Fat Brands Recipe for Success

October 23, 2017

Andy Wiederhorn, Founder and CEO of FAT Brands, joins Cheddar to celebrate the company going public at the NASDAQ under the ticker "FAT." The stock opened at $12.80, up from its IPO price of $12. The company raised $24 million.

Wiederhorn explains how one of its biggest brands, Fatburger differs from other burger joints such as Five Guys or In-N-Out. He says other chains have copied Fatburger, which opened 70 years ago and hasn't changed its recipe since.

Plus, how is being a franchisor good for your bottom line? Wiederhorn says his company brings home 50% in revenue margins compared to other 3% earned by other restaurants because FAT Brands doesn't own or operate the actual establishments. He talks about franchisees wanting a piece of the pie, stating the company has 300 locations opening in the near future.

FULL TRANSCRIPT

Tim Stenovec: Hi, everybody. Welcome back to Cheddar.

Tim Stenovec: This morning, FAT Brands,

Tim Stenovec: which is the umbrella company for Fatburger and others,

Tim Stenovec: went public at the Nasdaq.

Tim Stenovec: Joining us now to discuss what's next for the company is Andy Wiederhorn,

Tim Stenovec: founder and CEO of FAT Brands.

Tim Stenovec: Andy, good to see you again. It's been a couple of months since we last chatted.

ANDY: Thanks for having me.

Tim Stenovec: Yeah. So, um, look big day today.

Tim Stenovec: The stock opened at twelve dollars and eighty cents so far trading right about that.

Tim Stenovec: Are you, uh, happy with the IPO and how the public is embracing FAT Brands?

ANDY: So happy, so excited, so,

ANDY: so delighted to be here and to be partnering with Nasdaq.

ANDY: You know, we're a global franchising company and Nasdaq is

ANDY: the global leader in market making and we're just,

ANDY: uh, er, very excited to be listed on the Nasdaq.

Brad Smith: Okay, so, so far, uh,

Brad Smith: the stock opened at twelve- eighty.

Brad Smith: Ah, you're trading above that right now in terms of, you know,

Brad Smith: next steps some of the messaging that you take back to employees,

Brad Smith: investors who are now involved,

Brad Smith: uh, with the FAT Brands, um,

Brad Smith: image going forward, what are some of

Brad Smith: those key elements that you- you take back to them and you say,

Brad Smith: this is where we're planning to use the money.

ANDY: Right. Well, we just completed the acquisition of

ANDY: the Ponderosa and Bonanzas Steakhouse chains,

ANDY: which you remember we talked about before,

ANDY: and that's very important for us now to execute and absorb

ANDY: those brands into our system and our franchisees and help execute really,

ANDY: you know, helping them make money,

ANDY: build more stores, grow those brands internationally.

ANDY: We're in 32 countries around the world and we want to

ANDY: take Ponderosa and Bonanzas to all of those markets.

Tim Stenovec: Yes. So Andy, what are the some of the synergies that Ponderosa and Bonanza bring,

Tim Stenovec: especially to a franchisee who is considering getting into FAT Brands?

ANDY: Well, so as a global franchising company,

ANDY: we already have the marking department,

ANDY: the legal department, the accounting department,

ANDY: and really all the people in the field that support the franchisees,

ANDY: the franchise consultants that are out there,

ANDY: helping them find locations,

ANDY: helping them run the restaurants profitably,

ANDY: working on their supply chains,

ANDY: that's what a franchisor does.

ANDY: And that's how we'll integrate the Ponderosa and Bonanza franchisees into our system.

Brad Smith: And- and so, one of the obvious questions that we cannot

Brad Smith: miss here is the fact that there are a lot of players in the burger space.

Brad Smith: We've seen Shake Shack out there,

Brad Smith: IPO in recent years and- and as well

Brad Smith: you've got some of the other legacy brands that are out there.

Brad Smith: So, in terms of going up against that competition,

Brad Smith: what are some of your differentiating factors in all of this?

ANDY: Really good question. And there's two things to- to understand here.

ANDY: First of all, we are a franchising company all over

ANDY: the world and ninety-nine percent of our restaurants are franchised.

ANDY: So we don't own and operate the restaurants like

ANDY: Shake Shack might or Have-A-Burger might or somebody else like that.

ANDY: So, when we have a margin from our royalties in franchise fees,

ANDY: it's greater than fifty percent to our bottom line.

ANDY: When you're a restaurant operating company,

ANDY: you make somewhere between three and ten percent.

ANDY: So, it's an entirely different business to be the franchise or not be the operator.

ANDY: The second thing is we've been making

ANDY: gourmet Gourmet Fast-Casual Burger for seventy years and we haven't changed anything.

ANDY: So everyone else who's come along after that,

ANDY: is copying us in the space. We are the leader.

Tim Stenovec: Andy, we tal- we talked about this a couple of months ago when you're on Chadder,

Tim Stenovec: but I really wanna hit this hard and and get your thoughts on it.

Tim Stenovec: How do you convince someone now is the right time to become a franchisee?

Tim Stenovec: Minimum wage is going up.

Tim Stenovec: There are a lot of concerns, uh, of course,

Tim Stenovec: of food prices increasing,

Tim Stenovec: real estate prices, especially in popular areas, are going up.

Tim Stenovec: At the same time, there's decreased traffic to malls.

Tim Stenovec: A lot of the anchor stores that attract people to areas

Tim Stenovec: where a Fatburger would work, are going down.

Tim Stenovec: Fast casual, uh, you know,

Tim Stenovec: somewhat more expensive and healthier options are also increasing in popularity.

Tim Stenovec: How do you convince a franchisee now it's the right time?

ANDY: It's- you know, it's pretty easy. We have more than three hundred franchise units in

ANDY: our development pipeline and they're already paid for and planned to be developed.

ANDY: Our domestic same store sales are up eight years in a row,

ANDY: and in California right now we're up more than eleven percent year to date.

ANDY: So, if you're a franchisee wanting to get into our system, you- you know,

ANDY: you could see and look at the numbers for yourself, but they're very compelling.

Brad Smith: And so, what's the difference between FAT Brands and some of

Brad Smith: the- the previous businesses that you've run in the past that you've found?

ANDY: Well, I mean this is- as a franchised company,

ANDY: it's all about our customers.

ANDY: And our customers are the franchisees, right?

ANDY: Of course, the guy eating the burger,

ANDY: we care about him and we want them to have a good experience.

ANDY: But we care about the franchisee being

ANDY: profitable and building more restaurants and paying us more royalties.

ANDY: So, for us, it's just about supporting

ANDY: our customers and helping them execute to the guest.

Tim Stenovec: Andy, I have to ask it's part of your,

Tim Stenovec: your public profile, back in 2004,

Tim Stenovec: you spent more than a year in federal prison after pleading guilty to

Tim Stenovec: filing a false tax return and and charges of paying an illegal gratuity.

Tim Stenovec: What do you say to investors now who maybe hesitant to trust you be given that past?

ANDY: Well, you know, I don't think that that past had

ANDY: anything to do with intentional wrongdoing.

ANDY: I've always been adamant about that.

ANDY: There's nothing that I ever did intentionally to break any laws.

ANDY: And I felt that settling it was the right thing to do and put it behind me.

ANDY: And obviously I've done that.

ANDY: And here I am today with building this business from

ANDY: forty restaurants to now more than three hundred around the world,

ANDY: and you can look at the numbers yourself. I think they're very compelling.

Brad Smith: And in terms of moving, uh,

Brad Smith: the restaurants forward in the FAT Brands' profile forward even more so,

Brad Smith: we've seen some of the major competition roll in

Brad Smith: technology to their overall ordering processes to their experience for customers.

Brad Smith: Where does technology play a role in moving FAT Brands forward even more.

ANDY: Well, technology is really important because it- it- for example,

ANDY: for us delivery is a is a key driver to growth right now.

ANDY: We're seeing, uh, delivery approach

ANDY: twenty or thirty percent of our business in some markets,

ANDY: and that's all technology-driven.

ANDY: So, when you- in the old days,

ANDY: when you build a mobile app for your brand,

ANDY: you might spend fifty or a hundred thousand dollars to build an app,

ANDY: and it was just for your brand,

ANDY: and every other brand has their own app and

ANDY: the consumers flooded on their phone with all the different apps.

ANDY: But, today, you go to the delivery service,

ANDY: whether that's UberEATS or Postmates or Grubhub or DoorDash or whatever,

ANDY: and you have all the restaurant concepts right there under the app.

ANDY: And so the delivery services have taken over technology and

ANDY: they're maintaining it for the restaurant companies instead of the other way around.

ANDY: And as a- as a brand,

ANDY: we are exposed to all of the customers of that particular delivery app.

ANDY: So, if you go to UberEATS or Postmates,

ANDY: you're getting all those customers who log in every day to see

ANDY: your brand and that's different than just your brands customers,

ANDY: it's the delivery service customer.

ANDY: So technology is really driving sales.

ANDY: It's not replacing employees.

ANDY: Because our growth is up so much,

ANDY: our employee count is up.

ANDY: And so, you know, may- maybe less people are taking orders,

ANDY: but more people cooking burgers.

Tim Stenovec: Andy, earlier in the show we talked about HelloFresh going public in Frankfurt.

Tim Stenovec: We talked about Blue Apron a lot.

Tim Stenovec: We talk a lot about Meal Kits,

Tim Stenovec: Amazon getting into it.

Tim Stenovec: Albertsons buying Plated.

Tim Stenovec: How do you think- How do you think about Meal Kits?

Tim Stenovec: Are you concerned at all that the rise in Meal Kits will uh,

Tim Stenovec: will, will affect traffic to your stores?

ANDY: No. I mean lo- look, people are gonna,

ANDY: people eat what they want to eat.

ANDY: Consumers are very, very definite in their choices.

ANDY: They know what they want to have.

ANDY: And when you want a burger or shakes or a fries,

ANDY: you're going to come to Fatburger whenever you can,

ANDY: because we know the quality of our product stands out.

ANDY: And, and I really don't think that's- it's competitional,

ANDY: it's an entirely different business.

Tim Stenovec: All right, Andy. Thanks for- for joining us.

Tim Stenovec: Good to see you, and congrats on the IPO today.

ANDY: Thank you so much. Thanks for having me. See you again soon.

Tim Stenovec: All right. That's Andy Wiederhorn, founder and CEO

Tim Stenovec: of FAT Brands joining us live on Chadder.

Tim Stenovec: He is Live at the Nasdaq market site.