build-up, the tear-down and the comeback. Andreessen just made a bet on Adam Neumann’s comeback and I see absolutely nothing wrong with that!

I really do try not to make the Weekend Update Quickfire a self-serving section, but this article that highlights the importance of emerging managers hit too close to home for me to ignore.

I appreciate Samir Kaji’s highlighting a critical characteristic of healthy asset categories is the flow of new entrants. As Mr. Kaji wrote at the start of his article, “new entrants bring new ideas, models, and necessary competition.” The article offers a framework of how to define an emerging manager (and that alone is no easy task) as well as the opportunities and challenges they present to potential LPs. One of the challenges presented includes the Catch-22 where LPs are unwilling or unable to allocate to an emerging manager as a result of their being too small or having a track record that is too short (with the catch being that such is how all managers start and are launched.

I’m not remotely down or bothered by the challenges that emerging managers face. As I wrote last week, “it’s the business we’ve chosen” and I’m loving it (challenges and all).

It was the other side of the coin that had me enjoy and embrace the article. Emerging managers tend to be more focused and have little drift away from their core competency. The reduced complexity of managing the firm and again, the focus on investments. The alignment with investors and the motivation and drive to succeed. All of these are real and important. But my favorite part of the article was the mention of the relationships that develops between emerging managers and their investors. While the article looks at it from the perspective of the investor reserving a seat at the table for the emerging managers later funds (and that’s true and absolutely cool), I look at it as the emerging managers valuing, appreciating and remembering who was with them at the start. I expect such is a very personal viewpoint, but one that I feel is not unique based on my discussions and friendship with other emerging managers. We remember who took us to the dance and who was there for us at the start when it was so easy not to take the risk or allocate the time (and capital). Launching any business is freaking hard and at times lonely, so the people that get involved, participate and essentially help you create and make your vision a reality are truly special, valued and REMEMBERED.

The Branded team (and my entire family) knows all too well about my obsession with lists. I LOVE lists!  Lists of all sorts and that very much includes both professional and personal lists.  I’ve got good lists, bad lists, and you can take both of those bookends to the extreme or out to the Six Sigma. I’m also blessed with a strong memory and when it comes to the members of the Branded community that are helping to make positive and good things happen (and there are so many ways to be positive and contribute to good things happening for our industry), I just want to say that I see you, I appreciate you, and I will remember you.

TECHNOLOGY

The Branded team likes to walk with a small stick, but we LOVE to boast about our Partner Companies.

TapRm

TapRm is a B2B Software-as-a-Service (“SaaS”) platform working within the $120bn beer and alcoholic beverage market in the United States. They focus on enabling beer and hard seltzer to go to market quickly and reach their consumers directly.

TapRm’s announcement centers on the success of their Powered By TapRm (“PBT”) platform, launched in October last year. While TapRm has always made it fast and reliable for alcohol brands to reach their consumers online, PBT's vertically integrated offering that enables brands to sell online without a traditional distributor or retailer has taken their business to another level. Currently, TapRm has the capability to take brands live from contract signing to online in NYC in under 7 days through their powerful website and procurement workflows fully integrated into their custom-built technology stack and impressive network of integrated retailers, shippers, and couriers. Since launch, their contracts have grown 21% MOM, they have maintained a 37% closing rate after the first meeting, and recently expanded their offering to include 45 states shipping across the country. With thousands of beers and hard seltzer brands to work with just in the U.S., TapRm is proud of their platform’s success so far, and are looking forward to the next stage of growth.

TapRm’s own in-house marketplace, TapRm.com, continues to bring together a community of drinkers looking to discover the newest and most interesting brands making a splash within the industry. TapRm also utilizes their marketplace to test their newest technology product, fulfillment, and procurement capabilities, and gather valuable insights on what’s trending in the community. Additionally, they have begun tying marketplace promotions to some PBT customers as clear up-sell opportunities for brands looking for additional exposure.

TapRm was also excited to become certified as a Most Loved WorkplaceÂŽ for 2022 - a testament to their company culture and dedicated team -- joining a group of over 195 other workplaces that include Twitter, IBM, and Kraft Heinz.

The Branded team does not remotely take for granted that TapRm is not only an important Partner Company, but that we also share our offices – B Works with this incredible team.

Branded was very fortunate to be connected with TapRm as a result of a restaurant we owned on the UES (Duke’s) and the self-pour beverage solution (Pour My Beverage) we engaged with to create a unique hospitality experience for our guests. TapRm was the ONLY beer distributor that would market our restaurant and the beers we were serving to its network. We loved the experience and relationship so much, we gave them discretion over our “beer wall” and allowed them to select, curate and market the wall to their network and ours. The relationship has grown exponentially over the years and on both a professional and personal level, this is a company and a group of people I’m proud to work with and call my friends.

If you’d like to speak about opportunities with TapRm, please contact me directly.

PODCAST

THOUGHT LEADERSHIP

Tuesday, August 16th - Hospitality Hangout: This month on the Hospitality Hangout, Michael Schatzberg “The Restaurant Guy” and Jimmy Frischling “The Finance Guy” are taking a break from their usual interview episodes and bringing you a Best Of season of all your favorite segments. They bring back “Best Of” old favorites such as “The Crystal Ball Moment” and “Top Of Tech Stack.”

In this episode they feature a Best Of On The Road with special guest and Co Founder & CEO at Chowly, Inc., Sterling Douglass (the Hospitality Hangout’s very own “Technology Guy”). The guys said they’ve been fortunate to have been able to record the show on site at industry trade shows like Food On Demand, MURTEC, RFIS, CES and more. Schatzberg says that the show offers a wonderful opportunity to catch up with friends and gain insights plus create new connections.

This episode features:

Listen to the full episode here: Best of On The Road

Thursday, August 18th – Branded Insights: BOH Automations Cook Up a Smarter Kitchen

Imagine this, you casually walk into a restaurant, calmly place your order with the cashier at the counter, and before you can even pull out your debit card, said cashier is yelling to the back-of-house line cooks positioned directly behind them, “I need two Phillys, an order of onion rings and a side of friiiiiiies!” As you stand there, slightly shell-shocked trying to regain some sense of peace considering that you are supposed to be on a relaxing meal break, when suddenly you’re snapped back to reality with the jarring sound of a bell ringing- ‘ding, Ding, DING’, and the shouting of the words “ORDER UP!” ‘Ding-ding-ding!’

Do you remember those days? Whether or not you do, your scream-less and seamless lunch orders these days are all thanks to BOH automation. And, while you might not miss all the bell ringing and yelling, chances are your local restaurant is missing the team members needed to fulfill your Philly and fries request.

Technology has revolutionized the manufacturing industry. Now, it’s translating that success into the restaurant industry on a broader scale. From robot food delivery (a topic we'll dive into another day) to automated ordering systems, owners and operators are investing in food-tech to streamline their businesses in a way that cuts costs and maximizes on output, specifically in the back of house.

Take a look at how BOH Automation is helping to ease the labor shortage problem, elevate customer experience and improve order accuracy and a few of Branded's Portfolio companies making noise in the space.

Read the full article here: BOH Automations Cook Up a Smarter Kitchen

MARKETING

Top of the funnel marketing and customer acquisition strategies.

Do you like your chicken spicy? Are you a hot head like our of Head of Revenue Marketing, Rev Ciancio? He likes it really, really hot. So much in fact, that he interviewed Dave's Hot Chicken Founder, Arman Oganesyan, to ask about their wild growth and how they market to a generation that are on their smart phones ALL THE TIME.

There are a lot of great insights waiting for you on this episode of the Restaurant Marketing Podcast!

Click here to tune in : How Multi-Unit Brands Successfully Market at the Local Level

On that note, congrats to the Dave's Hot Chicken team on opening their 65th store which also happens to be their first 1 in NYC! Here's what Rev ate at their friends and family!

IN THE NEWS

Hospitality Tech and F&B Innovation IN THE NEWS:

We love to highlight Food Service & Hospitality news, especially when it’s Partners & Friends making it!

And in other News…please see some of the stories that caught our attention and that we’re paying attention to. This week was loaded with headlines and news!!!

And FINALLY, Branded is excited to be back "on the road again"! Our next stop is Restaurantology by Savory on August 31st ! This is an invitation-only event and we appreciate and want to thank our friends from Savory Fund, (savory.mercatopartners.com) which is partners with investment firm Mercato Partners for including us. Savory is among Branded’s favorite owners & operators of restaurants and we’re loving what Savory is doing as they continue to grow and scale their business with some of the most exciting brands in the industry.

For all emerging and growing brands and restauranteurs alike – if you’re interested in attending this event click the link below to RSVP!

- NO REGISTRATION COST TO OPERATORS
- NO COST FOR FOOD AND BEVERAGE
- NO VENDORS, NO SALES PITCHES
- 100% COVERED by Savory Fund

CLICK HERE TO RSVP

As for our attending their event, Schatz and I subscribe to the theory that showing up is critically important and no one should ever threaten us with a good time! 😊

That’s it for today!  I wish you a wonderful weekend!

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

It takes a village!

Jimmy Frisch

Jimmy Frischling
Co-Founder & Managing Partner
Branded Hospitality Ventures
jimmy@brandedstrategic.com
235 Park Ave South, 4th Fl | New York, NY 10003

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