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COVID-19 Special Episode: Greg Golkin of Kitchen Fund and Jim Balis of CapitalSpring

About the Guest

Greg Golkin is the Managing Partner of Kitchen Fund, a leading investor in the emerging restaurant space. Kitchen Fund has invested in many well-known growth brands such as by CHLOE., sweetgreen, and Gregorys Coffee.

Jim Balis leads CapitalSpring’s Strategic Operations Group and has several decades of restaurant management and turnaround experience. Jim has acted as interim CEO for 15 different restaurant businesses.

Episode Summary

COVID-19 has dramatically impacted the U.S. restaurant industry in just a few weeks. We sat down with Greg Golkin of Kitchen Fund and Jim Balis of CapitalSpring to understand how restaurant investors & their portfolio brands are weathering the storm, narrowing their focus, and how some restaurants are defining new visions of what it means to be a restaurant.

Episode Transcript

Zach Goldstein


From fake meat and robot chefs to ghost kitchens and delivery drones. The restaurant industry is rapidly evolving. Welcome to Food Fighters, bringing you interviews with the leading industry trailblazers. I’m your host, Zach Goldstein.

Zach Goldstein


Welcome back to Food Fighters. I’m your host, Zach Goldstein. We are recording this episode in the first week of April, obviously at the peak of the coronavirus crisis. Uh, I’m here today with two leading investors in the restaurant space. Greg Golkin from Kitchen Fund and Jim Balis from CapitalSpring, uh, and very pleased to welcome these industry veterans to the Food Fighters podcast to talk about their unique perspective on what’s happening industry-wide and what we can expect for the restaurant industry overall. Jim leads CapitalSpring Strategic Operations Group and has several decades of restaurant management and turnaround experience. Jim has acted as interim CEO for over 15 restaurant businesses. Jim, welcome to Food Fighters.

Jim Balis


Thank you Zach.

Zach Goldstein


Joining us today also is Greg Golkin. Greg is the Managing Partner of Kitchen Fund, a leading investor in the emerging restaurant space. Kitchen Fund has invested in many well-known growth brands such as by CHLOE., Sweetgreen and Gregory’s Coffee. Greg, welcome to Food Fighters.

Greg Golkin


Thanks for, uh, for having us on such a quiet week Zach.

Zach Goldstein


Yeah, right, there’s a, there’s a lot going on. So I am sure you are both being inundated with calls from, uh, from your portfolio companies. Um, let’s start there actually, and maybe Greg, you can start and then Jim, you can take the second answer. What are restaurant portfolio companies most worried about right now, uh, among a sea of things that are concerning? And what are you, how does that differ as a fund or an investor? What are you worried about on behalf of the restaurants in your portfolio?

Greg Golkin


The main thing our restaurants are worried about right now is, is uh, their team. Um, uh, each, each, each brand we see is focused mainly on how to, uh, how to protect their employees. Um, both in protecting their jobs, their health, their relationships, um, going forward. And, uh, so we see that that at this moment is, is the biggest focus. These topics are not, are not easy because they tie into the longterm health of the company, but they also have a lot of, you know, very ethical, uh, discussions behind them. Um, you know, we see at a, at a board level, a lot of brands talking about, uh, whether or not it’s okay to have workers, uh, in stores right now. Um, that’s tough because you’re, you’re, you’re literally talking about making an ethical decision of should, should, uh, how do we prioritize health? How– do we make a decision about whether a worker should, should have a job at this point? Um, and, and they’re, they’re really, really difficult conversations that I think lot of our brands are struggling with at, at this moment. For us as a fund, I think, you know, our, our focus always needs to be kind of a level up from there in terms of focusing on the longterm, um, sustainability and health of a company. We are spending a lot of time talking about cash conservation, um, really kind of battening down the hatches with the brands. You know, unfortunately we don’t know how long this will last. We don’t know the longterm impacts, uh, that, that this will have on the industry. We’re working a lot on, on how do you take a very conservative stance and think about what the world looks like when kind of when, when, when we all wake up from this.

Zach Goldstein


Go ahead, Jim.

Jim Balis


Uh, Greg said all the same things that, uh, that we believe right now as well. I mean the, the teams are generally focusing on keeping people safe, managing through and down to lower sales volume depending upon, um, you know, the specific business. Full serve’s obviously having significantly more challenges given the fact that their business model is not designed for off premise than we’re seeing with limited and quick serve’s. But, um, for everyone managing to the volumes that we’re experiencing and the revised business model, you know, we have units as I’m sure Greg does all over the country and there’s varying legislation and laws that have come down as to how we interact with our guests. And this, you know, everything from Mississippi: they can’t get out of the car. Um, to other areas where just a limited number of people that doesn’t allow for guests to walk into the restaurant, even if it’s a limited serve because there’s a specific number of people that can be allowed and we max it out with the staff. Um, so keeping them safe, managing the business, obviously managing cash, um, at, at the portfolio company level and at a higher level, exactly to Greg’s point, you know, we try to step up, be a step sort of above that and look towards coming out of this and you know, what that looks like. Uh, both from a model perspective, you know, how they’re positioned. Um, you know, do we think this off premise is going to be something that that stays around for a long time? Even with respect to full serve, you know, a lot of the quick serve companies that have pivoted to kiosk ordering and some other thing’s there’s been a lot of publicity around, you know, sort of Petri dish nature of those screens. And so, you know, what does that mean for the technology of our companies and where should we be looking? Um, as well as you know, conversations we’re having with the leaderships of our investments around, you know, sales are down.

Jim Balis


Um, we have a time, once things, the dust settles a little bit and we level off at some sort of norm here. Um, what can we take the time to do to, it’s sort of the reset button on our business and, and position ourselves for the other side and coming out of it? You know, everything from remodeling restaurants, if that’s something we want to do, um, to understanding, you know, who the key people at the company are and how helped us survive through this, um, you know, to just other things more strategically. So take the opportunity to do that, um, is how we’re sort of providing some guidance to our investments.

Zach Goldstein


Yeah, it can be really hard as a restaurant operator, um, to in this moment think about those kinds of longer term strategic initiatives. And I would imagine that’s a role that, that you two are playing and that you hope your restaurants actually can lean on you for uh is that type of longer term outlook. Even in the face of day to day cash management.

Greg Golkin


Yeah, we’ve um, gone through long, pretty long lists of projects with, with a number of our brands, um, over the past, you know, three or four weeks since the, the world started changing. Um, and it is a real opportunity to focus on some of these projects that for any brand, um, has always been on a list, but it’s always hard to find the time to focus on. There is a, you know, uh, some bandwidth there for, for a number of the, uh, brands who, who, you know, have historically been been in the day to day fire of, of running restaurants who may have shut all of their restaurants temporarily or, or move to a kind of a scaled down dry pickup, uh, delivery model. Um, now actually have some time to go through some of these projects such as, you know, going through customer analysis, just doing really deep data dives that they’ve never done before. Focusing on e-commerce or CPG plays that, um, have always kind of been been side projects. This is a great time in our opinion to be, to be focusing on, on tech stack. It’s very easy to change, you know, the engine of a plane when, uh, when it’s temporarily parked rather than trying to change it in flight. So, um, a lot of technology changes right now. Um, and, and, and the list goes on and on for each, for each brand. But it is actually pretty good time to, to, to focus on some of these, these projects.

Zach Goldstein


You both have mentioned a couple things that are outside of the standard wheelhouse for a restaurant, right? Like what does it mean for a restaurant to be offering a new set of CPG products, um, and, and, you know, take away products or e-commerce. What does it mean for a restaurant that historically has not done off premise to, to make that switch? What kind of creativity are you seeing across your portfolios and, and what is that process for developing these ideas? Because clearly everything’s on the table when you need to get cash now, but some are good ideas and some are probably distractions.

Greg Golkin


We’ve seen a lot of different strategies being employed, uh, by, by our brands, things that we would never have thought of a million years and in a normal course of business. Um, from Mr. Holmes Bakehouse selling bread, bread starter kits, uh, to, you know, Curry Up Now selling mixed, mixed drinks, uh, delivery. Finding products in places you’ve never seen before, you know, fast casual selling in grocery stores. Just today, Panera is announcing, announced uh grocery sales. I think it’s fascinating. I think the question is, does this, is this a temporary trend as, as we’ve kind of got limited retail out there right now, or is this something that kind of changes the shape of, of restaurants going forward? I mean, I think, you know, to weigh in on that, I think that we’ve always felt that restaurants did it the right way, who were building the right way, weren’t just restaurants. They were brands at some point they needed to, to investigate how to kind of create 360 relationships with, uh, with their guests. And that meant not just meeting them at the restaurant, but, and not just doing delivery or order ahead, but figuring out other touch points, whether or not it’s, you know, in grocery stores, uh, CPG, e-commerce, et cetera. And I think this, um, kind of this, this chaos right now is, is forcing a lot of those questions and, and, and forcing the brands to answer them in some very interesting ways in our opinion.

Jim Balis


Yeah, I mean, Greg said it perfectly, you know, we’re, we’re seeing a lot of the same, some great creativity. We have a, a full service family dining chain in California that set that’s selling – and it’s become 50% actually of their product mix they’re selling right now – which were care packages of uncooked food. And I think part of the reason is that, you know, their guest base doesn’t want to go to the supermarket, so they’re ordering delivery and the supermarket delivery, um, is inundated and a lot of it’s not available. And so they’re utilizing DoorDash, really to delivery, deliver groceries to, you know, to people from the restaurants. Um, and you’re just seeing a lot of creativity, a lot of, um, as Greg said, a lot of unique, uh, pivoting that these restaurants are doing. You know, we’ve seen some that are focused more on lunch, uh, historically, you know, whether it’s a sandwich sector business that now is trying to figure out ways, uh, to launch dinners. You know, we’re seeing a lot more family meals. Greg, I’m sure you’re seeing the same thing where, you know, they’re putting to the people that are stuck at home. So you’re packaging up more family meals, whereas, you know, a lot of these business had, had historically served individualized meals. Um, so just a lot of creativity. I, you know, I don’t think it’s necessarily a distraction. I think it’s, you know, a necessity right now to be focusing on these revenue channels. Uh, to stay alive. I mean, it’s, it’s time to time to be scrappy here, I think.

Zach Goldstein


Yeah and I think you both highlighted, there’s this distinction, uh, between what of this is scrappiness, uh, that is needed for the here and now? And which of these are innovations actually bred out of necessity but maybe longer term focus? I mean, is Panera going to continue to sell groceries? Probably not. But, uh, if it’s, if it’s, uh, amazingly successful, they may have to reconsider. I saw a local, uh, restaurant in San Francisco that moved to, um, their menu being off premise and they said, by the way, any of the other things that we have in our restaurant, we’ll sell you at cost, toilet paper, uh, utensils, cleaning supplies, uh, you know, it’s our job to just support the community. Uh, and so I transition here into the, the rather miraculous part about this industry that is so focused on community. And it’s an industry, restaurants, so hard hit right now. Uh, I mean quite literally by government decree in many areas, restaurants are, are incapable of making any money. Um, so hard hit. And yet across the country, we’re seeing restaurants find ways to support their community, find ways to support frontline workers. Uh, as you think about that spirit that makes this industry unique, why is that? What, what is, what, what is so special about restaurants and why are they doing this? Is it, uh, is it just to do the right thing or is there a longterm benefit to brand building of being on the front lines here?

Greg Golkin


We’ve actually talked about this a decent amount because the, the, the, you’re exactly right Zach, we’re seeing such amazing, uh, outreach and, and, and focus and effort from, uh, restaurants of all sizes from, from mom and pops to, to quite large chains. Um, and, and figuring out how to support their communities, their, their, um, you know, employees, former employees, frontline workers, uh, you know, anybody, anybody in need, the food insecure. And it’s, it really has been, uh, just remarkable over the past few weeks. And, you know, I think one of the things that we, we know about, about the industry is, one is it’s based upon serving, right? Like that is the, uh, at the end of the day, that we’re in the hospitality industry and it’s about serving people. And I think that that’s just ingrained in the nature of, of the entrepreneurs and the manager management teams in this space is how do, how do we help? And I think there’s just, there’s, it is, it’s an industry also that, um, there’s so much, um, contact from all different, uh, points where I, you know, even just thinking about, um, guest management, um, kind of, uh, every level of worker from hourly up to executive where there’s so much interaction and contact that I just think there is, is, is just, uh, a greater level of empathy, um, then in most industries. And so I think it just very natural for, for the space to kind of roll up its sleeves and, and try to help when we, when we come into moments like this and, you know, I think we’re all quite proud to be in an industry that’s, that’s, uh, you know, that’s willing to do, do something like this, as you said in, uh, when all of our businesses are suffering at the same time.

Zach Goldstein


Yeah this leaves us a lot to be grateful for, uh, of the restaurant industry and the importance of protecting it. As I’ll get to in a later question. Jim, is there a business case to be made for while profit is hard to find and while cash is at a premium, uh, giving away meals to frontline workers, uh, being that active voice in the community for current/former employees, how do you think about that calculation about what is doing right versus what is actually longterm brand building or ways that that actually could accelerate the growth of that business?

Jim Balis


You know, not surprisingly, we really don’t look at the ROI on these efforts. I mean, we look at it, um, you know, this is uh philanthropy at its core. And so, you know, for us it’s, it is about doing the right thing at a time like this when you know, people are in need. Uh, a positive consequence of it is certainly, it puts some of our management teams in, in the mindset of being the mayor of their mile, which is something that we harp on quite a bit around local store marketing efforts. And you know, while it’s hyper-focus, given the fact that there are so few businesses that are up and running these days relative to sort of pre pandemic, um, you know, it does bring about a different thought process, whereas it might have been much more secondary or tertiary, you know, it’s more top of mind now. Wow. You know, this isn’t that hard to do, to go to a fire station, go to a hospital or go to an assisted living facility, and one sort of effort that, that has for whatever reason seem to have a little bit more success for us anyway, within a couple of concepts, I shouldn’t say it applies to all of them. However, we’ve given free food away to, uh, some of the staff members who’ve had reduced hours, um, off shift, uh, you know, typically you’ll give a shift meal or a discount on a shift meal. Um, and what we’re finding is, well on the, the charging of the shift meals, we’ve pretty much wiped that out across all of our portfolio investments and asked all of them to just give everybody a shift meal. Um, and it’s interesting to see a slight change in behavior from our staff members who have taken a little bit more care of the preparation of the food as they know they’re eating it at the end of the shift or have just eaten it before the shift, which has been an interesting unintended consequence as well as, um, some of the social posts that we’ve gotten from employees who’ve been fed, you know, with discounted hours and just the appreciation of being able to come into the restaurant, get some food, uh, to go, um, you know, has just been interesting. Um, not something that we would have anticipated or probably would have done, uh, you know, except for the situation we’re in.

Greg Golkin


The other part that, um, uh, you know, Jim remind me of is I think that, uh, for, for any brand one, one of the kind of, if we wanted to say business case though I agree with Jim that there is no ROI truly being calculated, is um, you know, for a lot of the growth brands that we work with, um, the way that they, uh, start making their mark and really build a relationship with guests is based on an authenticity and a mission. Um, you know, that is kind of what’s expected and almost table stakes for a lot of the, the up and coming brands is they stand for something. Like that, that’s what consumers are looking for at this point. And so, um, you know, it comes as no surprise when, you know, Sweetgreen, um, you know, starts the program they’ve got going on with outpost and hospitals. Right now it’s just a remarkable program, you know, with the goal of, of, of feeding 100,000 frontline workers or serving 100,000 frontline meals. Um, but those are the things that, that, that create sweetgreen or, and brand are that, that is entrenched in their DNA and automatic for, for what they’re supposed to do and therefore does, it does ultimately have a business impact because that, that is, you know, that type of action is why people love sweetgreen.

Zach Goldstein


And building those brands. It is how they’ve become unique. So I really like that point and I love the phrase “mayor of your mile”, uh, because it, it seems to be something that many restaurants take, take to heart as being a part of their community, uh, which has a responsibility which they’re showing right now, but it also has, has ultimately, uh, the upside on, on building your brand affinity over time.

Zach Goldstein


Food Fighters. Stay on the cutting edge.

Zach Goldstein


Labor is, is at the core of some of these things we’ve talked about. And more pointedly caring for your staff, being able to survive such that you can pay your staff, uh, and ultimately viewing your staff as a, as a competitive advantage in delivering to customers. The government’s response has been largely focused on the PPP program. Uh, the paycheck protection program. In your opinion, is that program going to offer the relief that restaurants need in this, in this period? Do we need to see more, uh, do you expect it or are you advising restaurants to, to assume that they’re not going to see further relief from what’s already been promised?

Jim Balis


You know, this has been a debacle to say the least. Um, you know, it seems to be based on the numbers, you know, just doing simple math to the extent that the number of business file that are expected to, that, um, there may not be sufficient funding overall for what the requests and the demands may be. It certainly will provide support for paying employees. You know, there’s a little bit of a risk and I’m going to go beyond the payment protection to, um, you know, some of the unemployment that’s been offered and, and you know, a couple of issues that we’ve seen, which is where, uh, you know, they’ve added $600 additional per week, federal unemployment, and collectively with state, you know, these employees could receive $1,000 a week for up to four months. Um, which, you know, we’re in support of generally speaking. However, you know, we do have some employees that are coming to us, um, and some managers that have said, Hey, you know, I have staff members saying they can make more by staying at home. Um, so, you know, we are facing that issue with a little bit of the government support where, um, you know, and, and it’s not as if they’re staying home to avoid getting sick or think they’re sick and they feel like they’re going to give it to others, but more around, um, where can I make more money and you know, having to try to match that in a situation we’re paying an hourly employee. Um, so that, that’s been a little bit of an issue with some of the government support. And secondarily, um, the eight week timeframe from the point in which you receive the funds, which may be as early as next week. Um, seems to be very short for a lot of us because you’re basing the loan amount on two and a half times pre pandemic staffing levels and post pandemic. You know, we’re especially in those businesses that are down significantly, our staffing levels correspondingly are down. It’s a variable cost and we’re trying to keep in line with the volumes that we’re doing. And so therefore, just using logic, uh, you would, you would see that the eight week period’s insufficient at current staffing levels to apply to 75% for loan forgiveness. And so, um, you know, the, the counter point could be, well you could pay people just for staying at home and use it for that, but you know, that may be counterproductive as well. So, um, I, I’m not sure if I answered your question. I, I’m not sure. To the extent that the government’s going to come up with anything more, it might be to add additional funds because they believe that it’s going to be sure of the total number that’s requested. Um, and so from that perspective, I think they will step in and add more funds. But I also think that they’re going to have to, and they’ve talked about now that was mentioned last night, Greg, maybe you heard about it as well, where they’re going to trickle the amount of money and so it would extend the eight week period. So instead of funding everything day one, which probably has to do partially with, you know, meeting the 349 billion and hitting that cap. Um, but, uh, paying it over time, which would correspondingly extend the eight week period over time. And then hopefully as you staff up, you can use those funds for people that are working at your restaurant.

Greg Golkin


I, I’d agree, uh, with, with, with the points that, uh, Jim made on PPP. I think that, I think the intention of PPP is quite good and, and you know, they’re the government and is moving very quickly to, to enact this and SBA is, is, is, is doing the best it can for, for the size of this program. Um, you know, I agree with Jim that I think our, we’re, we’re advising our companies at one, we believe that there’ll be additional funds. We don’t think that, you know, at 349 billion, they’re going to just cut it off at that point. Um, you know, we’ve seen some of the numbers of, of loans that have been, um, uh, sent through to the, to the charter banks. Um, and there’s absolutely no way three, 349 billion will cover it. Um, you know, we think that the coverage, the cover period is, is also is off. And, you know, we believe that’ll be changed. I think it’s kind of an obvious problem. And I think, you know, the way that, um, you know, we read the intent, um, or we read what the intent should be and what we believe a lot of the politicians, um, you know, were trying to get across is that we need to hire back people as soon as possible. Um, I think it’s, nobody thinks it’s, um, you know, doable to, to keep your entire staff on at this point when, when essentially government saying you can’t be open or you can only be open for takeout and delivery. Um, so we think that’ll change. Um, you know, or that definition will, will, will change over time. Um, and I think the third point would be that we didn’t, we don’t like seeing is that, that that kind of unforgiven portion of PPP, it looks, it reads as though, um, it’s going to have a two year payback period now where typical SBA loan would be 10, 10 years. Uh, we think that’ll cause quite a problem for the industry. If you’ve got a lot of kind of, even if it’s cheap debt, it’s sitting out there and comes due pretty quickly. And so all these small businesses going to need to, uh, find cash, uh, pretty quickly. Um, you know, I think the other two parts that, you know, we’re focused on and we were working with a group locally in New York called ROAR advocating for, for some of the, the, the government, uh, action. We’d like to see two of the other pieces that we’d like to see. I think one is, um, you know, changes in debt definition on insurance for business interruption. I think that that’s going to be an important fight that’s, that’s happening. Um, but I think probably the bigger one that we’re seeing across the country is, is, um, rent abatement. Like I just, I think this is a topic that nobody really wants to deal with yet. Um, but we see kind of across the industry that almost nobody is paying rent, um, or they’re paying a portion of rent. Um, or they’re saying they’re deferring it, but when you see such large chains, very visibly saying that they’re not, they’re not paying rent at this point, that that’s a problem. I mean, that’s not just on restaurants, that’s on landlords and REITs and, you know, there’s mom and pop landlords. Um, and you know, they’re really, don’t, we haven’t seen any, any real, uh, answers on, on how this will all work. Because if all of these in these, uh, businesses that are, you know, closed or, or you know, semi-closed right now have months of, of, of rent piling up that are going to suddenly, uh, be in the, in the court system fighting three months from now, you know, that’s gonna, that’s going to be a very major problem for our industry.

Zach Goldstein


And I think that is completely a question mark at this point. Um, we, we, we have not seen any clear answers of, of how that’s going. And so do you see, you hear anecdotal stories left and right of deals that individual restaurants or retailers have struck with landlords, uh, which, which help them. Uh, but those are anecdotal. There is no systemic, uh, solution yet in place. Ult- Ultimately with loans coming due with costs controlled as best you can, you know, attention has to turn to revenue. And so far that has been a focus on off premise, which certain concepts I would imagine you in your portfolios can adapt somewhat quickly to, or in some cases already had strong digital channels and others are struggling more. Uh, we’re, we’re seeing restaurants on Thanx are seeing a 26% increase in digital ordering post-crisis, which absolutely does not make up for much more sizable declines in restaurant, but is, uh, is a harbinger of good things if you already had a digital investment in place and you were able to take orders. What are you seeing in terms of, uh, how businesses are thinking about investing in their digital, in their off premise solutions and what does that look like in terms of reliance on third party delivery versus reliance on channels that you build yourself? Cause those are two very different approaches to off premise.

Greg Golkin


Most of the businesses in our portfolio have reasonably mature, um, digital businesses at this point in terms of, uh, order ahead delivery, uh, both kind of direct channels as well as third party delivery platform, um, exposure. Um, you know, it’s the only part of the business that’s working right now. Of course. I mean, most, most businesses can’t really even do much, much more than that. So, um, those who have built up the right stack, meaning that not only do they have a direct communication, um, with their, with their guests, but also the data to understand their guests really well. Um, those are fairing a lot better. Uh, you know, even in coastal markets where we see, you know, in our portfolio, you know, the New York and California is, is just hit harder than, than, uh, than most of the other markets. Within those markets, who, who’ve, who’ve, who’ve spent the, you know, the time and money building up their, their digital platforms, uh, can be much more nimble right now. Um, they can communicate a lot better with their, with their guests and they’re trying new things and, and testing different messaging. Um, and it’s allowed them to kind of hold their sales up more than, than those who’ve kind of relied purely on third party delivery for the, you know, in the, in the recent past. I mean, if, if, if, if you’re a brand that that kind of has sat on Grubhub and DoorDash and not built up your own channels, there’s just not that much you can do at this point. Like you just don’t have the, the, the, the connection with your guests to, um, to push new new messaging, to push new products, test new ideas. You know, as we talked about, um, you know, all, all the brands are trying really unique avenues right now. You can’t just kind of hide that within a Grubhub menu at this point. You need to have a direct connection with your guest to email them, to send them a notification, whatever it may be, to communicate why you’re, why you’re, why are you suddenly selling loaves of bread or, or, you know, raw tomatoes like you need, you need, you need those channels. And those are held up a lot better. Um, and I think, you know, I think what we’re going to see coming out of this is everybody who didn’t have that, uh, is going to finally make that investment. Um, you know, for the future, for, for – hopefully a pandemic never, uh, crosses restaurants again, but there will always be reasons to communicate with your guests directly.

Zach Goldstein


Yeah and in some ways it’s, it’s accelerated some trends we were already seeing but accelerated them in a very painful way. Uh, you know, a, a whiplash style acceleration.

Greg Golkin


We have brands launching new loyalty platforms, you know, this week and next week. Uh, you know, in the midst of all of this. Actually spending the money and the time and effort to, to get those launched, you know, amidst all the, uh, the, the rest of the fires they’re trying to put out right now.

Jim Balis


Yeah, I was going to say, I mean, I, I agree. I mean to your point, Zach, the business was heading there anyway. Um, this has really accelerated some of the efforts around it. Um, we have some businesses that are up 3000% in delivery because they really didn’t do delivery before and you know, they’re adapting to it. You know, one of the challenges is, you know, going back to the PPP loan is that to some degree, some of our staff members have been replaced by delivery drivers because that’s the revenue channel that’s driving, you know, a huge portion of our business. Be nice if we can offset, um, and, and pay some of the delivery conditions with some of those dollars, which, you know, apparently we can, but it’s 25% of it. But nonetheless, I mean, I think the off premise, um, you know, as it’s become a greater and greater importance, it’s forced us, to Greg’s earlier point, uh, to really data mine our, our customer base. And as we deploy, so many people are getting inundated with, you know, reach-outs regarding COVID and efforts that be done … Offers. Um, and you know, so we’re trying to be very surgical in our pursuit our approach and you know, those lacks and those tech certifications, um, go out certain precision around the track level detail, um, understanding, you know, those people that order certain items, um, at different days and different day parts and, and really trying to tailor our messages to specifics, uh, to try to get the best bang for our buck. And so we kind of stand out a little bit more from the broad blast that says, you know, we’re a hamburger shop and so we’re going to say, here’s our discount on hamburgers today. Um, it’s, I think, you know, the way people are interacting with off premise and sort of loyalty and, and those types of communications is a little bit different and we’re trying to separate ourselves a little bit.

Jim Balis


Um, and, and you know, I don’t want to say distance ourselves cause that has other connotations these days, but, you know, just separate ourselves so we, you know, could be a little bit more thoughtful and, and, and try to get better bang for it. Um, and you know, also as, as Greg pointed out, looking at additional verticals, you know, we have businesses that, um, are fine dining that have just gotten slaughtered and, um, you know, there’s, they’re selling alcohol and, you know, they’re, they’re, um, offering some date nights specials and doing some other things that we’re having a lot of success with that are actually now instead of, you know, down, you know, significantly they’re down moderately relative to what they were before. And so I think people are coming, becoming more creative with what they’re offering. Uh, for the off premise. It’s not just, Oh, I need a sandwich delivered. You know, it’s, it’s kind of taken on a business of its own, like the dine-in had, um, you know, where people are offering, you know, Easter meals and, and so forth. Um, so

Zach Goldstein


That makes a lot of sense. And if you had asked me going into the crisis, um, what we would see from, from, uh, the use of kind of loyalty programs and engagement tools, I think it would’ve been a big question mark. Consumers are getting in– in, inundated. Our platform has been seen higher usage than any period ever, uh, in the history of the platform. And so what that means is, yes, you should be using these tools if you have them, but you also have to push the envelope even more. It means [inaudible] targeted generic emails aren’t going to stand out from that barrage. Uh, and you have to do that data mining or segmentation or personalization if you expect customers to engage cause they’re getting hit with w w just that much more. Um, as you think about the, the delivery piece, shifting back to that, I think there has been, uh, the beginning of ample debate about are the delivery companies, the third party delivery companies being good partners?

Zach Goldstein


Um, and on the one hand, uh, they are in some way subsidizing free delivery, uh, and running campaigns, uh, trying to divert attention to the, to the challenges that restaurants are facing. On the other hands, we’ve heard pretty clearly that few restaurants are getting any sort of concessions on the, let’s call it 30% take rate, although that number obviously varies, but few have been getting concessions there from the delivery companies, uh, in, in this time of need. Are they being good partners? What do restaurants need for them to be good partners? Um, you know, is this sustainable? Uh, and maybe Jim you can start there.

Jim Balis


I mean it’s been a bit of a mixed bag for us. I mean, I think generally they’ve been good partners, to the extent that they’re able to be a good partner, they’re also inundated, you know, um, I had signed up to be, uh, a Dasher pre pandemic just to understand the experience, what it was like, what I actually received, um, in payment from some of the orders, you know, as a means to just understand the whole model a little bit more closely. Um, and it’s interesting when I turn it on what I see on my screen. I mean the, the demand, you know, just outweighs the number of drivers it seems for the most part. Now in New York, maybe a slight difference because of relay and you know, some of the other, um, you know, there a multitude of delivery service providers, but I think generally they have been good partners within their capability. The real problem here is, is that everybody is now on the marketplace. And so whereas before, you know, you could leverage, you know, and try to use them to be on the first page or you know, other marketing tools – that’s becoming a lot harder to do with them because in their defense, you know, there’s so many more companies that are either signing on or that are just part of the marketplace overall. Um, so I mean, I, I would say they have been as good partners as they can be. You know, we always like cheaper prices and not pay these commissions. But it’s also my understanding, and I could be wrong, that a lot of the delivery companies are not profitable right now. And so, you know, they have their own challenges internally that they’re dealing with. And so I think all things considered, you know, I don’t know what Greg’s experience has been, but you know, they’ve been, you know, as good as they can be. I feel like, um, obviously there’s always more you can ask of them, but I think they’re constrained as well, you know, with some of the situations that they’re faced with.

Greg Golkin


Yeah, I would, uh, I would generally agree with, with what Jim said, I think, um, they’re trying, I don’t think we’ve seen any, any major discounts, uh, on the, on the commission rate for any of our brands. But, you know, I think to Jim’s point, most of them other than Grubhub are, are not profitable. So, uh, you know, it’s a, they run a very hard business. You know, this is, this is one of the kind of, uh, really deep, uh, systemic, uh, challenges in this industry right now is who owns the guest. Um, you know, what does that do to, to, to, to margins over time for, for the restaurants. Um, but then, you know, layering on top of that, the fact that these businesses that are are, are basically Silicon Valley back then don’t make any money. Um, they can’t really cut their 30% to 10% at this moment in time because you know, they’re going to burn, burn straight through all the, all the capital they have. So I think it’s a, I think it’s a really, really tough, tough challenge at this moment. And I think, you know, what we’ll see, I think what we, what we were a little bit concerned about going into this was would, would the third party delivery companies use this as an opportunity to, to kind of accelerate that grab of guests from the restaurants. So instead really try to make this an opportunity to cut, um, you know, fees and, and, and down to zero land grab more and more so than they own the customer and the data and took that more away from the restaurants. Um, which has been a, you know, an ongoing, uh, trend is as, as obviously you’re, you’re tracking Zack. Um, we have not seen that fortunately, so we haven’t seen a lot of moves like that. Not a lot of SEO changes, um, for the brands where the, you know, third party is trying to jump ahead of ahead of our brands more than usual in Google. They are doing it the same amount as as usual. Um, so I think the, you know, antagonistic relationship remains. Um, but I think that there, you know, there have been some, some, some olive branches, uh, passed out in this in this period of time.

Zach Goldstein


Yeah. We could, we could probably spend all day talking about that evolving dynamic. But I think, um, it’s, that’s good to hear that it has been a largely productive conversation. I mean, on some level, um, you know, taking an economic point of view, the challenge is that consumers have been trained to expect delivery, which has very real expense at prices that are not sustainable. And so it should be a concern when the restaurant’s not happy with their portion of the take rate against that order. The delivery companies are not profitable. Um, there is a challenge and in a time of increased demand, we’re not seeing the cost of a delivery go up. We’re actually seeing weirdly it going down. In many cases a delivery fees are waived. And so that, that pushes this point of tension off further into the future to be solved.

Greg Golkin


You know, the interesting point that you know, a lot of people look at at, at the delivery companies as the software and that’s where, that’s where it started, right? That’s where seamless was a piece of software originally. Um, but now as they’ve evolved, these are, these are logistics businesses, right? They’re very expensive businesses. The, you know, there’s a lot of rumors out there about how much money the delivery platforms lose per delivery. Uh, and so if they start cutting their fees, this, this becomes a, uh, you know, a, a very challenged industry. And so there really isn’t a lot of room for, you know, let’s call it increased partnership at a moment like this.

Zach Goldstein


Okay. Well I normally wrap up episodes with, given the title of “Food Fighters”, what is the biggest food fight, uh, that restaurants are facing coming up. But I think the answer to that is, is quite self evident at this point. So I, I think we know what the fight is. From your perspective, in your seats, um, as investors, uh, are you still investing? Are you looking for places to deploy capital? Uh, are you on the other hand battening down the hatches focusing on a, an existing portfolio cause it’s, it could get worse before it gets better? Um, you know, I think there’s a lot of uncertainty if you’re a restaurant operator of what is happening in the capital markets and how and when will they be open. What’s your perspective on that and how are, how are your funds reacting to it?

Greg Golkin


Our first priority at Kitchen Fund is, is, is one to to batten down the hatches, make sure all of our portfolio companies are, are well positioned to weather this, this storm, whatever length of time that is. And I think that’s the major question is, is this a month? Is this three months? You know, we, we worry a lot about is there a second wave of this coming in the fall? Um, you know, we have to model out all of those situations and scenarios and make sure our brands are, are protected. And so that’s, that’s number one that we’re focused on. We are, we are, um, active looking at new opportunities though as well. I think we, you know, we do view, um, somewhat temporary. I think we think the future might look a little bit different than the past, but, um, in reality, uh, you know, when, you know, the virus, um, at least wanes, people will still need to eat three meals a day and people will still want to go outside and get their meals from somewhere other than a grocery store. Um, so we do think that this, this passes, um, and you know, for us as investors, they’re there, you know, there, there isn’t a lot of capital looking at our industry right now. Um, and so we do think that there’s both a way to support, there are a lot of businesses that, that are going to need capital in the next three months. Like a lot of good brands, a lot of good companies that need capital. Um, and there isn’t going to be, uh, you know, a slew of generalists who’ve never looked in the restaurant industry, uh, trying to get to work. So, you know, we do, we do think that there, there is an opportunity to support these businesses but also find, find good opportunities honestly. Um, and, um, you know, we, we like the idea of, of being somewhat aggressive as companies coming out of this. I think we’ll, we’ll see. But, um, you know, if you look back at, at what, which brands, um, kind of, uh, grew most aggressively in, in 2008 to 2010, kind of the great recession. Um, there, there were brands that took advantage of kind of a slower market, slightly easier labor, lower real estate, um, to, to gain structural advantages for years. I mean, you know, if you look at the growth of, of Chipotle or Panera, they grew, you know, kind of as a percentage of, of units, definitely more than, than either of them have in, in any year since. And so, uh, you know, we’re, we’re, we want to be active and supportive and, and, and thoughtful in terms of both the way our portfolio grows, but, but other brands that we might get involved in, uh, you know, in the next few months.

Jim Balis


I mean, I think for us, um, we’re very cautious and I think we’re looking for opportunities and, you know, we had a conversation last week and a followup diligence request this week on a potential transaction. But, you know, generally speaking, um, you know, we’ve somewhat hit the pause button and said, let’s see how this plays out. Um, let’s see how long it takes for, you know, business to return to normal. Um, you know, we think that it’s going to be gradual, it’s going to impact different segments of the industry differently. Um, and you know, I think there is going to be a demographic that takes longer to come back, which, you know, is the elderly demographic. I think you’re gonna not that we’re invested in the buffet segment, but you know, that’s probably one of the last to come back given the fact that, you know, you have sneeze guards and, and shareable tongs. So, you know, we’re just being very careful. I mean, we’re looking at, if there’s a great opportunity, you know, we’ll, we’ll take a look at it, but we’re just being very cautious and at this point, um, you know, we’re just really focused on managing the investments that we have first and foremost.

Zach Goldstein


Thank you. I appreciate the candor from both of you. Uh, and maybe I’ll, I’ll leave it with this, Jim, on a followup to that. Uh, obviously the next step in, uh, things coming back is restaurants reopening. A, being allowed to reopen by local or state or federal laws, but, but B, actually making the decision to reopen and, uh, and, and starting to do business. What’s the next indicator after that in your mind, uh, of, Hey, we’re making progress on this rebound? What will, what’s the next thing that will happen?

Jim Balis


And I think the dining rooms will be opened. Um, there may be some, you know, additional social distancing requirements, um, you know, maximum capacity changes and some other things. But, um, I think, you know, first step is even on the limited basis, opening a dining room. Now as to whether people are willing to come in and, and be around other people in a restaurant setting is obviously to be determined, but that would probably be, you know, be, uh, the first phase of it. Um, and I think, you know, it sort of goes from there as to, you know, where, where the industry flushes out. I mean, there’s, there’s a huge part of the business, uh, we don’t have a lot of investment in it, you know, that has a high bar component. Um, that’s very popular in our industry. And, you know, a big piece of the experience of visiting a restaurant is that, that social sort of overall experiential piece. And, um, you know, to the point where we can start getting some of that back, above and beyond just being a food supplier, uh, would be a great step towards, uh, towards recovery in my opinion.

Zach Goldstein


Thank you both for the very realistic and and relevant uh walk through of some of these very pressing issues, uh, that restaurants are dealing with. Uh, I know that you are both inundated with large portfolios of your own, so thank you for finding the time to, to share with the Food Fighters audience, uh, and look forward to circling back, uh, once these dark clouds have passed and assessing how the landscape has changed with both of you.

Jim & Greg


Thanks for having us, Zach.

Zach Goldstein


You’ve been listening to Food Fighters with me, Zach Goldstein. To subscribe to the podcast or to learn more about our featured guests, visit That’s Thanx, spelled This podcast is a production of Thanx, the leading CRM and digital engagement solution for restaurants. Until next time, keep fighting food fighters.

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