Andrew Smith, Managing Director and Co-Founder of the Savory Fund

Guest: Andrew Smith, Managing Director and Co-Founder, Savory Fund

Host: Chris Hatch

Listen on Spotify

Summary

Chris Hatch talks with Andrew Smith, managing director and co-founder of the Savory Fund, the restaurant growth investor behind brands like Swig and Mo' Bettahs. Andrew explains why Savory looks for proven concepts with five to 15 units, how founders can take money off the table and still grow, and how a shared team of 75 people helps brands scale without loading their P&L on day one. He tells the story of opening the family's first Kneaders Bakery & Cafe in Lehi in the middle of the 2008 financial crisis, working with his wife and co-founder Shawna, and the brutal City Creek opening week. He also covers how Savory picks real estate, the one phrase brokers should stop using, where the restaurant industry is headed, and why growing brands and young professionals shouldn't skip steps or get caught speeding.

Key Takeaways

• Savory targets brands with five to 15 units: enough proof that customers have voted with their wallets, but early enough to adjust systems for 50 to 100 units.

• Founders should feel free to take money off the table when they partner. A founder who isn't all-in with every egg in one basket thinks and breathes differently.

• A shared services team lets emerging brands use above-store expertise before they can afford to hire it themselves.

• Data like Placer.ai is a tool, not the decision. Savory doesn't approve a site until someone flies in and stands on the dirt, sometimes watching traffic for hours.

• Brokers: stop saying a store is "killing it" or "number one." Give quantifiable data, like its rank among the stores in the DMA or its weekly sales.

• Give tenants quiet time in the car on tours so they can process what they're seeing.

• Savory sees about 350 brands a year and adds only a few, looking for a clear leader in a segment or a strong number two.

• Don't get caught speeding. Brands fail when they add rooftops faster than their team can support or take on capital with conflicting commitments.

• Landlords should vet a tenant's team, store performance and new-market experience instead of signing whoever is hot right now.

• For young professionals: don't skip steps. Learn it all in your 20s, do your best work in your 30s and lean on experience in your 40s.

Transcript

[01:45] Chris Hatch: Welcome back to the Dirt Dog Pod. We're here today with Andrew Smith, managing director and co-founder of the Savory Fund.

[01:50] Andrew Smith: I'm here, finally.

[01:51] Chris Hatch: Yeah. We tried to get this to happen for like six months, I think. I esteem you to be an individual who has a calendar that's kind of full.

[01:59] Andrew Smith: It's okay. I hate that, though. I hate that the calendar dictates our lives, right? It's like, what is going on?

[02:05] Chris Hatch: Well, when you're running like 95 restaurant concepts and you have a family and everything else...

[02:10] Andrew Smith: Yeah. You try to do them all great, and you just realize, I'm just surviving.

[02:15] Chris Hatch: I love that. You have a lot of restaurant concepts. What's the funnest thing you're working on right now?

[02:21] Andrew Smith: The funnest thing we're always working on is probably just the next store for each of the brands, because the team gets excited about that. The executive team gets ready for it. The above-store leadership team gets ready for it. The marketing team gets ready for it. And then when you actually execute it, it's fun to see how all of those pieces come together and execute well. So I think it's always fun just to see the brands grow the next unit.

But I've got to be honest, I think the funnest stuff for me is to watch the teams within each of the brands elevate to new levels. People who were in the first few stores getting to be a director of multiple restaurants, or a regional, or an executive in the company. I love to see the promotions nonstop within the brands. That's something I really, really enjoy.

[03:06] Chris Hatch: We had Rob Ertmann on, CEO of Mo' Bettahs.

[03:08] Andrew Smith: Complete stud.

[03:09] Chris Hatch: Yeah. Amazing.

[03:09] Andrew Smith: He's amazing.

[03:10] Chris Hatch: He was sitting right here, and he just happened to tell me how he decided to start running marathons. You're like, what?

[03:17] Andrew Smith: Yeah. I still don't understand that one, by the way, just so you know. But I'll tell you what, he looks amazing.

[03:23] Chris Hatch: You haven't gotten into it?

[03:24] Andrew Smith: No, I can't run. My knees are bad. I ran way too much when I was younger playing sports, and my knees hurt. And all these guys are nutso about going and doing runs and marathons and stuff. I'm like, you guys have fun. I'll stand on the side and hand you protein bars or whatever you do.

[03:42] Chris Hatch: That's awesome. Well, everybody needs cheerleaders.

[03:44] Andrew Smith: Yeah. Everybody needs a cheerleader.

[03:46] Chris Hatch: So I thought maybe a good place to start today would be Mo' Bettahs. It's one that you've taken full cycle, right? It's gone through the Savory system. So tell us why Mo' Bettahs looked attractive, and why you decided to jump in there.

[03:59] Andrew Smith: Well, Mo' Bettahs is actually the second one we took through the full cycle, because Swig was the first through the Savory cycle. We've obviously been in the industry a long time, because we were in Kneaders Bakery & Cafe before, and Little Caesars. Then Swig was our first one full cycle, which we sold in 2022. And then just this last year, in November, we sold the majority of Mo' Bettahs to some partners of ours. Well, I say partners now, but to a couple of other private equity firms. And that was a phenomenal process to go through.

But that brand... we kind of saw the end already in mind when we bought into it. We're introduced to a lot of brands. A lot of brands come to us directly. We'll reach out to brands to say, "Hey, you're pretty interesting. I'd love to chat with you." We don't force anything. We always look for brands where we feel like it goes like this, right? Like it meshes together nicely. They all kind of happened for a good reason, but that was the one where I met with Kimo Mack and Kalani Mack, the two brothers. I think 30 minutes into the meeting, us just talking and getting to know each other, I'm like, "I think I kind of want to just hang out with you always and talk to you forever." Because they just make you feel like you're friends. It was an instant mesh of energy: the way we looked at life, family.

When we look at any brand, it's: who are you, what are you driven by, why do you want to grow? Money is always going to be one of the things you push for, and it's fine that that can be a goal. But if it's the only goal, we typically walk away from those founders, because you're going to be making decisions that are probably not best for the business as a whole. It takes an army to do this. And with Kimo and Kalani, they're like, "Listen, we have people who started with us 10 years ago and they're still with us. We want to see this thing go to where they can continue to grow with the business." I'm like, "Yes, that's exactly how I'm driven too." So it was just a nice meshing together. An hour and a half into that conversation, they're like, "Yeah, we want to do a deal." I'm like, "Great. I want to too," just because I think we see things the same.

So it was pretty awesome, because I was already a customer too. You know real estate really well, of course, but I remember building the Bountiful store. North Salt Lake was across from that location. I bought that land, and I was building that Kneaders Bakery & Cafe. And I remember driving up the hill when I would go check on construction. It was their first store in Bountiful, and I would eat there as a customer, because the food is just so crisp, and it's healthy. It feels healthy, at least. When I was introduced to them, I'm like, "I love your brand. I go there all the time when I'm up in Bountiful." So it's a brand I was kind of smitten by early on.

[06:41] Chris Hatch: Interesting. So when you originally entered into your agreement to acquire them, or the majority interest in them, how many stores did they have?

[06:48] Andrew Smith: Six. They had six stores, which is kind of the sweet spot for us. We've done some stuff that's a little bit smaller for various reasons, but we really like five to 15 units.

[06:59] Chris Hatch: Why?

[06:59] Andrew Smith: Well, there were some studies done, and I like to look at data. It can be data drawn from a lot of different anecdotes, but I like to see the data behind the decisions I make, and it also makes a lot of sense. If you have five to 15 units, you're usually going to be outside of your little nest, your heritage market, your neighborhood, right? You and I start a restaurant, and it's the recipes we got from our grandma or our mom. That's usually how it starts, or we had this cool idea. When you start one, it's serendipitous if you win, if it works. And it's even more serendipitous if you open up two and it works as well. If you can open five or six or seven or 10 in multiple geographies, still within driving distance of your home, that's impressive. And if they're all working, that means the customer has voted with their wallet that they like that concept.

But if you open one and two and they work, and then stores four, five, six, seven, eight don't work, there's a problem. It's either product-market fit with the consumer, or maybe they're just not serving the guests the way they were in their first few. So we like to see a little bit more data, because we're not venture investors. It's not, "Hey, I've got this idea, I want to do a Hawaiian plate lunch, do you want to invest in me?" That's not Savory. Would I do that with someone personally? Well, sure. I think that could go here; let's give it a try. But that's venture, right? We're growth investors. We look at things where we have actual data that consumers have voted with their wallet. They like that concept, so I don't have to figure that out. Our job is to figure out where you take it, where you grow it, and what systems you put in place so it's actually a scalable brand. And that is a whole different skill set than creating it.

[08:48] Chris Hatch: A different skill set. No doubt. Before we hit the scalable-brand side: why is there a max store count, around 15? Or maybe that's not a hard line.

[08:58] Andrew Smith: It's not a hard line. It's because of the lift we want to get in the value we create for our LPs and for the founders. If we go into a brand that's 30 or 40 units, there's already going to be a pretty set way of doing things with that founder. And they're going to say, "Well, no, you don't understand. I have 30 that are working. Why would I change anything?" I'm a founder. I've been a founder of businesses I've created for 26 years, so I understand the founder mentality very well. We don't want things to be changed by people who invest. That's just how we feel. You're going to come in and touch my baby? Don't tell me how the baby looks. Don't tell me he's wearing stupid clothes. It's really hard, and I get it.

But on the flip side, I understand how the founder thinks, but there's also the data they don't have: what works today at 20 or 30 stores probably is not going to work at 60 and 100, because those systems break. The way you're doing things is not going to expand like you think when you're a thousand miles away from your stores. It's going to be different there. You might have to change up your menu a little for the flavor profile in Texas versus here, right? People just have a different flavor profile. So if you get too far into it, we feel like it's a little harder to adjust the knobs to get it just right in new markets. You also get people who are pretty set in their minds as to how things should be. And that's fine. It's just not for us, because we know what the brands look like at 50 and 100 units. We just do.

So it's not a hard set, but I would say 15 is probably the max. It's also the check size. We invested out of a $100 million fund, our debut fund. Most debut funds are $20 or $25 million; we raised $100 million for ours. We bought five brands, did another fund two years later for $100 million, and bought six brands. We just launched our third fund last year, for $200 million, so now we're going to do eight to nine brands in that fund. When we raise those funds, we allocate a $5 to $10 million initial check, and then we allocate another $15 to $20 million as follow-on as we grow. So we're willing to bet a big amount on each of these brands. But if you're putting all of the money out just to acquire a bigger brand, we don't have the gunpowder to also scale it. So it's also size.

[11:14] Chris Hatch: That makes sense. So we were talking a minute ago about how we run our brokerage, development and property management companies out of the office here.

[11:21] Andrew Smith: Which is impressive, by the way. I didn't know what you were doing here. I mean, I know who you are, but I didn't know what you guys were doing in the office.

[11:31] Chris Hatch: We started our brokerage seven years ago. And this last year, we sat down as an operational team and I said, "Okay, let's rethink everything here." We now have 27 agents. When we originally started, there were like five, right? So the things we were doing with five agents are likely going to be different than with 27 agents.

[11:50] Andrew Smith: Of course.

[11:50] Chris Hatch: Subscriptions, the way we run business, procedures, et cetera. So, okay, I'm the Mack brothers. I've partnered with you, I've sold a chunk of my company to Savory. What happens next?

[12:00] Andrew Smith: So first and foremost, there are a lot of brands out there raising money. And in their mind, they're thinking, "I've done this for 10 years. I've taken some money from the business because it's successful, but it's not been life-changing money." And as a founder, there are investors who have come to them and said, "Here's a check." They put it on the balance sheet or into the company. "I dilute a bunch, and now I have a new partner telling me what I have to do." It's a very uncomfortable setting for a founder. Although you now have new gunpowder and you can grow the business, and hopefully everybody understands the law of the pie, right? You sell a piece of the pie, but then the pie gets bigger, and everybody says, "That's a smaller percentage of a bigger pie." But you don't feel that way, especially when you haven't taken any money off the table.

Because of that, I really orchestrated Savory around what I wanted as a founder. And it's really worked with the other founders we've partnered with, and the future founders we're looking to partner with right now. And that is: I'll buy my seat at the table, and when I buy in, it's your option, but I would encourage you to take as much of that off the table as you can. So if you've been doing this, Chris, for 10 years, and I come to you and say, "Here's $8 million, you can take whatever amount you want, and then we have follow-on capital for growth," and you take $7 million off the table, you're going to breathe differently. You're going to think differently. You're going to appreciate the fact that now I'm your partner, and I bought my seat at the table to work together on that next chapter. So for us, it's exciting to see founders monetize some of their asset, so they don't have all their eggs in one basket. And then the growth is almost like a new journey for them. They're like, "We've created something that works." Now that next journey is exciting, because they don't know what it's like and they've never done it before.

[13:42] Chris Hatch: I'm sure the upfront growth has got to be so stressful.

[13:45] Andrew Smith: Oh my gosh. I've done it. I did it with Kneaders. I was at store one and then store two, and I didn't know anything. I came from the tech industry, which is wild, because it's totally different. I didn't know what I was doing, and that's one of the reasons I created Savory. I've been there. I didn't know what the heck I was doing, Chris. So I was like, I'd better hire a team for this and that and the other. The difference was, I had the wherewithal to hire the team around me. Not many people have that. When you're a founder with a business making a million dollars in EBITDA, two million in EBITDA, you have a good life, but you're not going to spend five or 10 million dollars building the entire team you need just to have the team.

[14:25] Chris Hatch: I was going to say, I think most of them have probably invested everything they've got in every concept.

[14:30] Andrew Smith: Almost every one of them has. So you've got a million dollars of EBITDA, meaning you're taking home what? $100,000 to $125,000, somewhere in there, because you have taxes and other costs and you're rolling it into growth. They're not making millions, but the business makes a million or two. So for each additional strategic hire you put out there, you've got to believe it's getting bigger. Believe it: they're going to make my business better. And a lot of people don't have that trust or faith. What they do is hire people so they can have a little more freedom.

[14:57] Chris Hatch: Yes.

[14:57] Andrew Smith: Because they own the business, right, Chris? So you're like, "Well, I want more freedom. So what do I do? I've got to hire Chris to come do some of my jobs so I have some freedom." It's not to expand the business. It's for freedom.

[15:09] Chris Hatch: That's interesting. So I'd imagine that kind of hire is probably a different hire than you'd make if you were doing it to leverage up.

[15:16] Andrew Smith: Right. For sure.

[15:17] Chris Hatch: So really, as they turn to Savory, the idea is that Savory becomes kind of an actuator for them. Because now you can take a business approach to it: "Hey, look, each time we open a store, it's kind of an extra turn. We know over Y years we're going to open Z amount of stores. That's going to project this kind of revenue."

[15:35] Andrew Smith: Yeah. And for us, it used to be that everybody asked, "Well, how many rooftops are you going to add?" Because we buy into a business that has five to 15 rooftops. Everybody in this industry thinks all value is created by more rooftops. It's a large portion of the equation, but it's not the only part. I remember when we bought this little brand called Swig, and I think it's funny that people would stare like, "Wait a second, soda? Does that work outside of Utah?" And by the way, everybody who's listening: it's working about 40% better outside of Utah than in Utah.

[16:08] Chris Hatch: That is wild.

[16:09] Andrew Smith: It's wild. But what was the question you just asked?

[16:15] Chris Hatch: I was just talking about how you take a business approach to scaling.

[16:20] Andrew Smith: You're taking a business approach to scaling, right? Versus the emotional decision. So with any of these brands we get involved in, by the time stores are going 500 miles away to open a new market, there are going to be systems, processes and people you have to put in place that they just don't know about. And hiring all of that team is extremely expensive. So when Savory comes and buys in, we have a team of 75 individuals in our office. It's kind of a big team, but it's needed. It's necessary to say, "This brand needs these resources right now, but it doesn't need these other resources yet. As it gets a little bigger, it will use those other resources." It does take the right people, processes and systems to get from 10 or 15 units to 50 or 100 units. It just does. But they just don't have the money to pay for that yet. So we use a shared services model. I like the word you used: it actuates. It actuates their ability to grow without having all of that above-store team on their P&L on day one.

[17:28] Chris Hatch: Fascinating. Okay, so we've been talking about scaling, and we've been talking about Savory. A team of 75 is no joke.

[18:18] Andrew Smith: It's no joke.

[18:19] Chris Hatch: That's a lot of people. So what are 75 people working on?

[18:23] Andrew Smith: Everything, soup to nuts. When I was growing our brands as an operator myself with my wife... and by the way, my wife was the actual founder. I was in tech, and then I sold my tech company and joined her. I actually called her and said, "Hey, I'd like to come join you." And she's like, "Seriously?" She was running our first Kneaders Bakery & Cafe.

[18:44] Chris Hatch: And where was that?

[18:45] Andrew Smith: In Lehi, right in front of the Smith's.

[18:49] Chris Hatch: Great location. That's got to be a phenomenal location.

[18:52] Andrew Smith: It was always one of our best, to be honest. And we kind of did it out of necessity, too. There was no food up there. I remember driving past, going by Lehi and Thanksgiving Point, and the signs came up, the Smith's was being built, and it said, "Buy a parcel." And she was like, "I want to do a restaurant." I'm like, "Okay." So I remember calling and I was like, "I'll take a parcel." A million bucks. And then, of course, the GFC happened, the great financial crash. I don't think that parcel was worth a million dollars after that. We built our first building, and she opened it, and it was a thriving success from minute one. And I was like, "Holy cow, that is really impressive," how cash-flow positive it was and how much fun she was having. I was in the middle of the GFC, the world was ending, the market was crashing and banks were failing. And I'm like, "This is not fair. I'm supposed to be the business guy of the world."

[19:43] Chris Hatch: Let's set aside the 75 people in the office for a second and dive back into the early days. This is entertaining. How did she zero in on Kneaders? Why Kneaders?

[19:52] Andrew Smith: Because she enjoyed going there. It was comfort food, fresh-baked comfort food.

[19:57] Chris Hatch: And she'd experienced it somewhere else?

[19:59] Andrew Smith: Yeah, she'd gone to some of the Kneaders in other locations, and I had too, and I liked it. The one thing that was interesting at the time, though... you have to understand the timing. This was 2007 that we were talking about this. There was this whole phrase, "fast casual." And it's like, "What's fast casual?" It's not fast food, and it's not casual dining. It's in between. And I'm like, there's something there. And they were fitting that, plus a bakery and cafe with a drive-thru. It hadn't really been done. Panera was really growing and scaling, and people were eating that across the country. So I'm like, there's something there. So Shawna is like, "Yeah, I want to do one of those." I'm like, "Great. I'll buy you a piece of land. We'll get going."

So I bought the land. We built a 4,200-square-foot building, which is big nowadays. A 4,200-square-foot building on a one-acre parcel, 42 stalls, drive-thru. I didn't know you didn't have to do all that. I had never done it.

[20:52] Chris Hatch: Did she have any restaurant experience?

[20:53] Andrew Smith: Well, if she were sitting here, she would say, "Well, I was a sandwich artist in high school." She always says that. And she's from the South. She's from Alabama; I'm from Chicago. And she says hospitality was born in her blood, and it is. It's just part of Southerners. They want you to come and break bread with them. So it was in her blood anyway.

But originally, I have to tell you, when she said, "I want to do a restaurant," in my mind I was like, "That is the stupidest idea. Why would you ever do that? They all fail. You can't make money." All the fallacies were in my head, just like everybody else's. I love to kill fallacies. When people say, "Well, isn't it so hard?" I'm like, "As opposed to what?" Because I was in the tech industry during the dot-com bust and during the GFC. I'll tell you right now, that's hard, because you don't have profit. You're burning cash left and right. You have to raise more money to survive. It's crazy to me that people think that's not as risky as running a restaurant that is actually profitable, asset-backed and recurring. People have to eat every single day.

[21:50] Chris Hatch: Well, I think there's a key note in there also: you owned your first location.

[21:54] Andrew Smith: Yeah, that's right.

[21:55] Chris Hatch: You can screw up a lot more when you own it.

[21:58] Andrew Smith: That's right. When you own it.

[22:00] Chris Hatch: It's more capital intensive.

[22:01] Andrew Smith: It is more capital intensive. And I think the world has changed from before, where I'd put down money and get a bank loan, because that's what you do to leverage your cash. It was a lot easier then than it is nowadays. You can still do it today, but it's a little bit different.

But I remember thinking that, Chris. My response to Shawna was, "I think it's a great idea. I think you should totally do it, and I would be so happy to support you." But in my mind I'm like, "Such a dumb idea." Then we bought it and built the building. And in September 2008, the markets are crashing, WaMu is failing, Lehman Brothers is failing. Everyone's failing. My life is on fire. And I'm like, "What are we doing opening a restaurant?" We opened it in October of 2008, and I'm like, "We're going to fail." I'm having emergency board meetings every week trying to figure out which way is up in the markets. And we open, and it is slammed. And I'm like, "How is that possible?"

[22:52] Chris Hatch: Just right out of the gate.

[22:54] Andrew Smith: Right out of the gate. People were lining up. And one thing I really realized about this industry at that moment, and it's still true to this day, is that missiles can be flying, markets can be crashing, banks can be failing, and you and I are still going to go eat somewhere today. It doesn't matter what's going on in the world. I didn't realize that, because in tech, where I was for 11 years, when the market crashes, your business suffers. Valuations suffer, access to capital suffers, everything suffers. You're much more correlated in those other industries than in food and beverage. So I was like, "I'm interested now."

I also remember her getting her first P&L. And I'm like, "What the heck is that?" And she's like, "That's called profit, Andrew." I'm like, "I didn't even know they could make money." So I was intrigued. The following year, in 2009, we ended up selling our business. The market stabilized a little bit; we were in a recession, we all remember that. And I just remember saying, "Hey, Shawna, I think I want to join you." She's like, "Great, come on in, let's do this." And I remember going in, and she's like, "You can start on the dish pit."

[23:52] Chris Hatch: Uh-huh. She's trying to break you.

[23:54] Andrew Smith: Yeah. And I've got to be honest, it almost broke me. I'm going, "What did I just do with my life? Why did I commit to doing this?" But you know what? I committed to it. I'm like, "We're going to do this together." So I stuck it out. And I'll tell you what, there was not one thing in that restaurant I did not do. I did everything in that restaurant, and we did it for several years together.

But our life in food and beverage was really a series of moonshots. We have one, it's doing really well, making good cash. Let's do two. So we got rights to do two, and then it was, let's do five of them. We did five. It was like this engine that just kind of went. Going back to your original question about this team, and it being no joke: one thing I realized from my tech background is that you really do have to build the team to work on the business. I couldn't do it all. I couldn't be the coder, the marketer, the sales guy and the finance team. I couldn't do it all. And so as we were going, I'm like, "I can't do all of this. I have to work on the business too, and I'm not the expert at all of these other things." So I started hiring people who were experts in this industry to work on my business with me, so we could grow and scale it, and I wasn't just stuck making pastries every day.

So we had the wherewithal to do it. We put the team together, and we continued to hire faster than we had cash flow to pay for it. That's the difference: if you have the wherewithal, it's a little easier, and still risky, because you're funneling it all out of your pocket. But we built the team. And what we realized as we fast-forward is that brands coming to us, like Swig, or even the Mo' Bettahs brothers, the Macks, said, "We need what you have, what you've created over the last 13, 14, 15 years, because we don't have that team and we don't know how to do it anyway." That's where the magic has been with Savory and these brands. I did it out of necessity. Others need it. I just don't know if they're going to do it themselves. That's where the opportunity is for us.

[25:55] Chris Hatch: That's interesting. After you've put in the time and effort and you've got the team, the best marketing people, the best ops people, the best hiring people... why not scale it? Right? You're offering that as a scaling service.

[26:07] Andrew Smith: It's a scale. People say it's an incubator, and I'm like, it's not really an incubator, because an incubator is something you do with startups, right? You incubate an idea. But we truly are an incubator of these great emerging elite brands, as we call them. An emerging elite brand, in my mind, is not just something that's cool and up-and-coming. It's: we've been around for a while. We've proven that we have stability and staying power. It's not a fad, because we've gone through enough cycles to say it's not a fad. A fad is usually two to three or four years. We're looking at brands that have been around seven to 15 years, so it's clearly not a fad. So you get through that whole cycle, and then it's, "Okay, now these things are ready for growth." And they're elite because they have good store-level economics. They've got good profit, a good team, good systems at that size. Now, how do you take all of those winning metrics and leverage them so you can scale outside your nest into new geographies? Which is incredibly hard. You know that just like I do. It's not any easier for us; we've just done it a lot.

And I would say this to anybody, too, if you're a tenant: going into a new market and pulling the trigger on your first one takes a lot of courage. If you don't have courage, you'll never grow. And is there a lot of risk in it? A tremendous amount of risk.

[27:22] Chris Hatch: Can you hit it just right, though?

[27:24] Andrew Smith: Absolutely. And when you do, it's incredible, because now your brand has a lot of legs. You have new ponds you can go grow in.

[27:32] Chris Hatch: So this is the Dirt Dog Pod, right?

[27:34] Andrew Smith: And I love the name, by the way.

[27:36] Chris Hatch: Implying that it's a lot of windshield time. It's a lot of finding that next great location. You're a person who's opened hundreds of locations. Okay, so you're on that corner, sitting at that site, and your local ops team or broker, somebody, has told you, "This is the spot." What's in your head, and what are you looking at? How do you determine if that's the right fit?

[27:58] Andrew Smith: I will say that of the hundreds and hundreds of locations, we've closed down a handful, meaning you can count them on two hands. So we've actually had a pretty good batting average, I guess you could say.

[28:07] Chris Hatch: That's pretty amazing.

[28:08] Andrew Smith: Sure. Now, does that mean every single one opens killer? No. But when you have faith in a site... and when I say faith, I mean you feel really good about it. Or it's a little green. There are sites you've probably built too, Chris, with clients, where it's a little green, but all those homes are coming and this business is coming. So you lean into some of them. I remember standing on a corner in Scottsdale, Arizona, on a site. I look at the geographics, the demographics, the psychographics. I look at discretionary spend, how many times people eat out of their house. I look at grocery spend. I look at the other competitors in the market, the types of restaurants. Am I next to a bunch of fine dining? Am I next to a bunch of fast casual? If I'm a fast casual and I have 70 other fast casuals around me, it's probably not a great spot for me to go in as a new entrant and say, "I'm going to be better than all these other 70." Those are things I look at and think about.

I look at that on paper a lot of the time, but we don't make a decision on real estate unless we fly there and stand on the dirt. You have to, right? You've done it too. You're probably more of a pro at this than I am, but you have to stand there and watch and feel the vibe of that spot for a while. I have sat at a location in my car, watching the flow of people, for seven or eight hours before.

[29:31] Chris Hatch: Traffic flow.

[29:32] Andrew Smith: I just want to see where people are going and what they're getting out of the car to do. How busy is the grocery store? They say, "Oh, it's doing 500 a week," or a million a week, or whatever. I want to see it. And then it's also, I'm here on a Wednesday; I want to come here on a Saturday. Is it that way on Saturday, or is it way busier on Saturday, like they say? You have to go there and feel it, to make sure the stuff you're seeing on paper is actually happening. But it's crazy how many times you'll show up, look around and go, "Hold on a second. This is not what I saw on Google Earth. It's not what I saw on paper. And I don't care what the paper says. I'm not doing this site." You've done it before too, right?

[30:15] Chris Hatch: Yep.

[30:16] Andrew Smith: Plenty of times, where you're like, "This is different than what I thought."

[30:19] Chris Hatch: I keep reading about how AI is going to replace everything. Not a chance.

[30:23] Andrew Smith: Yeah. I think AI can help with a lot of the psychographics and demographics, to your point. Placer.ai has been an incredible tool. But it's still just a tool. It does not make the decision for me.

[30:33] Chris Hatch: There's a lot of human nature that goes into it.

[30:36] Andrew Smith: But I will say this, Chris, and you probably have a lot of experience with this: it does take someone in the room or at the table to make the decision that you're going to take the risk. And I will say that at Savory, we're willing to take that risk by making the decision, where a lot of founders would be like, "I don't know if I can do this. This is scary." It's like, "I know it's scary." So I think we also bring a little bit of that unlock, the courage to do it, because you're not alone. If you're alone and all of your eggs are in one basket, it's really hard to go put your basket on a new piece of dirt and say, "I'm going to risk it all on that piece of dirt." Isn't it? It's super hard.

[31:16] Chris Hatch: What a unique perspective you can probably bring to the table, where you're selecting sites not only for yourself and your concepts, but for the other concepts you've incubated into the Savory system. And you're looking across platforms, right? You have fast casual, you have sit-down...

[31:30] Andrew Smith: QSR, casual. We have it all.

[31:32] Chris Hatch: Pizza.

[31:32] Andrew Smith: Pizza. The best pizza on the planet.

[31:34] Chris Hatch: That's amazing.

[31:35] Andrew Smith: Yeah. A little bit of everything. That's the whole point of having a portfolio. You have some diversity: QSR, fast casual, casual. We don't really do fine, fine dining. I would say not a $100 PPA [per-person average]. That's way too high. People go there once every six months, or once a year if inflation really hits. We like casual dining like Sicilian Butcher down in Scottsdale. It's an unbelievable concept. We have them down in Texas as well; we're building three. We're going into Nashville with that as well. And that business is incredible. You can have that sit-down, really nice date night or celebration experience, but you're at $35 or $40 per person for an unbelievable experience. Those are the casual dinners we like, because you'll go once a month, potentially. Ruth's Chris, you and I are not going to once a month. I mean, maybe you do, Chris.

[32:16] Chris Hatch: Yeah, for sure. Maybe a lot of the listeners don't. As my listeners well know, I eat In-N-Out every day.

[32:23] Andrew Smith: You know what? That's a good diet too, just so you know. I could do that every day too. That's my jam.

[32:29] Chris Hatch: It looks like when you pass an In-N-Out, it's everyone's jam.

[32:32] Andrew Smith: Yeah. People are figuring it out.

[32:35] Chris Hatch: Good grief, that place.

[32:36] Andrew Smith: Well, the value proposition is wild too. You still only need about $10. It's just crazy. I was in California just a week ago meeting with a few founders of brands that are incredible, and I remember going by In-N-Out. I like to go to the place where people are from, you know what I mean? And when you go to an In-N-Out in California, there's just something about it. They are so busy, jamming all the time. And you order in California, and it's, "That'll be $10.65 for your whole meal." You're like, "How in the world?" I have no idea how. It just makes zero sense. But then you look around and you realize it's based on volume.

And the heiress who took over, she's doing an incredible job. She's been pushed several times: "We should raise our prices." She's like, "No, we're not going to raise our prices," even through the inflationary time. I respect the heck out of her, because she said, "No, this is who we are. This is what we provide to our customers: a place where they can get a good meal for a good price." And she's not moving off of it. I'm like, that's so badass. Is it not badass?

[33:38] Chris Hatch: It's honestly amazing. And the people... we just opened that South Salt Lake location we did with them, and every single team member I met, top to bottom, every role in the company, is one of the best people I've ever met. And it's like, "How long have you been with the company?" "37 years." "22 years." Isn't that crazy? Ten years. In our world, people bounce every three to five years, it feels like. So you feel like, wow, you must be doing something right to keep people there.

[34:06] Andrew Smith: Well, when you say that, I look at the Savory team. I think one of the superpowers we have... whether we're a family that always gets along or not is beside the point, because I think productive tension is good in any leadership team. But from our director level, VP and C-suite, across our firm, we're at 13 years average tenure.

[34:24] Chris Hatch: That helps a lot, for sure. Productive tension. I like that. So, my wife is a pretty intense personality, and I'm not sure how you and your wife are. As you were coming here today, one of the things I thought would be kind of entertaining to talk through is that you work with your wife.

[34:43] Andrew Smith: Yeah, I do. I love it.

[34:45] Chris Hatch: And it's very interesting. The way we divide things in our lives: she handles all things domestic and household. I'll have an opinion, but the moment she has a strong opinion, I just back down, right? That's how it works.

[35:03] Andrew Smith: Good man, by the way. Good man. She's the CEO of the home.

[35:06] Chris Hatch: And then on the work side, I'll have an opinion, she'll have an opinion, and as soon as she has an opinion, I also back down. I find she's still just in charge.

[35:16] Andrew Smith: Yeah. At least we know our place.

[35:20] Chris Hatch: That's right. She has the right opinion too, by the way, I just want to point out. So how is it to work with your wife?

[35:27] Andrew Smith: I will say this. First and foremost, and this is not a dig on any of us as men, some of the greatest minds in business are women. I've just found that they think things through differently. They view things differently. They're emotionally charged about certain things that men are not. That gives you a good counterbalance in your decision-making. More than half of our executive team at Savory are women. It's not because we tried to do that. It's because naturally they have been the best choices for those senior leadership positions. We have a brand, Swig, that is 85% women, naturally. And above-store leadership, even more than that percentage-wise.

[36:00] Chris Hatch: Swig is 85% female?

[36:01] Andrew Smith: Female. And leadership the same. And it was founded by a woman. Our company was founded by a woman too; it was Shawna. She founded the company. So I just think they think differently. And I think you'd agree with your wife: it's like, "I want your opinion, because the way you think and view things could be a good counterpoint to what I'm thinking." That's why you lean on them. So that's the first thing.

I think this whole thing where people say, "Well, you've got to hire women just so you look good"... no. You should hire women because they're really good at the way they think through things.

[36:34] Chris Hatch: Hire the right person.

[36:35] Andrew Smith: Hire the right person. It doesn't matter what sex they are. But I have found that women give you a really good counterbalance in business, and so it's been very easy for me, even in tech, to just have them around me. It's really good. That's number one.

[36:48] Number two: when Shawna came to me and said, "I feel like I have more to give than just being a domestic partner here," I remember that conversation was one of those, "Okay, this is an inflection point for our relationship, for our marriage and for our family." She feels like she has more to give. Who am I to get in the way of that? So I knew I had to get behind that. When I say I knew I had to, I mean I knew I should. And when I got behind her and said, "Let's do this," and she got into business, was it hard for her? Yeah. Was it tiring? Yes. We had a nanny, and we had long days and hard days. But I still saw the spark in her. She's meant for business, and she's meant for something greater than just being at home.

That's not for every single woman. A lot of women stay at home, like my mother did when I was growing up. She was a piano teacher, but she stayed at home with us kids. I respect the heck out of that too, because that's hard to do.

[37:44] Chris Hatch: I would contend it's probably harder. I actually think it is. The problems you're dealing with are way harder than business. They don't end at five or six or whatever.

[37:53] Andrew Smith: They do not. They keep going. And I would say being a mother has also translated into being a good businessperson, because they think things through. You're dealing with triage every day at home. "Okay, where are the bleeders? What do I have to solve?"

[38:07] Chris Hatch: You're coordinating logistics. You're doing all those things.

[38:09] Andrew Smith: You're doing that in the business world too. And with Shawna, it was her doing this, and then I joined her. So there's always been this respect of, "I came after you started this. I'm here to be your partner." But the thing we had to establish early on is: what do you love to do, Shawna, and what are you going to do every day? And then, what am I good at, and what am I going to do every day that I enjoy? We had to come up with our swim lanes: you do this and I do this. And what we've been really good at over the years is determining, when we do this, whether we're swimming between the buoys. And it's like, "That didn't work. We shouldn't do that again. Just stay in your lane."

Now, does that mean I don't say, "Shawna, I think you should do this stroke instead of that stroke"? Do I tell her things where I have an opinion? Of course. And does she tell me? Of course. But she trumps on this, and I trump on that. And because of that, Chris, it works. And I tell people all the time: who better to be in partnership with than your partner in life, someone you absolutely trust to the ends of the earth? But also, at the end of the night, you can go home and make out. So that's pretty good.

[39:18] Chris Hatch: Wouldn't advise that if you weren't married.

[39:20] Andrew Smith: Yeah, if you're not married, don't do that. It's probably going to be a problem.

[39:24] Chris Hatch: Not advisable, from a Savory perspective or otherwise. Again, you've opened so many stores. What's the wildest store opening you've ever had?

[39:30] Andrew Smith: I would say not even in volume. Can I just tell you the experience? Volume-wise, we've opened stores that do 300 grand in a week, right? But I remember we had a Kneaders Bakery & Cafe in City Creek. City Creek was this brand-new $2 billion mall that had been built in Salt Lake, and everything was opening at the same time, the same weekend.

[39:50] Chris Hatch: During COVID?

[39:51] Andrew Smith: Completed during COVID. And we had this shop that was not a drive-thru. It was the only inline store we had ever done; all the others are freestanding drive-thrus. And we had to open that weekend. We jammed to get that thing open in the first place. It was hard to get product in there. It was hard to hire. It was just a tough time. I remember being in there with Shawna and our team; our whole office was in there helping. On an average week, a Kneaders does anywhere from $45,000 to $65,000 a week, because they're $2.1 to $2.4 million AUV stores. And when we went into City Creek, we thought, "We're probably going to do $60,000, $65,000." And you're built for that, right? Because you're doing scratch bakery items in the back. And we opened, and we got kicked in the teeth so hard. Our days were like $25,000, and by the end of that first week, I think we did $135,000. That's double plus what we were used to at the max in a drive-thru, in a non-drive-thru.

[40:51] Chris Hatch: Yeah. In a drive-thru, a lot of that volume goes through the window, and you don't feel it inside the store.

[40:57] Andrew Smith: I'm telling you what, Chris. There was a night I was going home after an 18- or 19-hour day, because we were in there saying, "We can't let our employees just die. We have to be there to help them." We were there for a week straight, every day, for 18 or 19 hours. And I'm not ashamed to say it, Chris: I was driving and I was like, "I actually want to cry because I'm so tired." I'm like, "Why did we open up there? I don't even want the business." I wanted to shut the doors because it was so painful. Meanwhile, the pain was a tremendously successful restaurant.

[41:30] Chris Hatch: Yeah.

[41:31] Andrew Smith: I mean, you sound like an idiot complaining about that. But at the end of the day, you're like, "Do I really want this pain?" But it was fun. Now I look back with some fondness and say, that was fun. We figured it out. We galvanized.

[41:52] Chris Hatch: Let's talk a little bit at least about what Savory is today and where you're headed. Because again, there are a lot of retailers listening. Somebody out there thinks, "Hey, maybe I'm a fit for Savory." And I also think it's interesting how many concepts you guys look at without moving forward. So let's spend a minute talking about what Savory is today. How many restaurants do you guys own today?

[42:25] Andrew Smith: It's about 260, and we're adding about 70 this year.

[42:28] Chris Hatch: Okay. And that's spread across how many chains?

[42:31] Andrew Smith: 10 different brands. And we have a target this year to add three more brands. Three net new brands.

[42:36] Chris Hatch: Net new brands. How do you evaluate a new brand?

[42:40] Andrew Smith: It comes in two different formats. One is inbound. People know Savory now; they know our brands. Agents know who we are too, because they see our brands popping up in their markets, and then they find out who owns them. So then, of course, they reach out and say, "Hey, I have a brand that's growing in my market. You should talk to them." A lot of people come through agents, to be honest, and we really like the agent network, the tenant rep network, because they know the brands really, really well.

Right when we started, we'd been in the industry for 10 years as Four Foods Group, which was the company Shawna and I had with our team. Then we sold off all of our Little Caesars and Kneaders, and we started Savory as a private equity fund so we'd have that funding mechanism. But it's the same team; the team has been intact that entire time. We used to have to go outbound for about 90% of it: "Hey, Chris, this is who we are." And they're like, "Oh, yeah, we remember those brands," but they didn't know who Savory was. That switched over about two and a half or three years in, to where now it's about 95% inbound. Which has been nice, because we see a lot more without having to work as hard for it, and that's been helpful because we can see what's going on in the market. We see about 350 brands a year.

[44:02] Chris Hatch: 350?

[44:03] Andrew Smith: 350 at a minimum.

[44:04] Chris Hatch: And you're going to add three this year.

[44:06] Andrew Smith: Yeah, we're pretty selective.

[44:08] Chris Hatch: I was going to say, you're really narrowing it down.

[44:12] Andrew Smith: This week alone, I think we've had four new inbounds that were really impressive. Just this week. Others reach out that we don't engage with yet, just because we know what the segment is and it's a segment we're not focused on. So for us, there's lots of inbound, but when they come in, we're looking for a specific flavor profile, or a segment first. We zero in: we believe this segment, right now, based on the data we're looking at, is hot. We feel like there's not a clear leader. Or there's a leader out there, but there's room for a really solid number-two position, because the industry isn't full of just number ones, right? It's not just CAVA. There are a lot of other Mediterranean concepts that are amazing, even though what I think Brett Schulman and CAVA have done is amazing and probably untouchable. Same thing with Chipotle. That's kind of untouchable now for anybody, but are there other Mexican concepts that can thrive? Of course.

So we're looking for something that's not exactly like a CAVA, but maybe a little bit off, something that offers something different in a different format that people are responding to. Not necessarily Mediterranean; I'm just saying that's what we look for, something a little different from the leader. It's pretty obvious, though, when you look at the sea of, let's just call them dirty soda providers. The clear leader was Swig, because they created it. Doesn't matter what anybody else thinks; they created it 14, 15 years ago, Nicole Tanner did. And to go and talk to her and see that you're the clear leader, you're the one that has the culture, the passion, the idea... those are the people we want to talk to.

Or if you go into the burger category, the burger category is full. We all have our burger place we go to. But are there distinct differences with some of these new and innovative concepts coming out of the ground that people are responding to, that aren't In-N-Out? Because In-N-Out will always be a clear leader on a good value proposition. Can you step it up one notch, give it to everybody in a little bit different format, and do something with the burger so that I'd eat an In-N-Out burger with you every day, but I'd also go over to this other place and try it once a week, or once every two weeks?

[46:22] Chris Hatch: Yeah, you would.

[46:22] Andrew Smith: And those are the ones we're betting on.

[46:25] Chris Hatch: It sounds so abstract as you describe that process. Is it also as simple as... for example, you still hold an R&R Barbecue?

[46:32] Andrew Smith: Mm-hmm.

[46:32] Chris Hatch: You do?

[46:33] Andrew Smith: Not for long.

[46:34] Chris Hatch: So if another barbecue concept comes through, it may not be the best fit for you because you're currently operating a barbecue concept?

[46:39] Andrew Smith: It's a good question, because we're not going to hold it long enough for it to actually be in every single state in the United States. So we think geography is a big component of the moat around it. So if we picked up a Carolina barbecue, while R&R is doing kind of the mountain and west desert states...

[46:56] Chris Hatch: Rocky Mountain.

[46:57] Andrew Smith: Yeah, sure, there you go. Call it Rocky Mountain barbecue. They would never overlap, and there would be some overhang from what we're contracting and benefiting R&R with to potentially that new brand we'd buy. So we would still look at it, even though we'd have something similar in the portfolio. If we have burgers down in Miami, like Pincho, would we look at a burger concept elsewhere in the United States? Potentially, but it's got to be a leader in that category, in that jurisdiction. And then we have to think, "Well, if it's here, where are we going to grow it? We'd probably grow it here." So we do a white space analysis for growth with real estate and say, "We're going to these three or four states." And then we reach out to our network and say, "Hey, Chris, we're going here. What do you think about that market for this concept?" You're usually the one who knows that market better, to say, "I wouldn't do that, because you have this player, this player and this player that just came in, and they're not doing well." Well, then we're not going to go there. So we come up with our strategy book on how we're going to scale them before we buy them.

[47:57] Chris Hatch: That's interesting. You mentioned the tenant rep broker side. It always blows me away how much information sits in the head of a good tenant rep broker.

[48:04] Andrew Smith: Oh, for sure. They know everything. But can I tell you one thing everybody who's listening should remove from their vocabulary? Can I tell you that? Because it will help.

[48:14] Chris Hatch: Sure.

[48:14] Andrew Smith: Because we're the tenants, and we all talk about it behind the scenes and go, "Why do they always say that?" We're in a car, and my VP of real estate who's been working with me forever, Brad Giles, will be driving with our agent to go stand on the dirt somewhere. We'll pass something and we'll say, "How is that Chipotle doing? How's that Shake Shack doing right there?" "Oh, they're killing it. It's the number one store." If you say that, guess what? None of us believe it. Because the day before, I was in a different city and that agent told me that one was number one, killing it. So doing that doesn't help us. You've got to convert it to, "I spoke to the manager. There are 32 stores in the DMA, and of the 32, last year this was the top." That would be helpful. Give me some quantifiable data. If you say, "I talked to the manager, they're doing 55 a week," it's like, "Okay, that's really good." And are their sales up, or are their sales flat? That's very valuable. But when you say, "They're killing it, it's number one in the whole market," it's like, stop. We don't believe it. So we're just trying to help here. Please don't say that. We don't listen to it anyway.

[49:22] Chris Hatch: No, it's so good. Part of dirt dogging for me is that I also sit in a car with a broker on a regular basis, and you hear it. It's caused me to make some new suggestions to a lot of our agents here. They're all independent contractors, so they'd tell you they're all the boss. You just give a suggestion and kind of hope everybody listens.

[49:45] Andrew Smith: Yeah, you hope. But I will tell you, that one right there is universal. All of us who are out dirt dogging believe it doesn't work for us.

[49:53] Chris Hatch: You know what else I've found interesting? When I was doing tenant rep brokerage, I used to think I had to fill all the white noise. There was never an allowable silence in the car.

[50:06] Andrew Smith: Yeah, no. Don't talk to me. I'm thinking.

[50:09] Chris Hatch: Exactly. I'm actually trying to take it in. Until I started touring sites, and I was like, I can't sit in a car in one city and look at 27 sites, get on a plane, go to the next city and think about 22 more sites, get on a plane, go to the next city and look at 17 more.

[50:26] Andrew Smith: That's right. I need some minutes to process. You have to process a lot. And we're also looking around at what they're driving us past. I'm looking at everything, right? If you're talking, I can't even process any of it. So that is such a great point, Chris. Silence is a good thing. Occasionally turn on a little background music. Turn some Enya on so we can actually take it in.

[50:47] Chris Hatch: That's funny. All right. So Savory has some wonderful flags. You're looking at three more this year, which is awesome. You're on Fund 3.

[50:54] Andrew Smith: We're still raising on Fund 3 right now.

[50:56] Chris Hatch: Still raising. Where is Savory headed from here?

[51:00] Andrew Smith: The question I get from a lot of my LPs is, "Is there going to be another brand? Is there another opportunity for another brand to grow?" And I'm like, "Seriously?" We've demonstrated this for a long time. When I got involved, I think this market was a $600 billion TAM, total addressable market. That's huge, right? It's $1.1 trillion today. It's doubled since I've been in this industry. And the CAGR, the compound annual growth rate, is about four and a half to 6%. Nobody can tell exactly what it is, but it's four and a half to 6%. That's a massive TAM, and it's growing super consistently.

So for me, Savory is something I created with Shawna, and Shawna had started our previous business. We've done this together. Is this something where we just go until we can't find any more brands, and we shut it down after the last brand we bought grows and is sold? It's just not possible. This is the most persistent and perpetual opportunity of any industry I've seen, and that's coming from the tech industry. There's always new tech coming out, and people are like, "Is there more tech you can build?" There's new tech being created every minute of every day that none of us know about yet. We're going to know about it soon. It's the same thing in this industry. It's just too big of an industry; it's going to shift and pivot and everything else. You're going to have the dilapidated brands that have been around for 50, 60, 70 years and haven't reinvented themselves. People are now taking their wallet share to the emerging elite brands, or to the other brands that have adapted and pivoted. Those older brands are going to fall by the wayside and go out of business. That's the Darwinian shakeout every market goes through, and it's a good one to go through.

[52:41] Chris Hatch: Yeah. I can't remember the last time I went to a Perkins.

[52:46] Andrew Smith: I just can't remember. I went when I was a little boy. Those are slowly going out, or maybe if they're in a region doing okay, fine. But most of the time, those brands will die off. Well, where are those dollars going? The dollars are going to the new stuff coming up. We know the emerging brands are getting a lot of that wallet share, or the CAVAs or the Chipotles, where people know them, trust them, and they're doing it right.

So for us, my long answer trying to be cut down to two sentences is: Shawna and I are building our succession plan now, to have Savory be around for Fund 4, 5, 10, 15, well beyond our years. Because I think there's always going to be opportunity for the next exciting brands. And there will always be that flywheel of certain ones dying off because they didn't do it right or made the wrong decisions along the way. It's really sad for me to watch great brands die because they over-levered themselves. They did not focus on the customer who's actually making their jobs possible. Instead, they're just talking about growth, growth, growth, growth at all costs.

And I will say that is the biggest mistake, especially for the majority of your audience: having someone speed too fast down that freeway. I always tell brands, even ones we don't work with, "Don't get caught for speeding." Because you can go too quick, and you can actually hurt your brand and yourself and hit a wall. Don't get caught for speeding. Go at a disciplined pace, so you have a strong business that will be around 10, 20, 30 years from now. It's not a race; it's a marathon.

[54:21] Chris Hatch: What are the common problems when you get caught speeding? Is that team-member-wise?

[54:26] Andrew Smith: Yes. I was going to say, too many rooftops for the team you have. The team isn't built for that size or that platform. They're not built for going from 100 employees in several locations to 500 employees across two or three geographies. Multi-unit leadership is very different from single-unit leadership, right? You can't take a GM and say, "Chris, you're an amazing GM. Now I'm going to make you a super GM over seven stores." A lot of the time those people fail, even though they were amazing in one store. So a lot of it is people. They just don't have the right people and the foundation in place to go to that next level.

The other one is, they're not capitalized, right? It's, "I'm going to take some money from Chris, I'm going to take money from five or six others, and I'm going to make different commitments to all of them." Then you open stores, they don't perform as well as you thought, you can't meet your obligations to Chris and everybody, they all get upset, and everybody's fighting. A lot of the time we watch it and say, "That was financed incorrectly. There was not enough financial oversight, and you took a great business and screwed it up." Keeping things simple and clean is probably best, and growing at a pace you can afford and that you can support with your team. Those are the two ways you get caught for speeding.

[55:46] Chris Hatch: Interesting. We have a lot of young people who listen to this, and we were both there one time.

[55:52] Andrew Smith: For sure.

[55:52] Chris Hatch: I can't remember what deal we were working on, but I remember you showed up at the office. I had some pad somewhere you were interested in building a Kneaders on. And you whipped in in a Maserati, I think.

[56:03] Andrew Smith: Yeah, it was probably a Ferrari.

[56:05] Chris Hatch: Okay, whatever. I just remember thinking, "Boy, that's a nice car. I wonder if this guy knows how to run a restaurant. He knows how to pick cars, I've got that."

[56:17] Andrew Smith: That's funny that you remember that.

[56:18] Chris Hatch: That was my first exposure to you. It was a long time ago.

[56:23] Andrew Smith: A long time ago. Yeah. I was going to say, I drive those cars because I like them, not because of what people think when I'm driving them. But I will say this: that day, I probably saw you, and then I went back to the store and parked really far away from my restaurant, because I didn't want anybody to see what I was driving. And I would go in and put my apron on and work with my crew. That's just who I was. I did that every day.

[56:48] Chris Hatch: That's amazing. If you had one piece of advice for somebody young in their career who's getting started, whether they're a retailer or broker or developer, what would you recommend?

[56:57] Andrew Smith: I know exactly what I'd recommend, because I say it to my son, who's 25 right now. He's going to college, he's married, and we have these conversations often. He tells me the things he's hearing from his friends who are that age too. And I keep trying to reiterate to him, all of his friends and all brand-new entrepreneurs the same thing: don't try to skip steps. There's a purpose to going through this life's journey and learning every part of the process. If you jump from step two to step nine, all the things you'd learn in between are crucial for your success later in your career. So skipping steps, I think, is a problem. It's an epidemic we have to deal with right now with the younger generation, because this generation is looking side to side. "Gosh darn it, Chris has a cool truck. He's got a nice new house and a boat. What's he doing that I'm not doing?" So then you start trying to skip steps to catch up to Chris. What you don't realize is that maybe Chris skipped some steps, and maybe that's all a facade, and maybe a year from now he loses it all because he over-levered himself. I'm not trying to pick on you, if that's what you did. I'm just kidding.

[58:04] Chris Hatch: I hope not.

[58:06] Andrew Smith: But you know what I'm saying: the younger generation thinks it's about stuff today. It's about winning today. Everybody wants it now. For me, in parts of my career, Chris, I was like, "I'm going to go fast." And I went fast, because I like going fast. But then I'm like, "Darn it. I probably should have slowed down and learned this a little better, taken my time on this one," because I made some mistakes. And now, later in my career... I'm 50 now. I've owned several businesses, we own several businesses now, I've been an entrepreneur my whole career, and I think, "Man, if I were to go back and do it again, what would I tell myself?" It would be: don't skip steps, slow down, and learn it all in your 20s. Then do some of your best work in your 30s. And then in your 40s, you're going to have enough experience to think methodically and lean on your experiences to make really good decisions for your retirement. But you don't have to be at retirement by the age of 28, right?

[59:05] Chris Hatch: Yeah.

[59:05] Andrew Smith: Take your time and learn as much as you can. Don't skip steps.

[59:09] Chris Hatch: But I've got to tell you, that response, from somebody responsible for opening 70-plus restaurants this year, is not what you'd expect. But if you take it into consideration, there's a team of 75 on top of each individual concept having its own executive leadership team.

[59:22] Andrew Smith: That's right. That's a big crew. And if you break that down, Chris, I could go through every single brand and say, "Okay, this brand's going to add three. Could we do six or eight? Maybe. We have the money to do it. Do we have the team to do it? Not yet; not ready for that. How are our existing rooftops performing? Well, these four are doing really well, these two are doing good, and this one's not doing so good. So let's not build another one. Let's focus on the one that's not doing as well and get that one up," because that one coming up in sales and profits will be better than adding another rooftop and complicating our job.

So that's what I'm saying. Don't skip steps. Just because I can doesn't mean I should. When you aggregate all of those brands together, there are a lot of restaurants. But for each individual one, we're thinking: should we pause and perfect, or do we just add, add, add? Because you know this; you're in this industry with me. There are a lot of brands where you're like, "Slow down."

[1:00:18] Chris Hatch: Yes.

[1:00:18] Andrew Smith: Because I just went to your store the other day in this city, and it was not the experience I had in your heritage market, because you don't have good management. The product coming out was crap. Why are you growing so fast?

[1:00:30] Chris Hatch: And the US consumer generally isn't that forgiving.

[1:00:32] Andrew Smith: No. I would say less forgiving now than ever, right, Chris?

[1:00:35] Chris Hatch: It's interesting that market share has increased as much as you were just pointing to in the data. But at the same time, yes, the sentiment has actually probably narrowed.

[1:00:44] Andrew Smith: It's narrowed. And I would say everybody's a food critic. Everybody has outlets where they can go and complain, and then it goes viral. So for us, our most important job is the single person ordering from you at the cash register, or in the car in the drive-thru. That is your most important job: that one person. And then the next person walks in, and now that person is the most important person. That's all that matters.

[1:01:06] Chris Hatch: I couldn't believe how quickly it turned when people were going through the Chipotle line, videoing it, and putting it on TikTok.

[1:01:14] Andrew Smith: Craziness.

[1:01:14] Chris Hatch: It was just wild. And you're like, just have some patience with these brands, right? At the end of the day, everybody's just trying to run a business. And just because you can put something out there doesn't mean you should immediately spread everything like that.

[1:01:29] Andrew Smith: And I would say that to your listeners on the agent side, and even the landlords: just because they can, should they? Look at brands through those goggles. Don't think about it as just getting a deal done. Because you and I both know, I own real estate, you own real estate. When you have a building, it's not good to have a revolving door, where something opens, then goes dark, then opens, then goes dark. Because when I step up there and go, "Well, how many brands have been here?" and you say there have been four in the last three years, I'm not going there. And getting it back is very expensive for us as landlords. You don't want to do that. You want a long-term partnership and relationship.

[1:02:10] The questions you should be asking them are: How's your team? How is the performance of all your other stores? How's your ability to come into a new market? If this is a new market, have you done it before? Do you have someone on your team who's expanded into new markets before? Those are the questions you should be asking. Not, "Let's get this deal done with Mo' Bettahs because they're coming in hot and I've heard about them." That's not enough. You should find out that Rob is the CEO, that he's a freaking stellar CEO who's run hundreds and hundreds of restaurants before in multiple geographies, and that all of the Mo' Bettahs stores are profitable. You should know the answers to those questions before you say, "Yeah, come right into my center," right? If you just let them open because they're hot right now... hot in the eyes of the beholder does not mean they're actually hot as an organization. Make sure they're actually a strong, well-financed, well-capitalized brand. If not, it's going to go dark, and you're going to get it back. And that doesn't help any of us.

[1:03:03] Chris Hatch: That's good. It's a great thought. Well, Andrew, we appreciate you coming on the Dirt Dog Pod. We appreciate you spending some time with us.

[1:03:09] Andrew Smith: It was awesome. Thanks, brother.