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Smashburger’s Co-Founder, CEO on Improved Sales · Choppin’ It Up by Bloomberg Intelligence

0:13
Speaker 1: Welcome to Chopping It Up. I'm your host, Mike Hallon,
0:16
Speaker 1: a senior restaurant and food service analyst at Bloomberg Intelligence.
0:20
Speaker 1: Our research and that a bi's five hundred analysts around
0:22
Speaker 1: the globe can be found exclusively on the Bloomberg terminal.
0:26
Speaker 1: If you enjoy the pod, hook us up by giving
0:29
Speaker 1: us a five star review on Apple or Spotify. Today
0:32
Speaker 1: we get two guests for the price of one. Tom Ryan,
0:35
Speaker 1: co founder and Jim Sullivan, CEO of Smash Burger. Welcome
0:39
Speaker 1: to the pod, gentlemen.
0:40
Speaker 2: Great to be here.
0:41
Speaker 3: Thank you. So.
0:42
Speaker 1: Tom, when you started smash Burger, what did you believe
0:46
Speaker 1: about the burger business that others were missing.
0:49
Speaker 2: Yeah, you know, we kind of coming from McDonald's where
0:52
Speaker 2: I was right before I moved to Denver and started Smashburger,
0:55
Speaker 2: we kind of knew that there was there was some
0:57
Speaker 2: latent demand of dissatisfaction for a burger. You know, most
1:01
Speaker 2: of the big guys were focused on speed and convenience
1:04
Speaker 2: and value, but really not on creapable quality. And so
1:07
Speaker 2: I knew that there was an emerging better market going on.
1:11
Speaker 2: And basically that was the scintilla of insight that led
1:15
Speaker 2: to the desire to really want to put together a
1:17
Speaker 2: burger that you were a bite away from believing was
1:20
Speaker 2: the best burger you'd ever have.
1:22
Speaker 1: It's a great burger. Jim, how long have you been
1:24
Speaker 1: in the role? What attracted you to it and what
1:27
Speaker 1: did you see in the business that wasn't showing up
1:29
Speaker 1: in the numbers maybe the way it should have.
1:31
Speaker 3: You know, I've been in my current role since August
1:34
Speaker 3: first as CEO. February of twenty twenty five, I moved
1:38
Speaker 3: into the role of brand president. Prior to that, I
1:42
Speaker 3: joined in June of twenty twenty four as the Chief
1:46
Speaker 3: Development Officer. And what attracted me to Smashburger was one
1:51
Speaker 3: I've always been a fan of the brand. I would
1:54
Speaker 3: say strong believer in the brand based on the product,
1:57
Speaker 3: in the quality of the product. And I first fell
2:00
Speaker 3: upon smash Burger when I was doing some work for
2:02
Speaker 3: a family dining chain and I was trying to figure
2:04
Speaker 3: out the service model and I came upon Smashburger right
2:08
Speaker 3: around the time that Tom had spawned it. And I
2:10
Speaker 3: came out and experienced smash Burger, experienced the food and
2:13
Speaker 3: found it to be of premium quality. And the other
2:17
Speaker 3: thing that was interesting is I was trying to solve
2:19
Speaker 3: the equation of the dessert occasion within a family dining restaurant,
2:24
Speaker 3: and Tom and Teab had figured that out with their
2:26
Speaker 3: Hoggin DAW's handspunge shake and the delivery system of how
2:29
Speaker 3: that worked, and so I came out studied it. I
2:32
Speaker 3: studied the service model, the actual station cooking line that
2:37
Speaker 3: they had assembled, and how they actually flowed from the
2:40
Speaker 3: back of the house to the front of the house.
2:41
Speaker 3: So I at that point was more of a student
2:44
Speaker 3: to understand how they were executing from a service delivery standpoint,
2:49
Speaker 3: and fell in love with the food, fell in love
2:50
Speaker 3: with the concept, fell in love with the brand. I
2:52
Speaker 3: thought the brand was so uniquely positioned in its naming
2:55
Speaker 3: and its branding and all the elements that supported it.
3:00
Speaker 3: You know, it came across my desk that Smashburger was
3:02
Speaker 3: looking to and reinvigorate. They wanted to get back to growth,
3:07
Speaker 3: get back to net positive growth with restaurant account both
3:10
Speaker 3: from a company perspective, more importantly in the franchise space,
3:15
Speaker 3: non non traditional franchise space as well. So when I
3:18
Speaker 3: came in, I just realized that we had some tweaking
3:21
Speaker 3: that needed to be done around the asset and the
3:24
Speaker 3: typology of the asset. And then as I got into
3:27
Speaker 3: it more and more and more, I learned that there
3:29
Speaker 3: was other greater opportunities for us as a brand to
3:32
Speaker 3: take the brand back to where the brand was founded.
3:35
Speaker 3: And that's how Tom and I came into partnership, is
3:37
Speaker 3: that Tom has been an essential partner for me in
3:41
Speaker 3: working with the team to bring us back to what
3:44
Speaker 3: we were founded upon, and that's great taste and gold standard,
3:48
Speaker 3: gold standard from a product, and where I see the
3:51
Speaker 3: opportunity for us as gold standard on execution within the
3:54
Speaker 3: four walls of the restaurants.
3:56
Speaker 1: Tom, looking back, what was the first moment where you
3:59
Speaker 1: think the business started to diverge from the original vision
4:02
Speaker 1: you had?
4:03
Speaker 2: Yeah, you know, not casting any aspersions on anybody, I
4:07
Speaker 2: think what happened was when when kind of the founding
4:11
Speaker 2: team moved on, either post acquisition or even during the acquisition.
4:16
Speaker 2: I think what happened is we created a historical void
4:20
Speaker 2: in people really understanding what the brand was for why
4:24
Speaker 2: it was designed in the first place, and I think
4:27
Speaker 2: we we walked into an era where we were actually
4:30
Speaker 2: managing the business by the book instead of by the
4:35
Speaker 2: by the soul, you know, So we had some people
4:38
Speaker 2: making decisions that had lost track of what the true
4:41
Speaker 2: soul and spirit of Smashburger was. And those are all
4:45
Speaker 2: the nuances that made us highly differentiated in the marketplace.
4:48
Speaker 2: It was everything Jim talked about great taste, great taste,
4:51
Speaker 2: great taste, excellent service, high levels of differentiation, regardless of
4:56
Speaker 2: what part of our menu we were talking about. And
4:59
Speaker 2: I think I think there were some people in the
5:01
Speaker 2: business then that just either didn't understand that or never
5:04
Speaker 2: respected it while we were still there. And basically when
5:08
Speaker 2: we left, all of that kind of unwound a little bit,
5:12
Speaker 2: and not to the degree where we lost it, but
5:14
Speaker 2: to the degree where it was getting to be marginally
5:18
Speaker 2: recognizable for those of us who knew what it was
5:21
Speaker 2: originally designed to be. And that happens sometimes. I mean,
5:25
Speaker 2: I've seen it happen in other brands. But what I
5:28
Speaker 2: was really heartened by was the fact that we had
5:31
Speaker 2: a handful of people who were in the there in
5:35
Speaker 2: the era when I was still there, and then when
5:37
Speaker 2: Jim came in so like minded about the origin and
5:42
Speaker 2: the ethos of our origin and the design criteria of
5:46
Speaker 2: our origin, that he was ready to embrace. You know,
5:49
Speaker 2: let's get back to where we need to be and
5:51
Speaker 2: then do it in a more modern way so that
5:54
Speaker 2: we can project ourselves into the future and evolve into it.
5:59
Speaker 2: But coming from base we started with, and so that's
6:03
Speaker 2: the path that we've been on since Jim took over
6:05
Speaker 2: in February. Obviously, what you've seen come out of there
6:08
Speaker 2: is a whole new brand positioning, a whole new brand book,
6:12
Speaker 2: a whole new look and feel, a resurgence first of
6:16
Speaker 2: our product innovation to own premium burgers, adding this modern
6:20
Speaker 2: tier of four ninety nine value, and then adding new
6:24
Speaker 2: platforms that continue to captivate people's imagination like our big dogs.
6:29
Speaker 2: And that was step one, and that's mostly marketing and
6:32
Speaker 2: product and branding. And now we're in the phase where
6:34
Speaker 2: we're really focused on in store quality and excellence and
6:38
Speaker 2: reinforcing our people. So at the end of the day,
6:41
Speaker 2: you know, I think we're getting back to standard, but
6:44
Speaker 2: in a more modern way and in a way that
6:46
Speaker 2: ensures our forward looking growth.
6:48
Speaker 1: Great, and Jim, once you started in the role, you know,
6:51
Speaker 1: what were the top priorities for you? I think you
6:54
Speaker 1: know Tom has mentioned some of them, but what were
6:56
Speaker 1: the ones that you felt would have the biggest impact
6:58
Speaker 1: on unit level nomics in the in the short term.
7:02
Speaker 3: I think the first was brand positioning and what the
7:05
Speaker 3: brand actually stood for. I think that, as Tom mentioned,
7:09
Speaker 3: we've kind of lost our way and being truly defined
7:11
Speaker 3: for what smash Burger stands for. So that was the
7:14
Speaker 3: first thing that Tom and I attacked was brand positioning work.
7:17
Speaker 3: I think that how we communicated the brand, we had
7:21
Speaker 3: drifted a little bit and maybe created some confusion in
7:24
Speaker 3: the consumer's mindset. We'd gone through a variety of logo changes,
7:29
Speaker 3: so it was getting us back to where the logo
7:32
Speaker 3: was originated, but modernizing that so that the consumer our
7:36
Speaker 3: guests could recognize who we were. I think that we
7:39
Speaker 3: were starting to fall into the area of being recognized
7:44
Speaker 3: as a product versus a brand, and I think now
7:47
Speaker 3: people recognize the brand and that brand stands for something,
7:50
Speaker 3: and that's premium quality within the burgers, within the fast
7:53
Speaker 3: casual burger space. So that's where we started. You know,
7:56
Speaker 3: Tom went to work hard on the brand positioning work.
7:59
Speaker 3: He can talk to that as far as who he
8:01
Speaker 3: did that work with and the rate of speed that
8:05
Speaker 3: we were able to get that accomplished. We went to
8:08
Speaker 3: work on logo. All the while, we are completely retooling
8:12
Speaker 3: how we execute at the restaurant level, So we've embarked
8:15
Speaker 3: upon an entire recertification of every team member in the restaurant.
8:19
Speaker 3: Every team member will be recertified to what we call
8:22
Speaker 3: gold standard execution that is coming to completion here at
8:25
Speaker 3: the end of quarter one, and we'll continue that process
8:29
Speaker 3: as we go forward to be a continuous improvement process.
8:32
Speaker 3: But we're laser focused on people and the teams that
8:35
Speaker 3: they lead and making sure that we're supporting them for
8:38
Speaker 3: them to be able to execute and deliver upon the
8:41
Speaker 3: promise to our guest. And then all the while, it's
8:44
Speaker 3: been a really great partnership because Tom leads innovation, and
8:49
Speaker 3: Tom and Chef Andrew have done a remarkable job getting
8:52
Speaker 3: us back into the mainstream, and I've been on the
8:54
Speaker 3: other side of the fence making sure that we're teamed
8:58
Speaker 3: up and ready to execute. It. Had an excellent balance
9:01
Speaker 3: here over the last i'd say, I mean from February.
9:05
Speaker 3: It's been over a year, but the last I'd say
9:07
Speaker 3: eight months is where we've really kicked in the gear.
9:10
Speaker 1: Great and and Chain has had good results since about
9:13
Speaker 1: July of last year. How much of those results are
9:18
Speaker 1: the brand positioning work you've done versus value and maybe
9:23
Speaker 1: some of the other initiatives that you have.
9:24
Speaker 3: I think it's I think it's all the above. But
9:26
Speaker 3: I mean, Tom, please please elaborate. I know you and
9:28
Speaker 3: I think alike on this.
9:30
Speaker 2: Yeah, so look, I mean quite a phrase. Maybe I
9:33
Speaker 2: think we're a restartup. You know, we're way too big
9:36
Speaker 2: to be a startup, but we actually had to restart
9:39
Speaker 2: things from our fundamentals and we started, you know, we
9:42
Speaker 2: had a lot of time to think about what to
9:45
Speaker 2: do from February until July. But July we really started
9:48
Speaker 2: getting back into the innovation game. We didn't have the
9:51
Speaker 2: brand positioning yet, but we knew we needed to start,
9:54
Speaker 2: you know, kind of getting that muscle memory back in
9:57
Speaker 2: place of how to launch great new products, how do
9:59
Speaker 2: we endorse them, how to sell them at store level?
10:02
Speaker 2: And so that was our summer of Smash program. In
10:04
Speaker 2: the fourth quarter, we went into our fall menu, which
10:07
Speaker 2: had some we brought back some favorites, we did some
10:09
Speaker 2: new innovation. But since that time in July, you know,
10:13
Speaker 2: in general, we don't talk about overall results, but in
10:16
Speaker 2: general we've added a point of sales and a point
10:18
Speaker 2: of traffic week over week since and that was in
10:21
Speaker 2: the absence of really having what I would consider to
10:23
Speaker 2: be a really well designed marketing plan. Since then, and
10:27
Speaker 2: in that interval, we were testing a lot of ways
10:29
Speaker 2: to get our trade area marketing, our social and and
10:35
Speaker 2: some of our aggregator business back into square one. And
10:38
Speaker 2: we had the chance in the first quarter to kind
10:41
Speaker 2: of put a cogent marketing plan together in sequence instead
10:44
Speaker 2: of just random tests that we got done when we
10:47
Speaker 2: got them done, and since then, I would tell you
10:49
Speaker 2: that that rate. I can't tell you yet because we're
10:51
Speaker 2: not through the first quarter, but if we were a
10:53
Speaker 2: point and a point, you know, July through the end
10:56
Speaker 2: of the year, I think we've accelerated that significantly as
10:59
Speaker 2: we moved into the first quarter. So basically, I think
11:03
Speaker 2: we just woke up, to be honest with you, we
11:05
Speaker 2: woke up with our legacy and mind, but with our
11:08
Speaker 2: eye on the future. And I think when we put
11:10
Speaker 2: those things together, especially from the consumer facing side, from branding,
11:15
Speaker 2: product and marketing, that showed us that the brand is
11:19
Speaker 2: still there. We just have to wake it up and
11:21
Speaker 2: move it. And I think, in concert with Jim and
11:23
Speaker 2: the team's effort around bringing high quality operations, hospitality, speed,
11:28
Speaker 2: and accuracy back to the business to gold standard. I
11:31
Speaker 2: think that's going to be the one two punch that
11:33
Speaker 2: re establishes us as not just the rich the originator
11:37
Speaker 2: of smash Burgers for the modern era, but also the
11:40
Speaker 2: quality leader of smash Burgers for the quality for the
11:43
Speaker 2: next quality era. So I think we're on the right
11:46
Speaker 2: path that we just need a little time to connect
11:48
Speaker 2: a few more dots and turn it all on at
11:51
Speaker 2: the same time.
11:53
Speaker 1: Jim, do you have any examples of where you've seen
11:55
Speaker 1: innovation move the needle on margins or traffic.
11:58
Speaker 3: Yes, our everyday Value Tier four ninety nine. You know
12:04
Speaker 3: that there for us was a significant change, one from
12:09
Speaker 3: a consumer point of view, because if you look at
12:11
Speaker 3: the time where we introduced four ninety nine and where
12:14
Speaker 3: the market in the industry was, everybody was trying to
12:16
Speaker 3: get into the value game. We did it a little
12:19
Speaker 3: different than everybody else. We didn't change the product configuration,
12:23
Speaker 3: we didn't touch quality of the product. We took signature
12:26
Speaker 3: products that met the margin structure based on a four
12:29
Speaker 3: ninety nine price point, and we introduced it. We started
12:32
Speaker 3: with two. We've now built that into an everyday value platform.
12:36
Speaker 3: It's always on, and that has been a driver of
12:41
Speaker 3: traffic all the while on the top end with what
12:45
Speaker 3: we call the high the low high, we've gotten back
12:48
Speaker 3: in a premium innovation. So it's been a nice balance
12:51
Speaker 3: of four ninety nine all the while being able to
12:53
Speaker 3: drive top line, which is driving greater check and greater
12:58
Speaker 3: gross margin. So we use four ninety nine as the
13:01
Speaker 3: every day and then we're able to maneuver within the
13:04
Speaker 3: menu of premium and core. So that's been a very
13:08
Speaker 3: significant change. And I think the other piece in tom
13:10
Speaker 3: we'll we'll certainly talk to this is the idea of
13:14
Speaker 3: we've kind of changed up the notion of LTO and
13:16
Speaker 3: what LTO means. It's not a singular product for us.
13:20
Speaker 3: We look at it as a platform, and if you
13:21
Speaker 3: look at what we've done Summer of Smash, we introduced
13:24
Speaker 3: a platform of big dogs, one of which fell in
13:27
Speaker 3: the four ninety nine. The other two were more of
13:29
Speaker 3: a premium character, so those were at a higher price point,
13:32
Speaker 3: but it gave us the opportunity to have the platform
13:35
Speaker 3: at four ninety nine, gave us a platform around a
13:39
Speaker 3: quarter pound Angus Big Dog, and there were four varieties
13:44
Speaker 3: of that, plus we have that introduced in the value tier.
13:48
Speaker 3: And as we moved through the fall and in through
13:50
Speaker 3: the winter menu again, we continued around innovation but from
13:53
Speaker 3: a platform perspective and have continued to refresh what we
13:56
Speaker 3: do in that four ninety nine price point, all the
13:59
Speaker 3: while continuing the innovation up on the premium side.
14:03
Speaker 1: Yeah, that five dollar price point has been very important
14:06
Speaker 1: for all of the quick service and fast casual chains
14:09
Speaker 1: that we cover, Tom, how do you balance the innovation
14:13
Speaker 1: and the lteos with operational efficiency?
14:16
Speaker 3: Yeah?
14:17
Speaker 2: You know, Like I said, that's why we started in
14:19
Speaker 2: the summer without having the brand position, and we wanted
14:21
Speaker 2: to get that muscle memory of how to be nimble
14:23
Speaker 2: in the marketplace and bring new things forward. But I
14:27
Speaker 2: do think Jim hit on the key element to the
14:29
Speaker 2: question you're asking, which is, I don't think I don't
14:32
Speaker 2: think there's I think the days of a single blockbuster
14:36
Speaker 2: product are kind of over, and I had my lion's
14:38
Speaker 2: share of those in my own past, and I know
14:41
Speaker 2: what those feel like. But the market's gotten so diverse,
14:44
Speaker 2: and people's menu choices have become so segmented into specialty
14:50
Speaker 2: things that now I would I think, as Jim mentioned,
14:53
Speaker 2: we think of it more as platforms. So I'm actually
14:55
Speaker 2: innovating around three key platforms for the brand and a
14:59
Speaker 2: couple support platforms. Owning premium burgers is what we're all
15:03
Speaker 2: about to mention the elements that are in that camp.
15:08
Speaker 2: Since we since we started the innovation track back up,
15:11
Speaker 2: you know, we launched our barbecue, bacon brisket burger. In
15:14
Speaker 2: the summer, we came back and added the Colorado Burger,
15:18
Speaker 2: which is a really nice kind of grilled green chili
15:21
Speaker 2: and cheese burger that has been a classic for us.
15:23
Speaker 2: We brought that back right now. In this quarter, We've
15:26
Speaker 2: launched our Scorchin mac and cheeseburger, and our Cheesy macburger,
15:30
Speaker 2: and our cheesy macburger, which is really the indulgent way
15:33
Speaker 2: to have cheeseburgers. All of those qualify for this super
15:37
Speaker 2: kind of what we call the Premium tier, which kind
15:40
Speaker 2: of holds and pushes the envelope on where burger boundaries
15:43
Speaker 2: really are from a recipe point of view. Got a
15:46
Speaker 2: whole new cadre of those coming on April seventh. And
15:49
Speaker 2: then we have the Value tier, which really just needs
15:52
Speaker 2: to satisfy the core demand of the mass market. And
15:55
Speaker 2: that's why you see things on our menu like lettuce,
15:58
Speaker 2: tomato and Mao burger and a smash burger and a
16:00
Speaker 2: lettuce and tomato and Mayo chicken smash. I mean, those
16:06
Speaker 2: things are really main. We have our classic, you know,
16:09
Speaker 2: we call it the All American. It's basically pickles, onions,
16:13
Speaker 2: ketchup and mustard. And then we did a little scorching
16:16
Speaker 2: thing in and now that. But keeping that four ninety
16:19
Speaker 2: nine platform alive and well in top of mind by
16:22
Speaker 2: adding an innovation or two across the quarter makes a
16:25
Speaker 2: ton of sense to us. And the third is Jim
16:27
Speaker 2: mentioned right now is Big Dogs, which are still launching.
16:30
Speaker 2: We're selling quite a few of them a day. We're
16:32
Speaker 2: really happy with the performance. But that's a whole new
16:35
Speaker 2: incremental platform for the brand. And I think when you
16:38
Speaker 2: take those three things in tandem and think about them
16:41
Speaker 2: not as products, but as platforms that you need to
16:44
Speaker 2: constantly support. When we market a new premium burger, we
16:47
Speaker 2: shine a light back on all of our premium burgers,
16:50
Speaker 2: and so we bring them all on us with us
16:52
Speaker 2: on that ride. So that whole approach, coupled with now
16:57
Speaker 2: a quarterly calendar. You know, in the old day, Smashburger
17:00
Speaker 2: used to launch things and keep them in the market
17:02
Speaker 2: for eight eight weeks. Maybe now we're keeping them for
17:05
Speaker 2: the whole quarter. We're actually building from a marketing point
17:09
Speaker 2: of view. We're building marketing thematics around each quarter so
17:13
Speaker 2: that all the new products have a focal point that
17:15
Speaker 2: ladder up to the kind of what I would call
17:17
Speaker 2: our undercard positioning. We did the whole scorch and menu
17:21
Speaker 2: in starting in January. You know, our tagline is bleeps
17:24
Speaker 2: in the Bite, but our tagline for the quarter was
17:27
Speaker 2: Burned with Benefits because we think we give people both
17:30
Speaker 2: heat and great taste at the same time, not one.
17:33
Speaker 2: And we have a new we have a new campaign
17:35
Speaker 2: starting on April seventh, which is all about fresh and
17:39
Speaker 2: you know the tagline for that, I'll give you the
17:41
Speaker 2: quick tease. It's going to be great taste in full color.
17:44
Speaker 2: But it really celebrates a lot of things that are
17:47
Speaker 2: really relevant for springtime eating and the way people think
17:50
Speaker 2: about how they want to change up their diet or
17:53
Speaker 2: their their choices for the springtime. So that's how we
17:56
Speaker 2: do it, and I got to tell you it flows
17:58
Speaker 2: really nicely for our operations. That was the core of
18:01
Speaker 2: your question. I think because we have this focal point
18:04
Speaker 2: for the quarter, first of all, we can make operating
18:07
Speaker 2: commitments to keep things in play for a full twelve
18:10
Speaker 2: weeks instead of in and outs over eight weeks. And
18:13
Speaker 2: the second thing is we let because we're marketing thematics
18:16
Speaker 2: across three platforms, there's a lot of sometimes most of
18:20
Speaker 2: the time, there's a lot of common ingredients that we
18:22
Speaker 2: use in an innovative way across all three of those
18:25
Speaker 2: and you'll see that. You can see that in the
18:28
Speaker 2: winter in our current menu you can also see that
18:30
Speaker 2: and what's coming on April seven. So I think I
18:33
Speaker 2: think having those synergies and making sure that we leverage
18:36
Speaker 2: what we put in the restaurants get a lot of
18:38
Speaker 2: movement out of it, leverage our training around single ingredient handling,
18:42
Speaker 2: but apply it to multiple platforms. We just think that's
18:45
Speaker 2: the smart way to be managing the business these days.
18:48
Speaker 1: Yeah, it's interesting, and I think it makes sense to
18:50
Speaker 1: me because you know, what we're seeing is that like
18:52
Speaker 1: one and done, LTO is having a shorter impact across
18:56
Speaker 1: all of the companies we cover. But at the same time,
18:59
Speaker 1: when the companies try to, you know, do four or
19:01
Speaker 1: five different things in a quarter, the marketing messaging gets confusing,
19:07
Speaker 1: and people, you know, will try to show up, you know,
19:10
Speaker 1: to a store for one item and it's not even
19:12
Speaker 1: being sold anymore. So, yeah, it's it's a it's a
19:16
Speaker 1: nice refreshing way to look at those limited time offers, Jim.
19:20
Speaker 1: When you look across the system, what separates your best
19:22
Speaker 1: performing stores from the rest of them.
19:24
Speaker 3: People, quality of the general manager, quality of the team,
19:29
Speaker 3: and how that team interacts with one another. You know,
19:32
Speaker 3: I think that the the asset base. Obviously we've got
19:35
Speaker 3: some newer assets, but I I would solely rely on
19:40
Speaker 3: the strength the quality of the restaurant level management team
19:44
Speaker 3: and the team the team that then surrounds that management team. Great.
19:49
Speaker 1: And how are you seeing consumer behavior shift right now? Jim?
19:53
Speaker 1: How is it showing up in check size frequency mix?
19:58
Speaker 3: Well, it's kind of interesting. I think the industry has
20:00
Speaker 3: evolved tremendously, and I believe this began even pre COVID.
20:06
Speaker 3: It really got it really grew aggressively during COVID, and
20:12
Speaker 3: that's third party and we see a good portion of
20:15
Speaker 3: our total revenue going through third party what's interesting about
20:19
Speaker 3: third party is that that consumer base is actually its
20:24
Speaker 3: own consumer base within the consumer base. So as we
20:27
Speaker 3: look at our third party business, and we've really gotten
20:31
Speaker 3: precise in how to manage that and where we promote,
20:33
Speaker 3: how we promote when we go into sponsored listenings when
20:36
Speaker 3: we don't for us to understand how we use those
20:39
Speaker 3: channels to continue to drive a large portion of the
20:42
Speaker 3: revenue all the while maintaining profitability and doing so so
20:46
Speaker 3: we feel that the third party business is here to stay.
20:49
Speaker 3: It's something we embrace, but we're really shifting towards to
20:53
Speaker 3: treat it like a business within a business, and I'm
20:56
Speaker 3: committed to make sure that we have a uniform experience
20:58
Speaker 3: for our guests. So whether they buy through third parties,
21:01
Speaker 3: through our channel, online, through our mobile app, or they
21:04
Speaker 3: come in and the experience in the restaurant, where we
21:06
Speaker 3: feel that is the best experience you can get a
21:08
Speaker 3: smash burger is when you come in and dine in
21:10
Speaker 3: at the restaurant. Then we have to have consistency across
21:13
Speaker 3: the board. So whether that product is coming from a
21:16
Speaker 3: door dass driver or if it's being picked up by
21:18
Speaker 3: a guest, when they experience that product. It's got to
21:21
Speaker 3: be uniform, it's got to be consistent.
21:23
Speaker 1: Tom, do you have anything to share about your marketing
21:26
Speaker 1: plans in that channel?
21:29
Speaker 2: Actually, they are the channel for marketing, to be honest
21:32
Speaker 2: with you. I mean they have. What we love about
21:34
Speaker 2: the aggregator business is they have tremendous reach relative to
21:39
Speaker 2: other any more reach than any single brand would ever
21:42
Speaker 2: have because they've invested across the entire category and across
21:46
Speaker 2: all the geographies. And so one of the things that
21:49
Speaker 2: we find most andamoring about working with our aggregator partners
21:53
Speaker 2: is that they have really really solid reach based tactics
21:56
Speaker 2: to get to people within a variety of different restaurant
22:00
Speaker 2: occasions of which we serve, you know, a couple of
22:03
Speaker 2: key ones. And so they become especially because we're trade
22:07
Speaker 2: area focused because of our distribution model right now, that
22:11
Speaker 2: we have the ability to use their kind of national
22:14
Speaker 2: footprint but geocodored into being highly effective for the stores
22:18
Speaker 2: where we actually do business. So the marketing plan is
22:22
Speaker 2: they get all the same content we get, you know,
22:25
Speaker 2: they have they run their own features more around lifestyle
22:28
Speaker 2: things like the like March Madness right now or you know,
22:31
Speaker 2: the whole NFL playoff, and so the combination of their
22:34
Speaker 2: reach and our product and and what we believe to
22:38
Speaker 2: be product superiority works really well. I also wanted to
22:41
Speaker 2: add something into what Jim said about what we're seeing.
22:44
Speaker 2: The other thing besides the aggregator business that is an
22:47
Speaker 2: undeniable factor in the market right now is having a
22:51
Speaker 2: value tier. You know, we've always I've always considered myself
22:55
Speaker 2: to be an occasion based marketer, and that you know,
22:58
Speaker 2: obviously there's products that that and others, but when it
23:01
Speaker 2: comes to value, it's really about the price you pay
23:04
Speaker 2: for what you get. And I think we are uniquely
23:06
Speaker 2: qualified to give people a really great product at a
23:12
Speaker 2: spectacular price relative to competition both below us and sideways
23:17
Speaker 2: and even above us. And so I think the other
23:20
Speaker 2: thing that's really shaping our business right now is the
23:23
Speaker 2: preponderance of usage of our four ninety nine all day,
23:26
Speaker 2: every day menu is just proving itself out every day,
23:30
Speaker 2: and it's proving itself out in interesting ways. I mean,
23:33
Speaker 2: it's opening up occasions Like I was just in New
23:35
Speaker 2: York and I was seeing people walk in and buy
23:38
Speaker 2: four burgers for twenty bucks and walk out right to go,
23:41
Speaker 2: and they're taking it back to their office and probably
23:44
Speaker 2: buying it for other people. I've also seen people by
23:46
Speaker 2: a four ninety nine burger and then by one of
23:49
Speaker 2: our six ninety nine shakes and a top side on
23:51
Speaker 2: top of that. And so basically, when you're managing to
23:54
Speaker 2: check and you're managing to occasion, the ability to have
23:58
Speaker 2: a range of prices every day where from four ninety
24:01
Speaker 2: nine to really eleven or twelve twelve dollars based on
24:05
Speaker 2: doubles and our premium burgers, I mean that gives us
24:07
Speaker 2: a much bigger bandwidth in that occasion base. But it
24:12
Speaker 2: also gives as a category player in fast casual. It
24:15
Speaker 2: gives our fast casual customers a price point they can't
24:18
Speaker 2: find any place else in fast casual.
24:21
Speaker 1: Yeah, it's smart. I mean we've seen companies that we
24:23
Speaker 1: cover that don't really have a value layer really struggle,
24:28
Speaker 1: right a bogo you know, just turning on a bogo
24:31
Speaker 1: every so often isn't really you know, you're training your
24:34
Speaker 1: customers that you know the product's maybe not worth what
24:37
Speaker 1: you're charging, and they don't have that flexibility that you're
24:41
Speaker 1: talking about to go in and maybe add to a
24:43
Speaker 1: check or whatever it might be.
24:45
Speaker 2: And it's profitless prosperity. That's what Jim and I call it.
24:48
Speaker 2: When you're doing bogos, it's profitless prosperity. The volume feels good,
24:52
Speaker 2: but when you look at what you actually generate in
24:54
Speaker 2: a check, it's like, why are we doing this? We're
24:56
Speaker 2: making work for ourselves to no gain. Oh yeah, I
25:00
Speaker 2: agree with you, Michael. I think that's a I think.
25:02
Speaker 2: I think if you don't have you're not playing the
25:04
Speaker 2: value game right now. You're turning a blind eye to
25:07
Speaker 2: a big trend in the marketplace that I don't think
25:09
Speaker 2: is going to go away anytime soon.
25:11
Speaker 1: Yeah. I agree, and that leads us perfectly into our
25:14
Speaker 1: next question. Beef costs have been an issue for a while,
25:18
Speaker 1: and now inflation is rapidly accelerating due to the war. Jim,
25:22
Speaker 1: what's one operational change you've made that's had an impact
25:26
Speaker 1: on margins and what else can the company do to protect,
25:29
Speaker 1: protect and even wide in margins going forward.
25:32
Speaker 3: You know, we've been really focused on our labor model.
25:35
Speaker 3: You know, we've been We've been very disciplined around price.
25:40
Speaker 3: I know, a lot of run out and just immediately
25:43
Speaker 3: gone after price to offset the commodity pressure. We know
25:45
Speaker 3: beef as we embark upon Q two, we know we're
25:49
Speaker 3: going to have inflation on beef. We're being smart and
25:52
Speaker 3: how we're managing that, but we're really looking at the
25:55
Speaker 3: labor model and making sure that we are actually being
25:59
Speaker 3: able to deploy labor in an efficient manner for us
26:02
Speaker 3: to maximize productivity, for us to be able to drive
26:05
Speaker 3: more transactions based on every quarter hour within the day.
26:09
Speaker 3: And so that's the focus for us. It's not about
26:12
Speaker 3: for me to drive margin in the restaurants. I need
26:14
Speaker 3: to drive traffic in check and I don't want to
26:17
Speaker 3: do that through price. And if you look at what
26:18
Speaker 3: we've done, we've grown average daily sales organically. We've grown
26:23
Speaker 3: it through positive transactions, positive check all the while not
26:29
Speaker 3: with price. So as Tom mentioned, we're getting the benefit
26:32
Speaker 3: of check because we're seeing people bundle a combination of
26:36
Speaker 3: whether it be value, premium, shake side, loaded side. So
26:42
Speaker 3: we've actually seen an increase in check even with the
26:46
Speaker 3: four ninety nine, you would have expected to see an
26:49
Speaker 3: immediate drop of check. What we're seeing in the four
26:51
Speaker 3: ninety nine is the add on percentage is increasing for
26:55
Speaker 3: us versus people coming in and solely buying the four
26:58
Speaker 3: ninety nine and there are those consumers that are going
27:01
Speaker 3: to just shop in the four ninety nine in that
27:03
Speaker 3: price point. But we've begun now to build credibility around
27:07
Speaker 3: the four ninety nine tier, and consumers are now using
27:11
Speaker 3: us for four ninety nine but then adding or building
27:15
Speaker 3: out the check and they're doing that themselves. The other
27:18
Speaker 3: neat thing for us is we've embarked upon kiosks. In
27:21
Speaker 3: kios for us, again, we didn't touch price, but we
27:24
Speaker 3: put it inside the control of the consumer for them
27:27
Speaker 3: to build their own check. And we've seen a nice, nice,
27:31
Speaker 3: healthy or a healthy nice increase to what we're seeing
27:36
Speaker 3: in guest check for those that are utilizing kios So
27:39
Speaker 3: we're up in a pilot now. We expect to expand
27:42
Speaker 3: that to fifty restaurants here by the beginning of quarter three,
27:46
Speaker 3: and we know that we're going to get the benefit
27:48
Speaker 3: of check there. And again that's not without us going
27:51
Speaker 3: out and taking massive price across the board.
27:54
Speaker 1: Great, Tom, if you're starting smash Burger today, what would
27:57
Speaker 1: you do differently?
28:00
Speaker 2: Oh boy, boy, nobody's ever asked me that before, you know.
28:06
Speaker 2: I think I think if I had it to do
28:08
Speaker 2: over again, I would obviously maintain our levels of quality
28:13
Speaker 2: I think I would have in I think if I
28:15
Speaker 2: I think I would have have back in the day,
28:17
Speaker 2: would have invested more in some of the areas of
28:19
Speaker 2: the business which I think went unexploited for a long time.
28:23
Speaker 2: I think our shape, I think I would I would
28:26
Speaker 2: want to get our shape business up and running. I'm
28:28
Speaker 2: bringing back a lot of the old school stuff. We're
28:31
Speaker 2: bringing back floats this summer, which is going to be
28:34
Speaker 2: really cool. And that's all I'm going to say about that.
28:37
Speaker 2: But you know, I think I would have done. I
28:42
Speaker 2: can't ask what I would do now. I can only
28:44
Speaker 2: tell you what I would have done differently back in
28:45
Speaker 2: the day. I think back in the day, several of
28:49
Speaker 2: us were saying, let's grow like a tree, not like
28:51
Speaker 2: a buying which is to really impact markets with critical
28:55
Speaker 2: mass because of all the synergies that come from both
28:59
Speaker 2: in marketing and reputation and word of mouth and all
29:01
Speaker 2: those things. And I think back in the day, we
29:04
Speaker 2: just we just lost a little bit of that discipline
29:07
Speaker 2: and basically opened up too many markets at the same
29:10
Speaker 2: time instead of concentrating on fewer of them. And that's
29:12
Speaker 2: a subtle criticism. I would also say that and Jim
29:16
Speaker 2: knows this better than anybody on this call, that real
29:19
Speaker 2: estate really matters, and basically the way we put our
29:24
Speaker 2: asset together and the way that works in the P
29:26
Speaker 2: and L. I think there would have been a lot
29:30
Speaker 2: of different things we would have done in hindsight, knowing
29:32
Speaker 2: what I know today, But I think all those things
29:35
Speaker 2: are resonant in how Jim's thinking about the business and
29:39
Speaker 2: how his leadership team is thinking about the business. So
29:42
Speaker 2: you know, it's you know, we're going to be twenty
29:44
Speaker 2: years old next year, and at the same time, you know,
29:47
Speaker 2: you never quit learning, and so I think we have
29:50
Speaker 2: a few things to impact, you know, going forward over
29:52
Speaker 2: the next five years. But that and I wouldn't change
29:56
Speaker 2: any of the product. I'm really happy. I mean, I
29:58
Speaker 2: think it stood the test of time. I already I
30:00
Speaker 2: think certified Angus beef is clearly obviously problematic in times
30:05
Speaker 2: of beef inflation because it's the smallest segment of beef
30:09
Speaker 2: you can buy for the most part in a mass
30:11
Speaker 2: market play. But you know, it's worth every penny. I mean,
30:14
Speaker 2: it was, you're a bite away. You know, we sourced
30:18
Speaker 2: every kind of beef screen through all of them. Chef
30:20
Speaker 2: Andrew and I and like, this was the one in
30:22
Speaker 2: blind taste testing that we came back to and said,
30:25
Speaker 2: this is the only way to do quality burgers for
30:27
Speaker 2: the next generation of burger lovers. And so I think
30:30
Speaker 2: a lot of the product things have stood the test
30:32
Speaker 2: of time and I wouldn't mess with any of those.
30:35
Speaker 1: Well, thanks very candor. And in your defense, you know
30:37
Speaker 1: you were on the bleeding edge of the better burger explosion, man,
30:41
Speaker 1: I know, I'm sure there was a lot of pressure
30:44
Speaker 1: on you to grow as fast as you could.
30:46
Speaker 2: Yeah, you know, it's interesting, Michael, it's funny you bring
30:49
Speaker 2: that up because you know, Jim and I struggle with
30:51
Speaker 2: the genericism of the word smash burger. And obviously we
30:55
Speaker 2: didn't create, you know, the word. It was around in
30:58
Speaker 2: the thirties and forties. It was kind of a truck
31:00
Speaker 2: stop diner, kind of mom and pop thing for the
31:03
Speaker 2: longest time, and then it went extinct when all the
31:06
Speaker 2: fast feeders came in and started doing things a different way.
31:09
Speaker 2: And I think we are the what I like to
31:12
Speaker 2: take credit for is bringing smash burgers back to the
31:14
Speaker 2: modern market because before we started naming ourselves that way
31:18
Speaker 2: and actually practicing the craft nobody was doing it. But
31:22
Speaker 2: here's what's different. I think a lot of people use
31:25
Speaker 2: the word because they think it's because they know it's sexy,
31:28
Speaker 2: and they know it has some nascent appeal, either in
31:31
Speaker 2: general or because of affiliation to other places, but just
31:35
Speaker 2: because you call it that, And even if you even
31:38
Speaker 2: if you smash it, it's just not that you smash
31:40
Speaker 2: a burger. It's what you smash and how you smash,
31:44
Speaker 2: and the physics and chemistry that go into doing it right.
31:47
Speaker 2: And I will tell you, out of all the people
31:49
Speaker 2: I've seen and watched on film, they're smashing burgers, but
31:53
Speaker 2: they haven't thought about it nearly as hard as we have,
31:56
Speaker 2: and they haven't engineered they're smashing tool to be the
31:59
Speaker 2: perfect balance of volume and back prussure, to get the
32:03
Speaker 2: perfect sere without squeezing all the juice out right. So
32:06
Speaker 2: there's a lot of science and physics built into the
32:08
Speaker 2: Smash Burger platform that we did back in two thousand
32:11
Speaker 2: and six. And I think that's one of the reasons
32:14
Speaker 2: why you know the timeless the timelessness of our brand,
32:18
Speaker 2: of our brand it that it has never fallen out
32:20
Speaker 2: of favor. I think that speaks to the fact that
32:23
Speaker 2: we designed it right. So I think there's a lot
32:25
Speaker 2: of people out there saying they're smashing burgers, but and
32:28
Speaker 2: they are technically, but you have to consider what you
32:32
Speaker 2: smash and how you smash, and how much thought and
32:34
Speaker 2: process goes into it right, which I think we win
32:37
Speaker 2: at in all cases. To be honest with.
32:40
Speaker 1: You, very cool, Jim. What does the chain success look
32:43
Speaker 1: like in terms of returns and growth? Maybe a couple
32:45
Speaker 1: of years out.
32:46
Speaker 3: You know, I think that you know, we're back in
32:49
Speaker 3: building restaurants again. We just recently opened a brand new
32:53
Speaker 3: traditional restaurant Huntersville, North Carolina. It's been refreshing to see
32:58
Speaker 3: the traffic. It's been refreshing to see the average daily sales,
33:01
Speaker 3: and it's been most impressive for us to recognize that
33:04
Speaker 3: the consumer knows who we are right they seek us out,
33:09
Speaker 3: they seek out the quality of Smashburger. So that's been exciting.
33:12
Speaker 3: We have a great presence within the airport community. That's
33:16
Speaker 3: been a real bright spot for us. We continue to
33:18
Speaker 3: build more restaurants with our contract feeding partners. We opened
33:22
Speaker 3: a restaurant this past year in Detroit. We just completed
33:25
Speaker 3: a full remodel of our Smash Burger up in the
33:27
Speaker 3: Toronto Airport. We've got a pipeline of another thirteen airports
33:31
Speaker 3: that'll occur over the next twelve to fifteen months, and
33:34
Speaker 3: we'll continue to build out that non traditional channel, so
33:38
Speaker 3: and it won't just be limited to airports. We've now
33:40
Speaker 3: entered into the military base arena and we're now building
33:44
Speaker 3: out military bases with smash Burger. We're looking at some
33:48
Speaker 3: higher education. You know, we're in Ohio State, We've got
33:50
Speaker 3: some other college college campuses where we have presence. So
33:54
Speaker 3: we're going to continue to grow out both the non
33:56
Speaker 3: traditional front and from a white space perspective. You know,
34:00
Speaker 3: we can easily add twelve to fourteen hundred traditional restaurants
34:04
Speaker 3: just here in the forty eight. That doesn't talk about
34:07
Speaker 3: we've got restaurants in Canada today. We can continue to
34:10
Speaker 3: build out in Canada, and then that doesn't even enter
34:14
Speaker 3: into the conversation about our international footprint and that potential
34:17
Speaker 3: for us. So, you know, I see Smashburger. You know
34:21
Speaker 3: in the next i'd say five year window, will be
34:24
Speaker 3: somewhere north of five hundred restaurants build traditional, non traditional.
34:28
Speaker 3: We'll grow that footprint primarily through franchising We'll still build
34:31
Speaker 3: company restaurants. We'll still invest capital into company assets for
34:35
Speaker 3: us to have proof of concept, for us to learn, test,
34:38
Speaker 3: perfect the model. So yeah, we think from a growth
34:44
Speaker 3: engine point of view, we've now done the work here
34:47
Speaker 3: over the last year to put us in the position
34:50
Speaker 3: to be able to turn that faucet back on.
34:52
Speaker 1: It's good stuff, man, Sis, smashburg is a great brand.
34:54
Speaker 1: I'm excited to watch you guys return it to glory.
34:58
Speaker 3: Us too, us too.
35:00
Speaker 2: No, thanks, Michael, that's really I mean, obviously there's a
35:04
Speaker 2: I can tell you speaking not just for Gemini, but
35:06
Speaker 2: for the team that stands with us, behind us and
35:09
Speaker 2: asside us every day. The passion of the people in
35:12
Speaker 2: the business right now runs really deep, and I think
35:16
Speaker 2: with some of the new hires we've made with kind
35:19
Speaker 2: of fresh perspective on not on how to do the
35:23
Speaker 2: key things that really matter, I think the future looks
35:25
Speaker 2: bright for Smashburger going forward.
35:27
Speaker 1: Good stuff. Thanks for doing this, guys, Thank you for
35:30
Speaker 1: having us. I also want to thank the audience for
35:33
Speaker 1: tuning in. If you'd like to find your nearest smash Burger,
35:36
Speaker 1: go to Smashburger dot com and look for smash smash
35:39
Speaker 1: Burger on your favorite social media platform. If you liked
35:42
Speaker 1: our discussion, please share it with your friends and colleagues.
35:45
Speaker 1: Check back soon for an interview with David Kantu, CDEO
35:49
Speaker 1: at Craft the Ball