Operations

Mathew Focht, on the Future of the Restaurant Industry

This week I had the immense pleasure of speaking with Mathew Focht, CEO of Emerging Concepts as well as the founder and partner of a host of other companies designed to help restaurant owners resolve their many pain points.

I’d like to introduce you to this man who, you’ll come to see, is very passionate and results-focused, and is in the business of creating wealth and successful operations for those in the restaurant and entertainment industries.

Mathew, it looks like you have a very diverse background—starting with a BS in Civil Engineering before obtaining your MBA in Real Estate and Financing. I’m wondering what path led you from there into the restaurant and entertainment industries?

After graduation, I started with a company called Steiner & Associates out of Columbus, Ohio. Yaromir Steiner, the CEO, was involved in the shopping center industry, building mixed-use projects around the country. He shared with me that it wasn’t the traditional department stores anymore, like Nordstrom, Sears, JC Penney, or Macys, that were the anchors for these projects, it was the restaurants. At this point in time, right around 2002 and 2003, restaurants as anchors was a new concept that was just starting to emerge.

My job was to travel around the country, looking for and meeting with regional restaurant owners. The second week on the job, I flew to Denver. I was looking for 50 to 1200 acres to purchase to build one of these mixed-use projects on. I spoke with and interviewed regional restaurant operators to see what they thought of the overall market including where the growing markets were, what they thought about specific markets, and where their customers came from.

Restaurant owners know their market very well and understand where their customers are coming from, and these regional operators had a lot of great market knowledge. As I sat down with them, I began to understand where the gaps in the market were and where the markets were going, and it gave me the insight that allowed me to assemble these properties. So, I got to know the U.S. regional operators really well which ultimately led me to represent their interests in real estate expansion and help them figure out what markets they should be opening in. I got into business intelligence and data analytics, and, ultimately, predictive analytics, which is what we do today. We are mitigating as much risk as we possibly can for these restaurant owners while at the same time maximizing their return.

Mat, from what I’ve read about you, it seems that you’ve been involved in a lot of different businesses. Can you give us a little information on your background and the many companies you’ve been involved with in addition to Emerging Concepts?

I grew up in a construction development family – two generations of civil engineers that owned a small construction company in Ohio. I loved seeing new things coming out of the ground, and I had a lot of respect for my family of entrepreneurs and what they had to do and go through to get a company off the ground, including the many challenges and the benefits.

Growing up in that entrepreneurial background, I wasn’t nervous about or afraid of failure and, at the same time, I recognized the needs and the true gaps in the market as far as what is available and what the potential is for businesses and, more specifically, restaurants. So, I started on the real estate side, helping restaurants determine where to expand their brand nationwide.

Then, in 2008, a friend and I joined forces. John Davie was working on a company that was reducing supply chain and distribution costs for restaurants. As food and distribution costs went up, both he and I realized that this pain point was a major challenge for restaurant owners. I saw a strong need and an ability to help the restauranteurs I was already working with in this area. So, John and I partnered and created Consolidated Concepts to help reduce food and distribution costs.

Today, we work with over 55,000 restaurants, and we are the largest Group Purchasing Organization (GPO) in America. We have over 9.5 billion in buying power, which is more volume than McDonald’s. We developed a company that can help mitigate expenses and costs, while providing a lot of transparency and optimal pricing by using our leverage and technology that helps audit and price verify. For many businesses, such as True Food Kitchen and Punch Bowl Social, we are like the daily purchasing person.

I continued to work on the real estate side as well while we were growing Consolidated Concepts, which ultimately led me to what do we do to help these restaurants with the labor issue. You’re probably aware that over a dozen states have changed their labor laws in the last three years, which is driving up effective wages. Labor becomes more of an issue every year, affecting a restaurant’s profitability. What we realized we could do to help combat this was to educate servers.

According to statistics, servers make recommendations only 5 percent of the time, but it’s a 54 percent conversion when they do. So, in 2014, John and I developed Tipzyy, a software program that educates servers and then rewards them based on sales behavior and performance. Because of this program, we’re able to drive topline sales for these restaurants. Every server that uses Tipzyy once or more has a 20 percent increase, or more, in the product that they sell—a crazy amount of valuation. It empowers servers, allowing them to learn in a very mobile friendly environment and reward them based on their sales performance, helping these restaurants to optimize their servers and improving the experience that the servers are giving the guests.

In 2014, we also started Acutely, a company on the data science side. I recognized over the years that most data companies that we were using and asked to use, as we were building out these brands nationally with Emerging Concepts, our real estate company, used archaic methods for site selection such as mapping demographics to a particular location and then using similar demographics in another market. A lot of these programs were based on psychographics, which is very broad and offers very little correlation between sales and choosing locations.

The brains and core of a restaurant, I realized, coming from Consolidated Concepts, was the Point of Sale (POS) system. It’s where servers log in and sales come from. There was a lot of information there that we could gather that would then help us predict the success of a particular location, and restaurants and data companies were not using it. We started using the POS, building a deep learning model with data scientists to help project sales for restaurants using this data. For every person that comes into your restaurant, we build a profile that includes what their habits are, how frequently they come in, where they spend, where they live and work, how far they are from the restaurant, what their income is, and standard demographics that includes gender, age, marital status, and education. Then we can identify them as a VIP or frequent customer.

When we go into a new market, we can look for like people, such as the people they’re serving today—their VIP and frequent guests. From this, we develop a sales projection. In a big way, the data science company helps these restaurants expand in a methodical, low risk, high return manner.

So, that sums up Acutely, Consolidated Concepts, Tipzyy, and Emerging Concepts. Another one is Emerging Capital Partners which we formed a few years ago. It places investments and introduces early stage restaurants to capital partners. When restaurants use all of our companies, they mitigate risk and optimize their chance at success.

I remember in the beginning, after developing the first two companies, it sounded like we were going in a lot of different directions, but, ultimately, we service the same customer. It might start with real estate for a particular client, and then we end up helping them with their supply chain and food costs, and finally with their education and increase in sales using Tipzyy.

Really, in my whole career, I don’t know how many creative ideas I’ve really had—probably not too many. The ideas have come from our clients and just listening to them on their pain points. When multiple operators keep repeating the same stuff over and over again, you realize it’s worth trying to help them in that regard.

An example is the data science company. If I didn’t think that there was a real need for or a big gap in the tools that restaurants have and are using for site selections, there is no way that I would have had any interest in building a data science company like Acutely. It takes a lot of time and money and energy, and I have enough things to focus on that I didn’t really need another company. But the reality was that the tools available when choosing a new site were so lackluster and poor, and the risk that these restaurants were submitted to when they put millions of dollars into a location was so great, that I knew we had to do something. That’s when I brought in two data scientists and spent six figures to get Acutely up and running, and now were serving one of the largest retailers in the world and the top restaurant operators in the country, and building deep learning models that are able to project sales within 85 percent accuracy before they even open a unit.

That is impressive, to say the least. Can you share a few of the companies that you’re working with?

Silverspot Cinema is a company that’s been with us from the beginning. We opened their first unit in Naples and have now expanded them across the U.S. They are now located throughout Florida, as well as in North Carolina, Ohio, and Wisconsin. They are a fourth generation, family owned, very high-end theatre operation.

Flight Club is a high-tech dart concept that was founded by Steve Moore, Paul Barhan and Adam Breeden who is also the creator of All Star Lanes and AceBounce. It’s brought a new level of sophistication to the game that has not been seen, incorporating James Beard nominated chefs with high-end technology and social engagement activities. The concept uses real darts and real dart boards with automatic scoring. So, you’ve got top F&B and social engagement with the game of throwing darts that is unrivaled in that space.

Over 60 percent of their guests are female, which you’d never guess with a dart concept. Just a fun, fun place. We’ve been expanding Flight Club across the country, first in Chicago. We just signed a lease in Las Vegas, and we’re opening one in New York City followed by DC and then Atlanta. We’ve got a healthy growth plan we’ve established with Flight Club.

Adam Breeden along with Steve and Dave Jolliffe (The founders of Topgolf) has developed Puttshack, which is reinventing miniature golf using the same kind of platform as the Flight Club—high-tech social engagement with high-end F&B offerings. Steve and Dave Jolliffe did an amazing job with the golf ball technology used with Topgolf, and now, with Puttshack, it’s even better. It’s a smarter ball, really a computer, that uses Trackaball technology. It knows when you hit the ball, how many times it’s been hit, and how far it’s been moved. It attaches to you, personally, keeping track of your scores, including previous visits. If you lift up the ball, it knows that you’re scratching. These are miniature computers that are really transforming the game of miniature golf and, again, with a high F&B offering. We’ve opened two units in London, with another one opening soon in downtown London. These will be followed by one in the West Loop of Chicago, another one in Chicago, and then Atlanta, Miami, and DC. All of these will be open in the next couple of years.

Those are three clients using our companies, and I could go on and on. These businesses are using our data science company, real estate company, and supply chain company. We currently work with over 400 chains nationwide that range from True Food Kitchen to casinos such as MGM and Caesars in Las Vegas. We work with everyone, from great early stage emerging concepts like Doc B’s in Chicago, which has 6 units, all the way up to the guys that have 500. And then we have the data science company that is working with the second largest retailer in the world. I can’t mention their name, but it is a heavy women’s fashion concept. We also work with some great QSR concepts that are really doing some amazing things with the data science company.

Tipzyy continues to work with getting these restaurants beverage market support and getting them money that they didn’t otherwise have to offset marketing expenses. We just recently found an 11-unit establishment $125,000 in new marketing support that they otherwise wouldn’t have. The goal of Tipzyy is to increase the sales by 5%. This restaurant group had $18 million in alcohol sales which means that we’ll increase their sales by about $900,000. The overall impact, between what we have in marketing support and increasing their sales by about 900,000, will be over a million dollars for the company.

You guys are definitely a one-stop shop for the restaurant and entertainment industries. I know you mentioned labor, which leads to the biggest challenges that you see these industries facing right now.

Labor is probably the biggest challenge, again, due to low unemployment and the effective wages. As an example, in San Francisco a dishwasher is makes over $20 an hour, which is about half of what they make in Chicago. So, labor is a big issue, and one that’s preventing operators from opening in certain markets. That’s number one. The second biggest challenge I see is the cost of real estate, which is only increasing. For this reason, it’s critical to have a team in place and understand what the variables are that makes your operation successful versus guessing and gut feel which, historically, has been the approach. And that’s where the data science company comes in. There is so much data that we didn’t have years ago.

These operators don’t have to take that risk that they use to. Today, we have the mobile data that tells us where these people come from and where they work, and we can see the flows of people and traffic in the city. So, there’s a lot less guess work that needs to be done. Unfortunately, many operators just don’t know that they have access to this technology. The more sophisticated operators, the big guys, are starting to realize it. We, as a company, want to pass it down to the smaller and midsize operators and give them a competitive advantage in the market.

Between labor and real estate, it’s clear that the cost of doing business is just going up. The cost of goods is also going up, which leads us to the third greatest challenge that restauranteurs are facing. An example of this is produce. It’s a much bigger driver for restaurants and a bigger part of the menu as more and more people demand fresh, organic food, and are looking for a healthier dining experience. As the demand grows, menus are changing toward fresh versus frozen product. As this occurs, you’re going to find that the distribution cost goes up quite a bit. Usually, the fresh produce is being shipped from Mexico, California, or into a port into Florida. So, as you get further away from U.S. Coastal cities, the distribution cost goes up. If you’re in a state like Illinois and relying heavily on produce, it’s a lot more expensive and you have a lot less margin for error.

I would like to end this really informative interview on a personal note, if we could. I’m wondering what inspires you—what makes you greet the day with that obvious enthusiasm that you have inside of you?

That’s a good question. What ultimately drives me is the fear of not creating value, the fear of not making change, and being irrelevant to this world in terms of creating a dynamic change. I mean, obviously, I have strong faith and am very comfortable where I sit and where I’m going, but I want to make change, and I want to make an impact.

I’ve chosen a career in the restaurant space, working with entrepreneurial people that are very scrappy and fun and love to live life. I don’t think I’ve met a restaurant operator that I didn’t like because they come with all this quirkiness, unique in different ways, and there’s just a lot to love about them. I’ve really enjoyed surrounding myself with these entrepreneurs and trying to solve the pain points around them and, hopefully, at the end of the day, creating some value for everybody.

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