Dannon Shiff, Senior VP of Real Estate at Dave's Hot Chicken

Guest: Dannon Shiff, Senior VP of Real Estate, Dave's Hot Chicken

Host: Chris Hatch

Listen on Spotify

Summary

Chris Hatch talks with Dannon Shiff, senior VP of real estate at Dave's Hot Chicken, who joined when the brand had nine restaurants and has helped grow it to 272, with 400 expected by year end. Dannon tells the origin story: three friends with $900, a single parking space in East Hollywood's Thai Town, and an Eater LA review that put a line down the block on night three. He explains why Dave's only franchises to experienced multi-unit operators, how it went international in the UK and Middle East, and how the real estate team reviews every site with franchisees. He also covers co-tenancy, how mobile and third-party delivery data shape market plans and store spacing, second-generation conversions, permitting challenges, the lesson of walking away from deals that don't fit, and his off-menu order.

Key Takeaways

• Dave's grew from nine restaurants in March 2021 to 272, with plans to crest 400 by year end, and about 98% of growth is franchised.

• Franchisees are experienced multi-unit operators who live in their markets. Dave's teaches its system and culture, not the restaurant business.

• Many new franchisees come through peers they meet at other brands' conferences.

• Daily-needs anchors like Target, Walmart and grocers, plus high-quality fast casual co-tenants, work well for the brand. Healthy competition, even next to Chick-fil-A, is fine.

• Data lags reality. Drive the neighborhoods, look at the homes and cars, and walk into nearby coffee shops before approving a site.

• Mobile data misses quick third-party pickups. Dave's spaces stores based on how much of a market's sales are expected to come through delivery.

• Plan the whole market up front. Open strong nodes first, then come back to infill once those stores prove out.

• Second-generation conversions that reuse restrooms, coolers and kitchen lines save franchisees money and avoid lengthy permitting.

• When you start talking yourself into a deal, it probably doesn't make sense. Learn to walk away from deal fever.

Transcript

[01:45] Chris Hatch: Well, welcome back to the Dirt Dog Pod. Today we've got a wonderful guest who's attached to one of the hottest brands growing in the United States these days, and elsewhere, for that matter. Thanks, Dannon Shiff, senior VP of real estate at Dave's Hot Chicken, for joining me on the Dirt Dog Pod.

[02:02] Dannon Shiff: Great to be here. Appreciate you having me on.

[02:06] Chris Hatch: We've gotten to know each other a little over the last few years, and when you first told me you were working at Dave's, I was like, "Wait, is that the big rubber chicken that squeaks?" I think that's really the only way I knew you.

[02:21] Dannon Shiff: Probably. I used to carry it. I actually still carry it in my backpack to most of the ICSC events. We like to call it the ugliest logo in fast food and fast casual restaurants, but it's so endearing that we're kind of known for it. We also can't get rid of it, because Arman, one of our founders, has it tattooed in multiple places on his body.

[02:45] Chris Hatch: No way.

[02:46] Dannon Shiff: So we really can't get rid of Dave the Chicken as the logo.

[02:50] Chris Hatch: Where did it come from?

[02:52] Dannon Shiff: A swap meet. It's a dog toy.

[02:54] Chris Hatch: And Arman saw it and said, "Oh, that's it"?

[02:58] Dannon Shiff: Yeah. As I understand the story, they were walking through, somebody found it and said, "This should be the logo." It became part of the brand, part of the logo, and it's kind of stuck. It's Dave the Chicken, and also Dave the chef. Dave has dual roles within the brand.

[03:17] Chris Hatch: That is unbelievable. Somebody, your Vegas broker, I think, sent us one three years ago or something like that. And my house still has a lot of young children. I'm not going to tell you exactly what happened, but my wife possibly maliciously destroyed our Dave within maybe a month of it arriving at our house.

[03:35] Dannon Shiff: Sounds right. I may or may not have shared some replica Daves with friends to give to their kids, just to annoy them. It's a great party favor.

[03:46] Chris Hatch: It was one of those weekday mornings, kids getting ready for school, about 6:30 a.m., which is before the hour Mrs. Hatch is interested in being up. And I think the chicken was going off, and that was it. It met its maker that day.

[04:06] Dannon Shiff: It's okay. It was a good run.

[04:08] Chris Hatch: Well, that's fun. So you're sitting here today, and you've got how many stores open?

[04:14] Dannon Shiff: 272 is the current count.

[04:16] Chris Hatch: Amazing. And when did you join the brand?

[04:21] Dannon Shiff: It'll be four years next month. In March of 2021, we had nine restaurants, in Southern California and Toronto. And it's been a wild ride to the 270-plus we're at today.

[04:34] Chris Hatch: That's tremendous growth. Many people might go their whole real estate careers and never open 263 restaurants.

[04:42] Dannon Shiff: It's crazy to think about hitting that exponential level in four short years, and doing it with phenomenal franchisees and an amazing team. It feels like it just keeps going. Four years feels like eight years. It's just been such a great ride.

[04:59] Chris Hatch: So of the 272, you're starting to do some international expansion as well.

[05:04] Dannon Shiff: Yeah, we have nine restaurants in the Middle East, and late last year we opened our first restaurant in central London. So we've got restaurants in the UK, Saudi Arabia, Qatar and the United Arab Emirates. It's crazy to see the brand grow into these new markets and be received as well as it has been here in the States.

[05:29] Chris Hatch: I was going to say, how does that go when you make the decision? I know you guys are franchise-based, right? Any corporate stores?

[05:40] Dannon Shiff: We have five corporate restaurants in Los Angeles, where we're based. But 98% of our growth is franchise-based.

[05:47] Chris Hatch: So the growth plan is all franchise.

[05:51] Dannon Shiff: The growth plan is franchise.

[05:53] Chris Hatch: So you decide to go into the Middle East. Obviously there's a franchisee who says, "Look, I love Dave's." Is that where it starts?

[06:03] Dannon Shiff: Somebody found the brand, fell in love with it and approached us. That's really how both our UK group and our Middle East group found us. And it's a difficult decision to go overseas. When we signed the Middle East group, we were under 100 units. So you have to think about expanding into a foreign country: not only whether the brand will translate, but how supply chain, hiring, construction and design all translate to a foreign market. It's really a Herculean effort by both the franchisee and the franchisor to say, "Here we go."

[06:39] Chris Hatch: Staffing, and the cultural differences. So many things come into play.

[06:46] Dannon Shiff: Yeah. I think that's the great thing about the franchisees we've attracted: they're all amazing groups, and they're all multi-unit operators of other brands. That's really the entry level. We're looking to do this the right way, with people who have done it before, and that's been a big piece of fueling the growth.

[07:07] Chris Hatch: So let's talk about a typical Dave's franchisee. If I'm a dentist with a couple hundred thousand extra bucks looking for a side hustle, Dave's may not be the best fit for me.

[07:21] Dannon Shiff: Really not the best fit. Our franchisees are multi-unit operators of amazing brands, and they all live and operate in the markets where they're running Dave's. So we've got local operators who know how to develop sites, how to hire, how to order and how to train. We're going to teach them the Dave's system and the Dave's culture, but we don't have to teach them the restaurant industry. The restaurant industry is a great place to get started, but not with every brand. And I think that's really helped us grow at the pace we're growing, because our franchisees have done it before. This is really taking the brand to a new market.

[08:12] Chris Hatch: Some franchisors have exclusives, right? For example, if you're a Wendy's franchisee, I don't think you can be a Dave's franchisee, can you? You'd have a chicken conflict, typically.

[08:24] Dannon Shiff: It's going to depend on the brand and on the other restrictions. We do have some people with experience in chicken. There are brands where you can't be a franchisee of more than one brand, so that's obviously something we weigh as well. But I think the other franchisors these franchisees are associated with are excited about it, because it's attracted other franchisees. Probably most of our intake, and most of our franchise development and growth, has come through other brands' conferences and meetings. Franchisees hear about peers getting into Dave's and start thinking, "I want to grow as well." They hear great things, and they give us a call. It's been phenomenal in that regard, because we're getting the cream of the crop from some of these other amazing brands.

[09:18] Chris Hatch: Rewind the clock to a couple of years ago, when I met you. The first time I met you was at the event we had in Salt Lake City that [Grant Giddinger] put together for us, which was fun. Then right after that, last summer, I was in Boston, and we were doing one of those duck boat tours. We're driving through downtown Boston, and I look over: "There you go. There's a Dave's. How about that? On the route." Then a month later I'm somewhere in Texas, and there's a Dave's. Another month later I'm somewhere in the Midwest, Ohio or something, and there's a Dave's. All of a sudden, y'all were just everywhere in the whole country.

[10:02] Dannon Shiff: Yeah, I think we're in 34 or 35 states now. There's a handful more opening this year that will be new markets for us. We've been fortunate to find franchisees in almost every metropolitan area across the country and to keep developing, from Seattle to Miami, New Hampshire to San Diego and everywhere in between.

[10:24] Chris Hatch: So wild. I went to the Restaurant Finance & Development Conference in November and spoke to all kinds of amazing retailers. I wasn't there shopping for a franchise; I was there primarily figuring out how I can help franchisees grow. There are so many concepts out there. Why do you think Dave's has been such an attractive commodity for franchisees?

[10:44] Dannon Shiff: I think it's a combination of things. First, a phenomenal product. It all starts with the food. Once interested parties or customers try our food, that's really where they start to fall in love with the brand. Then you look at our incredibly experienced leadership team at the franchise office. I think it starts there, with the experience level of the team. We've done it before with other brands. We've grown successfully with other brands, and we've got the systems in place to help franchisees grow. And fast casual is just such an explosive segment. There's opportunity. That's been really exciting for a lot of people who are in sandwiches or coffee or donuts or categories other than chicken or burgers. This is a new or different category for them to play in, but it still falls into the wheelhouse of the operational side they know. I think that makes it a really attractive proposition. It's a phenomenal brand from a growth perspective. And the story is great. From the parking lot to today, hearing where we've been and how we've grown, people have really been attracted to it. Once they start talking to us and hear more about it, they get really excited.

[12:16] Chris Hatch: Let's rewind back to the parking lot. Really rewind. Let's go to the beginning. How did this whole thing come together? This is pre-tattoo, by the way, right?

[12:29] Dannon Shiff: Arman probably had a few tattoos, but he didn't have the Dave's tattoo at that point. This is three friends who met in elementary school and high school, who wanted to do right by their parents. They wanted to support their families. They were playing around in Tommy's family's kitchen, or Arman's or Dave's, just trying to figure out chicken. They loved In-N-Out, so they wanted something simple, and they just started playing with it. Hot chicken was growing, especially in LA, and starting to emerge as a segment of the chicken category. Tommy's family had a flower shop across the street in Thai Town, in East Hollywood, and he negotiated a deal with the parking lot owner for a single space. Over time, they were just kind of playing with it, and one night Tommy said, "We're doing it tomorrow." "We're not ready." And they popped up. As the story goes, they did $30 or $40 in sales the first night.

[13:31] Chris Hatch: What does that look like?

[13:33] Dannon Shiff: They had a pop-up tent, some picnic tables, a tabletop fryer and an A-frame easel out on the sidewalk.

[13:39] Chris Hatch: Maybe a generator or something?

[13:41] Dannon Shiff: Maybe. They were really bootstrapping this. They started with $900, their entire life savings.

[13:45] Chris Hatch: And how old are they?

[13:47] Dannon Shiff: They're probably right around 30 right now.

[13:49] Chris Hatch: Sorry, how old were they at the time?

[13:52] Dannon Shiff: This would have been 2017, so roll back seven years: 23, 24 years old. Young guys. That first night, not huge sales. They had a couple of people, probably a lot of family. They came back and did it again the next night. And on night three, the editor of Eater LA showed up.

[14:11] Chris Hatch: No way.

[14:12] Dannon Shiff: They had kind of been priming him. They'd been tagging him in Instagram posts and working to get him there.

[14:21] Chris Hatch: Isn't that the biggest benefit for somebody starting a new concept today? How available people like that are?

[14:28] Dannon Shiff: Yeah. It's crazy. He showed up on night three and got the last of the chicken they had. He'd been looking for a brick and mortar; he didn't realize it was in a parking lot. The article came out the next day: an East Hollywood late-night chicken spot that might just blow your mind. And the next day, the line was down the block. That really started this whole thing.

[14:54] Chris Hatch: So working capital started at $900, and by day three, best case, they might have been at $1,800 or something.

[15:01] Dannon Shiff: They were rolling every dollar they got right back into buying product.

[15:04] Chris Hatch: So a line shows up, and it's probably a little bit of, "What do we do now?"

[15:10] Dannon Shiff: Yeah. There was that moment of, "We're going to need a bigger boat," right? "We're going to need more chicken." That's what kicked it off. Over time, the line got longer, and they figured out better processes. Thankfully, Dave had worked in Thomas Keller's kitchen in LA and went to the Culinary Institute, so he was the culinary mind. Arman is the marketing behind it. They just kept pumping it out, and it attracted some of our leadership team and our investors today. That's how the partnership was formed. In 2018, they opened their first brick and mortar, with Tommy's brother Gary.

[15:52] Chris Hatch: So for six months, they were in the parking lot?

[15:57] Dannon Shiff: Six months, yeah.

[15:58] Chris Hatch: And where was the brick and mortar? Is it still there?

[16:03] Dannon Shiff: It's around the corner and down the street, on Western Avenue.

[16:08] Chris Hatch: I was going to say, for every single investment broker listening to this episode, you have one task: go find out whether the strip mall where the original location opened can be purchased, and call on it. Because honestly, how do they not buy it? They've got to buy that. The sentimental value.

[16:25] Dannon Shiff: The founders actually had their office in the back. So, six months in, they opened their first brick and mortar, and the line continued there. My first experience was standing in that line with all of those fans at Restaurant One, when I was first introduced to the brand. You could just feel that excitement and energy. People were buzzing and talking about it. There's just something special about it. It's a simple menu. It's craveable food. You can spice it your own way, so there's something for everybody. If you don't want to blow your head off with Reaper, you don't have to. And then the story, the marketing and the irreverence of the design and interiors of each restaurant speak to these fun-loving guys who really just wanted to support their families and do right. It's such an American dream story, and it's a blast to be part of, because you get to tell that story, share what they've built, and spread it to other communities through other people who are growing for their own families. It's been a lot of fun.

[17:43] Chris Hatch: That's amazing. So the first brick and mortar opens six months into the process. And 2017 to now really hasn't been that long a time to hit that growth spurt.

[17:54] Dannon Shiff: No. If you fast-forward a little further, in December of 2020, we had seven restaurants, all in Southern California.

[18:02] Chris Hatch: All corporately owned?

[18:03] Dannon Shiff: No, all either founder-owned or our first franchisee, in San Diego. So we were really a regional brand. And it took off in 2020 and 2021, through the pandemic.

[18:17] Chris Hatch: What do you think caused it to take off out of being a regional concept?

[18:23] Dannon Shiff: I think it was a combination of the right time for chicken, which was really having its moment through the pandemic, and a few influential franchisees getting involved. Then there's that snowball effect: people hear about certain franchisees getting involved, you get the press behind that, and then the openings. It really took off from there, with people, great people, coming to us wanting to expand into markets from the East Coast to the West Coast, Canada and the Middle East. There's been a lot of intake from a lot of interested parties.

[19:04] Chris Hatch: As you jumped out of California, did you move into Nevada next?

[19:09] Dannon Shiff: No. Our first restaurant outside of California was actually in Toronto. In the middle of the pandemic, our team couldn't get in, so we did training over Zoom for the franchisee's first few restaurants up there.

[19:24] Chris Hatch: Amazing.

[19:25] Dannon Shiff: Our first restaurants domestically outside of California were in Dallas, Denver, Chicago and then Detroit. And Portland, sorry; can't forget Portland.

[19:35] Chris Hatch: Since Dave was the chef, what was Dave's mental health status while he was trying to teach people his recipe over Zoom? That had to be difficult.

[19:46] Dannon Shiff: I have to give a shout-out to our operations team. They've built a phenomenal training program that's manageable. Not easy, but manageable. It's a simple menu. I can't say doing it over Zoom is something we'd ever want to do again, but the technology gave us that opportunity. Otherwise we probably would have been doing it over the phone.

[20:11] Chris Hatch: My brain is resetting back to the 14-year-old version of me. My dad got himself involved in Yoshi's Japanese Grill, which is a Phoenix concept, and they ended up opening three of them up here. Yoshi himself came up here and taught me how to roll the sushi and make the teriyaki sauce. I'm trying to imagine learning any of that over Zoom. What a nightmare that must have been.

[20:40] Dannon Shiff: Well, a lot of the brand is the culture, and a lot of it comes through our training program. Imparting that over Zoom is kind of crazy. But we continue to support our franchisees with training teams for these restaurants. We drop five, six, seven people into each restaurant and go at it hard to get them ready for what's hopefully going to be a wild ride.

[21:08] Chris Hatch: Okay. I was diagnosed with celiac in 2015. I can't have gluten. So walk me through this whole hot chicken world and chicken world for a minute, because from my perspective, I can't eat any of it, and I'm envious. Every once in a while, in some fun place like Nashville, you'll find somebody who serves gluten-free fried chicken, which is heaven on earth. But you have the problem of the breading, and also the fryer. So help me understand: who are your peers and competitors? And who's a chicken concept but maybe not quite what you do?

[21:51] Dannon Shiff: I think there are different levels of chicken. It's a wide spectrum. You've got the older, traditional Southern-fried bucket chicken, whole-bird concepts like the KFCs and Popeyes of the world. You've got Chick-fil-A, which you obviously can't ignore in the chicken space; they've got fried and grilled. You've got your tender concepts. Then there's this other part of the spectrum, which Nashville hot is part of. And you've got peri-peri, Mozambique and Portuguese-style chicken. You've got rotisserie, like Boston Market and those brands of yesteryear. So chicken is a wide spectrum. We found a niche of flavor, heat and uniqueness where Nashville style fits in. We're still competing in chicken, but we're not a direct competitor to a lot of the other chicken concepts out there. I think chicken is the vehicle for the flavoring, for the type of product you're offering, whether it's whole bird, rotisserie, spicy or not-spicy tenders. There's an opportunity for a lot of different uses of chicken. It takes flavor really well, so you can do a lot of different things with it. I think that may be the differentiation between chicken and a lot of other food products. A burger's a burger. You can put a lot on top of it, but it's still a piece of beef. Chicken you can do a lot with, because it's so easy to flavor. That's why you see so many different uses across the whole spectrum, whether it's fast food, fast casual or even some of the full-service brands.

[23:36] Chris Hatch: It always amazes me when you're working on a shopping center, or a multi-pad, and working through exclusive uses. Sometimes these exclusives come in and you're like, "Do you really think you're a competitor to that use?" It's an interesting take, because I'm a typical consumer on top of being a single-tenant developer. It's just pretty fascinating to me. So in theory, a Dave's could sit next to a Chick-fil-A, and both units could be doing healthy volumes.

[24:09] Dannon Shiff: We have units near or across the street from a Chick-fil-A, and we've found that can be successful. I think competition is healthy. Whether it's in the shopping center or across the street, there's an element of, "I'm going to find my way into the trade area one way or the other." If not in that shopping center, then up the street, across the street, around the corner, whatever it might be. You've got to protect your investment as a franchisee, and from the franchisor's perspective, we want happy franchisees in that regard. But healthy competition is healthy. The quality brands are going to stand the test of time.

[24:54] Chris Hatch: 272 stores open, and you've helped open 263 of them. Have you seen all of them?

[25:00] Dannon Shiff: I've seen a lot of them. We're pretty hands-on with our real estate program. My team is out in the field pretty much every week, and we see everything before it's executed.

[25:13] Chris Hatch: The franchisor holds real estate approval.

[25:15] Dannon Shiff: The franchisor holds review and approval. We trust our franchisees. They're really in the market, and they know their trade areas. We're there to help guide and support them, and that's a big piece of why we see everything. We want to make sure we're doing right by them and that we can support them. Some of our franchisees maybe don't have the strongest development and real estate backgrounds, so we can provide our expertise and knowledge. Some of them are multi-tenant builders; they've developed their own shopping centers for their brands, or they've done single-tenant development. We're there to guide if they need our help, and if they don't, we're there as a support tool as things come along. We're really thinking about the strategy for entering markets: how do we want to build out, and what's the right place to go, versus maybe that's not the right trade area today but it's an infill down the road. We're there at that strategic level from day one, when franchisees sign on.

[26:22] Chris Hatch: You were describing your schedule to me yesterday: you landed in one market, then changed the plan and decided to drive four more markets to see what looked good with the franchisee.

[26:36] Dannon Shiff: Exactly.

[26:37] Chris Hatch: So here you are, in Wherever-ville, USA. How do you determine whether it's a good site? What characteristics are you looking for?

[26:45] Dannon Shiff: It's boots on the ground, but it's also thinking about population density and which brands are in the market. What does our competitive set look like? What does our potential co-tenancy look like? It's getting an understanding of the trade area. The demographics on paper may say one thing, but when you drive the neighborhoods and walk through the competitive concepts or co-tenants, walk into coffee shops: who's sitting there? What do the cars in the parking lot look like? Are the homes well kept? Or is it maybe more of an opportunity area, where the homes aren't as well kept? You make some of those determinations and decisions based on eyes on the ground, because a lot of the time the data is delayed. It lags reality.

[27:36] Chris Hatch: The analytics.

[27:37] Dannon Shiff: The analytics. Whether it's the demographics or the aerials, seeing something on paper or on Google really doesn't show you the same thing as standing there looking at it with your own eyes.

[27:47] Chris Hatch: Is there one co-tenant or two where you're like, "Look, if we can land next to a Trader Joe's, we know we're going to rip"? Is there somebody like that you look for?

[28:01] Dannon Shiff: We've actually been really successful in a lot of different applications. From Florida and Texas to the Northeast to the Northwest, you just have different co-tenancy mixes. We've found we do really well with daily-needs uses. Not a big shocker: the Targets, the Walmarts, the big national grocers and the big regional grocers. The other piece is high-quality fast casual co-tenancy. Where are the other like-minded brands? Where are the other concepts with a similar price point? Coffee shops, those types of daily-needs uses, where people may not know us today, but in their daily path of travel they're going to see us, and eventually they're going to come in. They might go to a burrito place one day, see us under construction, and come in as soon as we open. We build that excitement and brand awareness that way. It's still Real Estate 101. It starts with location. Go get great real estate, and in theory we should be off to the races on the right foot.

[29:05] Chris Hatch: Are there other groups you target? For example, I'd assume a store next to a big university would rip.

[29:16] Dannon Shiff: We're in big markets and small markets. We're in college towns. We're across the street from universities, and up the street where we can still get the locals. One of the special things about this brand is that we've been successful in all those different places. It gives us a little runway to test some of those things and say, "This is what it looks like here. How do we apply that to this market?" Because every market is different. There's no blanket template.

[29:51] Chris Hatch: Houston's Houston.

[29:52] Dannon Shiff: Yes. Boston is Boston. Portland and Seattle look the same but really are different. Getting out in the field with our franchisees, spending that time and building that relationship, lets us see the sites, understand each individual trade area and make decisions based on that market, rather than trying to apply an analog and say A and B look the same. That hasn't always panned out at any brand I've been part of. You try to make informed decisions, but boots on the ground really help at the end of the day.

[30:31] Chris Hatch: With just under 300 stores, you should have some nice data coming back from your existing stores. Are you diving into a program where you look at site analysis and projected sales?

[30:44] Dannon Shiff: We've been tracking things since store nine, when I started. We've been gathering the demographics and the sales data, and we've started to build a base. But we're growing so rapidly, through so many unique markets, that there's still some ambiguity in the data. Lexington, Kentucky may not be the right analog for Milwaukee. The demographics might look the same, but are the site characteristics the same? We're looking at it and working with it. We've got partners in our analytics platforms who are helping us build the database. And as we continue to grow, we learn more about our brand every day and with every new opening. What's working? What's not working? What types of sites are working? How do end caps compare to drive-thrus? How big a factor are our exterior branding and signage in brand awareness and potential sales, versus just opening the doors and here they come?

[31:43] Chris Hatch: It's been an interesting start to the year. I feel like there are 50 new commercial real estate tech companies doing some version of "We can help you find the best sites." It's been fascinating to me. It's so easy to say at a cocktail party, "Yeah, just look at the cell phone data." Then you translate that, show up on site, and you're like, "Boy, that doesn't match anything. Something's off."

[32:17] Dannon Shiff: I don't want to say it's easy to buy the data, but the data is out there to be bought. It's how you interpret it, and picking the right analytics partner with the right thought process and track record on how to analyze it. Because the data out there can be analyzed in different ways. Is it the right information about the shopping center and who's coming to the shopping center, versus how you leverage that mobile data for your individual restaurant? How do you capture where that customer is going? How do they use the algorithms they've created for that data to produce the output, and what's the right output? I think that's where everybody has their own different take. I don't know that anybody's right. I don't know that anybody's wrong. It's one piece of the data.

[33:10] Chris Hatch: Just to restate that a little, because I don't think we've covered this with any other guests, and to bring John Q. Public up to speed on how stores are selected: you've got the data from existing Dave's locations. You've got cell phone data, demographic data, household income data and all kinds of other data points for a prospective trade area. Those all get funneled in. And then there's an outsourced company that typically works with a retailer like you to help craft a strategy that says, "If these characteristics are hit, the store might project sales in this range."

[33:50] Dannon Shiff: Correct. They can only do so much with the mobile data. So it's about finding a partner to share information with and help craft that model. I don't love the word "model," but it's the best way to put it: how do you take that data and apply it to your brand? I can't take another brand's data, whether it's a massive thousand-unit concept or a 10-unit concept, and necessarily fit it to Dave's. But we can start to play with our own data: how our customers use us, which sales channel they're using. Is it in person? Is it through our drive-thrus? About 25% of our stores have a drive-thru. Or is it third party? And how do those cell phones track? What are the little bits and pieces? Did the customer spend enough time in the store for their phone to register with the mobile data platform? The third-party driver who's in and out of the restaurant in 30 seconds to a minute probably isn't registering. So you have to figure out how to interpret the data for your in-person customer, and how to apply that logic to the ecosystem we've got with delivery now, where you don't see your customer and you don't know where the order is ultimately going.

[35:17] Chris Hatch: But you do get some data back from the third-party delivery companies, right?

[35:23] Dannon Shiff: We do. And it's about getting the right data and applying it in the system. Those platforms are ambiguous to some extent, right? They're sales channels. Depending on the brand and on pieces of their algorithm, they can go 20 to 30 minutes away to deliver food. If you draw a 20-to-30-minute radius around your store, that could be two miles in some markets. Or it could be 10 to 12 miles from your restaurant, depending on the time of day and the market. In Fargo, North Dakota, in 20 minutes you can be across town; that could be 10 miles away. But you can't do that in Boston. So how do those algorithms play into decision-making, thinking about where customers are getting the food, and how to strategize with the franchisee before they've opened the store, after they've opened it, and before they've decided on the next location?

[36:27] Chris Hatch: How has third-party delivery adjusted how you're doing restaurant footprints and design?

[36:33] Dannon Shiff: I don't think it's necessarily changed our design. Dave's food fresh out of the kitchen, in the restaurant, is still the best way to eat it. But we've got to be where our customer wants us to be, and the third-party ecosystem isn't going away. So we've had to retool our thinking a little. Like I said, we've got some stores with drive-thrus. We've got some stores with a pre-order pickup window. We've got some stores with a walk-up window, where the customer doesn't have to come into the restaurant. They walk up to a window outside, the cashier hands them the food, and they never come in.

[37:16] Chris Hatch: So they pay through an app?

[37:18] Dannon Shiff: They pay through the app or online. They're just grabbing the food and going. That's for your delivery drivers or your online orders. So that's been part of our design as we've grown. But it's changed some of our thinking about new market entry. Maybe we won't go as close, as fast, or as quickly in the schedule as we might have seven or 10 years ago. We might space out the restaurants and understand how much of the business is going to be third party, what percentage of sales will come from each sales channel. If third party is a low percentage, maybe we can come a little closer. If it's a high percentage, we might want to stay a little farther away and watch those distances more closely, so we aren't impacting ourselves unnecessarily, and think smartly and logically about the initial market plan. "Okay, here are our top five trade areas. We really like this one, but let's come back to it down the road, after we've opened these other two, so we know we're successful and can plan for that."

[38:28] Chris Hatch: I like that strategy. Take Denver or Salt Lake as an example. You go every seven to 10 miles, see how it goes, and then fill in between?

[38:37] Dannon Shiff: Exactly. We've applied that thought process and strategy to every market from the get-go. We sit down and plan the entire market as soon as a franchisee comes into the system. We think about what the right strategy is, then apply the Dave's piece to it: "Okay, we like these nodes. But if we do this one, we're going to skip over this one and go here next, and we'll come back down the road to infill, or decide then whether that's the right thing to do."

[39:11] Chris Hatch: Okay. So you've got amazing food, because otherwise none of this would be possible.

[39:16] Dannon Shiff: Exactly.

[39:16] Chris Hatch: You quickly had a great leadership team between the trio who were there, and then you obviously amassed some talented experts, because clearly you've scaled efficiently. You've been able to attract rock-star franchisees. You've got the right product at the right time. And from my perspective, you're starting to move on all sides, with international and all kinds of stuff. What do the next five years look like for Dave's?

[39:42] Dannon Shiff: There's a little bit of a focus on the next 10 months. What does the rest of the year look like? Tomorrow? Where am I going to wake up tomorrow? I think there's a lot of runway for us, both domestically and abroad. We're really excited about the one restaurant we have in the UK and the opportunities it's going to present. There are other international markets out there. But we're also going to play with some new things this year. We're going to open our first airport restaurant in Las Vegas later this spring, I believe.

[40:18] Chris Hatch: Which terminal?

[40:19] Dannon Shiff: It's the Delta terminal.

[40:20] Chris Hatch: Awesome. So the Salt Lake City and Delta fans will be right there. That's a direct hit in this office. Everybody here will be happy.

[40:30] Dannon Shiff: So we're going to play with some nontraditional formats. We've got a food truck in LA that goes out to a lot of the big concerts and festivals, which will be an opportunity to get our product in front of customers in different places along the way. We're going to play with some nontraditional formats and some size formats. We'll still be open to drive-thrus, but we're just looking for great real estate. Whether it's an end cap with or without a drive-thru, or a freestanding single-tenant building... some of our franchisees are buying their own land and building themselves; some are doing build-to-suits. We're really across the spectrum, in almost every deal type and every category. Second-generation leased restaurants have been a really great opportunity for us to grow as fast as we are, by not reinventing the wheel or gutting things to the studs. That helps our franchisees save money and helps us get restaurants open quicker.

[41:36] Chris Hatch: So former low-volume fast food QSRs?

[41:38] Dannon Shiff: Low volume, or expired leases. Just time to change out the merchandising. Maybe a tired brand, or no more term. We've been really successful converting a lot of other concepts into Dave's: using the bones of the building, the restrooms, the coolers, and the kitchen line where we can. At the end of the day, it just helps us get open faster. We're not going through the permitting challenges we're still facing across the country. The pandemic didn't help. Permits are still our biggest challenge in getting restaurants open, and they're just slow-moving. Slow-moving cities. They've outsourced to third parties who don't have any...

[42:26] Chris Hatch: Well, outsourcing is faster. I'm kidding.

[42:30] Dannon Shiff: It's amazing. But it's about finding the right partners who know the people. Finding the right architects and the right contractors to help us do this. Again, it's a partnership across the board, from franchisor to franchisee to all of our vendors. This is a ride for everybody, and we're just trying to go as fast as we can and keep knocking out great-looking restaurants.

[42:55] Chris Hatch: Well, I think it's a real testament to you and your team that you've had that kind of growth over that time period. And you haven't grown just by putting a square peg in a square hole. You're doing urban locations. You're doing drive-thrus in the burbs, like an old fast food restaurant. You're doing new construction with a franchisee who wants to build their own building. The variety of deals you're looking at is kind of mind-blowing.

[43:30] Dannon Shiff: I think it speaks to the flexibility of the brand. While we do have a prototype and a model, there's a willingness to be flexible and play with it, to strategize with the franchisee. What's their investment criteria? What's their background? A franchisee who comes out of a single-tenant fast food mindset may have a different perspective on the P&L and on buying and building, or ground leasing and building, than a franchisee from a different background who wants to lease end caps or go into second-gen space and just lease an existing building. I think that's the fun of it: there isn't a cookie-cutter aspect. We can look at an existing space and say, "Yeah, we can make that work." My team is out in the field every day thinking creatively about what's going to come to market. Who are the brands that might be faltering, and, without being predatory, how can we help them out of a negative situation in a way that's a positive for us? And we have the flexibility not to put the franchisee in a position where they have to overspend to build the restaurant. How can we help them save? That really comes from the design and construction team. They take an open mind to what's there, how to use it, and then how to make it a Dave's.

[44:56] Chris Hatch: It's interesting. What we're so accustomed to seeing in our world is a concept hitting between 100 and 200 stores, and typically by then the founders are out of money and their friends-and-family network is tapped. So they really have no choice but to bring in a PE firm. They bring in the PE firm, and it's a great relationship. But nine times out of 10, the PE firm moves the legacy CEO or co-founders out of the way and puts in the Wall Street CEO, right? Because this is the group that's going to take us public, or whatever else it is. And right at that moment, everything becomes process-driven. Everything is a square peg in a square hole. So what's fun about watching you guys is that you're bigger, just under 300 stores, which is phenomenal, and you're still doing deals that make sense, right?

[45:54] Dannon Shiff: The deal itself has to make sense to the franchisee. And we're constantly having those conversations. Is it the right investment? Are the unit economics right at that rent level and occupancy cost? Those are struggles, depending on the market in each trade area. What's somebody else paying? Does this make sense? Because at the end of the day, if the franchisee isn't profitable and isn't happy, they're not going to grow. So we're really there to help them make strong decisions. And because we're doing it through franchising, and because we've picked those rock-star franchisees, that mindset is there. They've done this before. They understand. It's fueled us to the point where it's a support relationship and a partnership, growing together for the greater good. We're going to crest 400 units this year. By the end of the year, we'll be at or above 400 units. You can't get there without that partnership, without that mindset of "we're in this together." We all want the greater good. We want this brand to succeed. And we're continuing the legacy the founders started when they wanted to help their families. The franchisees have their families too. Whether it's a family business or a company, an LLC, they're growing, and this is their livelihood. It's continuing the legacy that Dave, Arman and Tommy started in the parking lot, and rolling it across the country.

[47:20] Chris Hatch: So are they all in the office these days?

[47:25] Dannon Shiff: Typically, Arman and Dave filter through every once in a while. They're still active parts of the business, and it's great to see them. They also run their own restaurants. The founders' group still has restaurants they run themselves, which is awesome. They're still involved in the business day to day, and they still love every bit of it. I don't think they're eating the Reaper as often as they did when they were first testing it. Arman said his stomach can't handle that anymore.

[47:56] Chris Hatch: Porter, you've had the Reaper? I feel like we need to get some Reaper today and do a taste test around here for everyone. No? I think that's the after-podcast: watching the team. I'll watch from the sidelines. I'm envious. As we wrap up, one thing I like to ask everybody who comes on: you've had a wonderful commercial real estate career, and a lot of the people who listen to our podcast are new to commercial real estate. I find that sharing something you did wrong, and what you learned from it, is usually a pretty helpful exercise. So tell us something you did wrong in your career, and more importantly, what you learned from it.

[48:49] Dannon Shiff: Nobody bats a thousand in this industry. If somebody says they've never made a mistake in commercial real estate, they're lying to you. I think a lot of it comes down to being overeager for a deal. There were a couple of deals early on where you're trying to hit a growth number, trying to hit that goal, and you maybe sacrifice demographics or site characteristics to get the deal. There are a few, back in my day, where we did that. You recognize it maybe not in the moment, but when that store opens, you're like, "Yeah, we probably missed. The density's not there," or "We went too far down the road and talked ourselves into the deal." I think when you start to talk yourself into a deal, the deal probably doesn't make sense. If you can't look at a site and say, "Okay, it ticks these boxes, it feels good," maybe you're not in the right deal.

[49:49] I think that's tough for a lot of people to learn: to walk away, to recognize when the deal just doesn't make sense anymore, and to back away. Because everybody gets deal fever. Everybody gets excited: "Okay, this is going to be the one. We're going to get this one done." But at a certain point, not everything is perfect, and sometimes you just have to be willing to accept that and walk away. And maybe the deal comes back. Maybe the terms get better when everybody cools off and realizes where they were wasn't going to work. But it takes strong mental fortitude to say, "This isn't right. I'm going to walk away, because it's the right thing to do in the long run," versus the short-term win of getting a deal done.

[50:39] Chris Hatch: I don't know why, but Kenny Rogers' "The Gambler" just started playing in my head.

[50:47] Dannon Shiff: That's right. That's it.

[50:47] Chris Hatch: That's good. That's great advice. Well, thank you for coming on the pod today. And if anybody out there listening hasn't been to Dave's, change that. Go to Dave's. What's your go-to order when you're there?

[50:51] Dannon Shiff: I'm going to do the alt menu: take the Dave's spice. This is off-menu, so listen up, everyone. Take the Dave's spice. I like to put one little dash of Reaper on my fries and one little dash of Reaper in my mac and cheese, and I'm good to go. Pair that with a vanilla shake. That's the "I'm not going to eat chicken" menu, but I'm still getting that Dave's flavor, that Dave's spice. Just doing it a little differently, because chicken's great, but you just can't eat it every day.

[50:59] Chris Hatch: That's fair. I'll tell you, to this day, after working at Yoshi's from about age 14 to 19, I still can't eat teriyaki sauce. The smell of teriyaki sauce is just stuck in my nostrils. The stickiness. Oh my gosh. One time I spilled a pot, and let me just tell you, it took hours to clean up. It was a long day. Anyway, thanks for joining us on the Dirt Dog Pod. Go check out Dave's. You've got your off-menu item to go order.

[51:06] Dannon Shiff: Appreciate it. Have a good time.