Friends of Branded!
Happy Saturday and I hope you had a great (holiday) week.
This is the last edition of the H^2 for 2024 and I was thinking about how so many people (at least to some extent) ‘ship it in’ as they approach the end of the year.
There are certainly plenty of good reasons to do just that – getting ready for the holidays, celebrating the holidays (recovering from the holidays), taking a well-deserved & earned break, but whatever the driver, as soon as Thanksgiving ends, the winddown to yearend begins.
You know who doesn’t slow down this time of year? The hospitality industry! I’ve been finding topics and themes from some of the good people I follow on LinkedIn quite a bit lately and this week, it was a post by Scot Turner, the Founder & Managing Director of Auden Hospitality, that caught my eye.
Here’s a link to Mr. Turner’s post (Forget Santa, you are the ones who help to create the memories) and I’ve pasted the image below.
For our industry, the 4th quarter is a period of heightened (and important) activity, but it's clear that dining out (and ordering in) is a consumer preference that isn’t remotely limited to the holidays (and isn't going away).
Consumer spending on 'food away from home' (“FAFH”) versus 'food at home' (“FAH”) are one the things we look at when it comes to assessing the health of the restaurant industry. In 2023, spending on FAFH reached an all-time high of 55.7% of total food expenditures, while spending on FAH dropped to a low of 44.3%.
Readers of the H^2 may remember a long-term prediction by our friends at Amazon / AWS that the kitchen would follow the path of the sewing room as FAFH checks many of the boxes that are most important to consumers (economic, convenience, social, health). It certainly appears that the team at Marc Lore’s Wonder are betting that consumers will continue to spend money not to cook as it plans to nearly triple its unit count from about 30 today to 90 by end of year 2025.
Was 2024 a good year for the US restaurant industry? Well, like most things, the answer isn’t black or white and despite my love of GREEN, my answer is more GRAY (IYKYK).
From an overall sales perspective, the restaurant industry CRUSHED it! The industry surpassed $1 trillion in sales for the first time and projections are calling for an almost 5.5% increase in 2025!
Employment? According to the National Restaurant Association (the OG “NRA”), the industry employs 15.7mm (accounting for about 10% of the total US workforce). This makes the restaurant industry the second largest private-sector employer.
Despite the strong numbers highlighted above, the year was also a challenging one as issues associated with rising expenses and specifically the cost of labor and increased food costs ranks as the two biggest concerns for operators.
Sales are nice, not thrilling, but nice.
Profitability is thrilling, more important and again, according to the NRA, approximately 38% of restaurants reported unprofitability in 2024. We’ve pushed consumers hard with higher prices (to offset our increased costs), but we can only stretch our guests so far and this has led to consumers looking for more affordable dining options which benefits the fast-food and fast-casual segments of the market.
In the category of TMI, I didn’t do well enough in PSYCH 105 as a freshman at Wesleyan for me to make this next bold statement, but I’m going to make it anyway. Our attention spans and patience are getting shorter and for Gen Z specifically (the fastest growing segment of the consumer market), full-service restaurants are losing ground to fast-casual dining.
It took me a few moments to get here (as it always does), but let’s go!
The naming conventions of the various segments in the restaurant industry can be confusing and for good reason, they’re all to some extent made up. I’m only somewhat joking about that b/c whenever a business is unable to be put into an established bucket or a recognized naming convention, they either conform or create their own category. The segment of the industry that is attracting the most attention and certainly the most amount of capital from private equity firms is “fast-casual.” This distinct segment of the market was only established in the early-1990s, and I guarantee you that some marketing & advertising executives were well paid for coming up with this idea on how to name this segment of the market that fills the gap between fast-food and full-service (casual).
Our friends at Panera Bread (founded as Saint Louis Bread Company in 1987) and Chipotle Mexican (founded in 1993) are recognized as the pioneers of the fast-casual movement. These brands and the others that followed split the uprights by offering higher-quality ingredients, customized options, and a more upscale dining experience than fast-food options, but in a limited service (read: quick, order at the counter) and easier to use format than full-service dining.
You don’t want a bread bowl or burrito bowl? How about a “better burger”?
This is a subset of the fast-casual segment which again, prioritizes quality, customization, and sustainability. The “better burger” appeals to a more health-conscious and quality-driven consumer base. I’ll give a nod to Five Guys, which was founded in 1986 (the same year as a certain Game 6 of the World Series that I’m not allowed to talk about with my Bostonian buddy JB 😊), along with Shake Shack (founded in 2001 as a hot dog stand to help save Madison Square Park in New York City), Smashburger (founded in 2007 in Denver. Colorado) and Bareburger (founded in 2009 in Astoria Queens, New York City).
By the 2010s, fast-casual dining had established itself as a major segment in the restaurant industry, challenging traditional fast-food and full-service casual joints with innovative concepts and menus.
Have you ever been told to “follow the money?”
First, the expression is widely attributed to the 1976 film All the President’s Men, which is based on the Watergate scandal and the investigative journalism of Bob Woodward and Carl Bernstein.
Second, private equity is investing heavily not just into restaurants, but into the fast-casual segment of the market. Follow the money!
The reason private equity is investing into this segment reminds me of something one of my restaurant partners told me over two decades ago when I was investing in a number of casual concepts. Specific to an investment I made in a diner, he shared his concerns around the strategy as he felt it didn’t compare favorably to his French Bistro concept. His view was that our costs were essentially the same (rent, labor, food) but that his French Bistro would drive at least twice as much in sales as the diner I was backing. We both sold eggs, burgers, sandwiches, salads. etc. but his menu items were priced substantially higher than mine. He also had strong liquor sales that were well into the high-20% while our diner had strong lemonade and apple juice sales (and our liquor sales were at about 1%). We were a kid-friendly venue and had an impressive kids’ menu. You know what parents do at diners that serves big blue-plate specials? They have their kids share meals. My now restaurant partner didn’t even have a kids’ menu. You want to bring your kids to his joint? Order off the menu. 😊
You know why diners in New York City are so expensive? B/c they must be in order to survive!
That’s what private equity sees in the fast-casual model – the overhead costs are NOT very different than fast-food concepts, but fast-casual concepts can charge twice as much for a meal than fast-food joints can charge. Both fast-casual and fast-food can benefit from a more limited-menu & limited-service model and both can leverage technology in a way that the consumer will not only accept but embrace. With so many things being equal, it’s the pricing power of fast-casual brands that’s a key driver of its attractiveness to capital.
While I’ve highlighted the advantages fast-casual has over fast-food, why is fast-casual beating full-service / casual dining? Here again, I’m going to test the limits of my PSYCH 105 grade.
Fast-casual restaurants out-performs when it comes to money and time. Aren’t those the two leading examples of zero-sum games?!?
Let’s bring back our Gen Zs, born roughly between 1997 and 2012, and coincidently the sweet-spot of the birth and establishment of the fast-casual segment of the market (see what I did here?).
Gen Z puts a high value on time, and I dare say values it more than previous generations. This prioritization is influenced by unique generational traits, cultural shifts, and technological advancements (you know I need to keep technology running through this thread, right?).
Gen Z grew up with smartphones, apps and on-demand services that emphasize instant results, conveniences, and gratifications. Gen Z is the first fully digital-native generation. This generation has been conditioned to expect efficiency in many aspects of their lives, and this VERY much includes communications (texting over calling) and services (online food delivery and online shopping over brick & mortar).
When it comes to the restaurant industry, private equity isn’t just betting on fast-casual restaurants, they’re betting on Gen Z, which represents approximately 20% of the US population and globally represents about 25% to 30% of the population. This generation’s influence on global culture and technology continues to grow due to their numbers and digital-first lifestyle.
Branded is betting on the continued digital transformation of the hospitality industry b/c that’s also a bet on Gen Z, on their spending, preferences, lifestyle, and the influence they’re having on both the older and younger generations.
I like this bet and if you do as well, let’s talk!
As we close out 2024, I want to wish you a wonderful New Years and all good things for the 2025! This weekly newsletter started back on July 3rd, 2021 (I looked it up) as a Saturday morning e-mail shared ONLY with the Branded Team. Through the power of the “forward” button, our audience grew, the topics covered expanded, and about 182 weekly editions later (and having NEVER missed a single Saturday morning since July 3rd, 2021), the H^2 now has a subscriber base of over 70,000 people.
We will never take that for granted, we respect your time, and we appreciate and value your engagement.
We’re working on a few new things for the H^2 in 2025, all in an effort to continue to make this a worthy ‘read’ on your Saturday morning (or whenever you get to it).
See you next year!
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I admit I’ve been using the Shoutout section of the H^2 to recognize some of the excellent work of our portfolio companies.
This week I will somewhat continue with that theme, but I’ll really be allowing others to do heavy lifting for me.
Take for example the good people at Sodexo, a market leader in quality and sustainable food services to schools, and universities, and their prediction around campus dining trends and in-demand flavors.
According to Chef Jennifer DiFrancesco, the director of culinary innovation for Sodexo Campus, students will crave(worthy) vibrant food experiences, from finger-licking fusion foods to over-the-top desserts. Bold flavors and “the deep end of indulgence” will resonate best in college food service.
While Chef DiFrancesco made 5 predictions for student’s cravings in 2025, it was #3 on Sodexo’s buy one, get 50% off a David Letterman Top 10 List that earned the shoutout. According to Chef Jennifer, “Chili Crunch Is Coming in Hot. Chili crunch — sometimes referred to as chili crisp — will be big on campuses in 2025. This traditional Chinese chili oil combines sweet heat with a satisfying crunch. Expect to see it in all manner of meals, from shrimp and peanut noodle bowls to zippy cacao ice cream.”
The industry’s continued embracement and enthusiasm for sauces and specifically the segment of the market that Branded's most sauce-centric portfolio company, Mr Bing Foods, is leading, has us super excited for the New Year.
The second and final shoutout of 2024 goes to our friends and partners, at Big Chicken and Cali BBQ Media.
These two companies are led respectively by Mr. Josh Halpern and Mr. Shawn Walchef, but our relationships with these emerging companies and people goes deep and beyond the CEOs.
Shawn is one of the great story tellers of our industry and is championing technology and restaurant companies "to be the show, not the commercial."
This edition of Restaurant Influencers (and I’ve copied the link below) is a conversation Shawn having with our friend and partner, Mr. Perry Rogers, the Managing Partner at JRS Hospitality and a member of the board of directors at Big Chicken.
A large percentage, not just of the world, but even the hospitality industry itself, doesn't' know the story of Big Chicken and specifically what this emerging restaurant company means to Mr. Shaquille O’Neal (the company's largest shareholder), his family, and what it will mean to his legacy.
What I love about this conversation between Perry and Shawn is that it's honest, open, and insightful. I feel very fortunate to be working with both Perry and Shawn and their respective teams at Big Chicken and Cali BBQ Media.
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Branded invites readers of the H^2 that are interested in learning more about our portfolio companies, and investment strategies to become part of our Access Hospitality Network.
Friends of Branded are aware that we're not only sprinting into yearend, but we're also gearing up for a BIG 2025!
For this edition of the H^2, I want to simply share a few articles that may or may not have been randomly selected (spoiler alert: they were NOT randomly selected).
QSR - Big Chicken Has a Vision for Global Expansion
And while Branded has BIG appreciation for QSR, we also appreciate our friends at Nation's Restaurant News and b/c I feel the need to be a little spicy so close to New Year's, I'll share an interesting article from this publication as well.
NRN - Chili crisp adds texture, spice, and umami to restaurant menu items
Wait?!? What?!?
This article from NRN is not just about how chili crisp is a Chinese condiment that is surging in popularity but specifically talks about the relationship between our friends at First Watch, the breakfast, brunch and lunch chain with around 425 units based in Tampa, Fla and our portfolio company, Mr Bing Foods.
And if that wasn't enough, the article also tells the story of how Mr Bing is the chili crisp of choice at Moe’s Southwest Grill, the fast-casual burrito chain that rolled out Chili Crisp Chicken as an LTO at its more than 600 locations.
You might think this NRN article was selected b/c of its focus on successful restaurant brands that are also using Mr Bing's chili crisp to surprise and delights their guests.
Could you imagine what this section of the H^2 would look like if Big Chicken and Mr Bing decided to collaborate?
Bing it on and Have a BIG day!
For more information on Big Chicken or Mr Bing, please e-mail info@brandedstrategic.com
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Featured Episode: Chip Wade
This week on Hospitality Hangout, we're bringing you a special rewind episode featuring Chip Wade, President of Union Square Hospitality Group! As we revisit this standout conversation, we dive into the exciting growth of Daily Provisions, which continues its expansion with new locations, including Rockefeller Center, Brookfield Place, and Jersey City.
Chip also tackles the challenges of the 'hospitality included' tipping model, the shift back to traditional tipping, and the ongoing wage equity debate within the industry. We explore how Union Square Hospitality Group adapted during the pandemic, investing over $4 million in technology like UKG and Seven Shifts to enhance operational efficiency and employee satisfaction.
We hope everyone had a great holiday! Tune in for industry insights, plenty of laughs, and fun segments like 'What’s Hot and Not,' 'The Spice is Right,' and 'Trivia Tuesday.' This rewind episode is packed with valuable discussions about hospitality's future, wage equity, and more. Don’t miss it!
Tune into the episode and subscribe to our channel here: Hospitality Hangout With Chip Wade
Re-Run of the Week:
This week on Hospitality Hangout, we’re revisiting a rewind episode featuring Jennifer, CEO of Main Squeeze Juice Co., as she shares how she’s squeezing every bit of her expertise into building a brand focused on health and wellness. From cold-pressed, raw juices to acai bowls and plant-based foods, Jennifer reveals how authenticity is at the heart of Main Squeeze’s success.
Jennifer talks about Main Squeeze’s fresh approach with clean ingredients, no added sugars, and a focus on health. Exploring wellness trends like CBD-infused products to stay ahead of customer demand. Jennifer's leadership style of 'serving it forward,' empowering franchise owners and letting their passion shine.
Tune into the episode and subscribe to our channel here: Hospitality Hangout With Jennifer Dodd
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Watch on YouTube: Click Here
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That’s it for today!
See you next week, same bat-time, same bat-channel.
It takes a village!
Jimmy Frischling
Branded Hospitality Ventures
jimmy@brandedstrategic.com
235 Park Ave South, 4th Fl | New York, NY 10003
Branded Hospitality Ventures ("Branded") is an investment and solutions platform at the intersection of foodservice, technology, innovation and capital. As experienced hospitality owners and operators, Branded brings value to its partners through investment, strategic counsel, and its deep industry expertise and connections.
Learn more about Branded here: Branded At-A-Glance