Very interesting conversation with Steven Marks and Hilton Brett, the co-CEOs of Guzman y Gomez (GYG). GYG was founded in 2006 and is one of Australia’s fastest growing QSR businesses today, specializing in Mexican-inspired food. The company recently went public. In the interview, they discuss GYG’s founding story, the growth of the business to date, their ambition to reach 1,000 stores in Australia, as well as the international expansion opportunity. Some of my notes/takeaways below (any mistakes are my own, while the full transcript is available on the podcast website).

Founding story – Steven is originally from NY, but moved to Australia over 22 years ago. Growing up in NY, he was lucky to have great Mexican food. He came down here after spending 8 years on Wall Street. Had always been very entrepreneurial, originally came to Australia in the hopes of building a hotel. His best friend Robert Hazan moved here too, he is a co-founder of GYG. They couldn’t get the hotel idea through the zoning process and bring it to life the way they wanted to. In the meanwhile, went to a few Mexican restaurants here and they were all extremely average. So that’s where the idea originally came from, which was to reintroduce Mexican food to Australia (despite neither of them being Mexican). GYG’s first store came to life in 2006. The first couple of restaurants didn’t really work immediately. But they stuck to their values, have never compromised on their food or people.

Development of the store network – GYG has had a board in place since 2009, several of the guys who built McDonald’s in Australasia. When they first started, they owned all 6 restaurants. Couldn’t franchise until you could charge a certain royalty. Kept working and got to a point where the model and unit economics worked, and then they brought in their first franchisee in Queensland. Today, they have a healthy mix of corporate stores and franchise stores. That mix seems to work in Australia, stems from GYG’s values. They are a very transparent, open business and have strong relationships with their franchisees, part of their job is to make sure the franchisees are profitable year after year. Ultimately, they just want great GYGs, don’t care if they are franchise or corporate, whoever is better suited for the community they are serving. A lot of their regional stores are franchised because the team is from that area, involved in their local communities. Think of themselves as one team, no divide between corporate and franchise.

Mix today – 185 restaurants in Australia, 62 are corporate and the rest are franchised. In terms of their franchisees, some are individuals who have 1 store and some have multiple stores. Outside of Australia, they have 17 restaurants in Singapore, 5 in Japan and 4 in the US. They have a master franchise agreements in Singapore and Japan. In the US, they operate as corporate restaurants. The relationship with their franchisees is all about partnership, making sure they have the right people running the right restaurants within their local communities. In terms of economics, they are very focused on making sure franchisees get solid returns, as well as of course from a corporate perspective. They do not receive any rebate or other financial benefits from suppliers to the franchisees and do not profit from any transaction between franchisees and third parties. 

Key metrics from their perspective – the most important thing is the restaurant unit economics. From a corporate perspective, they generate revenue, have corporate restaurant margins running at around 18%. With their franchise model, they generate an upfront franchise free (A$90k per franchise) + 8% royalties on the first A$60k of net weekly revenue, and then 15% of net weekly revenue in excess of that. They think about growth from an organic perspective and a like-for-like perspective. Think they can take this business to 1,000 restaurants in Australia. There has been substantial investment in the business over the last 18 years that has put them in a position to open 30 restaurants next year, and then 40 + per annum over the next 5 years. The consumer environment is tough today, lot of brands are pulling back on marketing, whereas for them it is an opportunity to continue to invest in marketing and drive the growth of the brand. 23% of their network sales is from the delivery aggregators, 17% of network sales come via their own app. Australia story is basically comp growth, white space and then they are just getting started globally.

On their key values – focus on real food, clean food. They think much of traditional fast food isn’t really food anymore. They view their social responsibility as serving people who come to their restaurants real food. Everything is their recipe. No added preservatives, artificial flavors, colors or other unacceptable additives. For example, they banned the use of preservative 282 from their flour tortilla. Getting clean took 3 years, had to convince people why this was so important. The other aspect is speed (fast food has to be fast!). But it has to be food quality, accuracy and speed. Their average drive through time sits between 3.30 and 4 minutes, McDonald’s is at 3.30 and everyone else is much longer than that. People in Australia usually eat at certain times, between 12-2pm and 6-9pm. If you are not fast during the times when people eat then you can’t deal with the volume.

Australia growth opportunity – for reference, McDonald’s has 1,043 stores as of April 2024 and Domino’s has 733. They will open 26 restaurants this year (ended June). Have a real estate team of about 30 people. 10 are real estate development managers, and their sole role is to identify sites and open those sites. On average a real estate development person does 4-5 sites a year. They will look to open 30 restaurants next year, ramping up to 40 restaurants a year over the next 5 years. It takes anywhere between 2.5 years from when they buy/approve a site for a drive through to open and a strip restaurant is typically between 12-18 months. If you look at the Gold Coast, they have 14 restaurants within that area. Average AUV is A$96k/restaurant per week relative to average AUV of A$87/k per week across their entire Australian network. Those 14 restaurants have a population density of 30k people per 3km. That kind of validates the opportunity in Australia to get to a 1,000 with a restaurant about every 3km with around 30k people around that. The target future split will be about 85% drive through and 15% strip restaurants. Targeting 60% franchise, 40% corporate. From a property perspective, GYG has become a well known brand to landlords and developers, increasingly a partner of choice to play drive throughs and real estate. Many franchisees within their system are looking for additional sites. Also focused on building a pipeline of talent, how to grow team members from within and give them the pathway to become franchisees if they want.

International opportunity – Singapore was their first overseas market, opened there in 2013. Everyone speaks English, huge expat community etc. Opportunity to see if their supply chain was global. Now they have 17 restaurants and are the second most delivered product in Singapore. In Japan they have a master franchise agreement with a company that specializes in finding western brands and restaurants and introducing it to the Japanese population. Opened up about 9 years ago, now have 5 restaurants, seeing 20-30% comp growth but took a long time to get the Japanese people to understand what GYG was. They won’t compromise on food but do customize a bit in market – e.g. Singapore has a large Indian population, they have more vegetarian options there, Japan has a chicken teriyaki, beef sukiyaki burrito on the menu. In the US, they have 4 stores. Going slow to get it right, will take time. The goal right now is to build the infrastructure around these restaurants to get them to breakeven as soon as possible. Once they get the AUV, economics etc. right, they will look to grow. People think that the US is competitive but the reality is there are so many brands that are mediocre. Australia doesn’t have a huge population, can’t support as many brands. To succeed in food in Australia, you have to be the best, and with the high rent, high labor costs etc. you have got to be competitive by having amazing operations.

On going public – they have been doing this for 18 years. Want to be here for the next 50-70+ years. Everyone is aligned with that long term vision, no PE investors looking to exit in 3-5 years. People who love GYG can now own a piece of it. Stock price will take care of itself. The stock price will ultimately reflect the true value of the business in the long run. Their aim internally is to be the best and biggest restaurant brand in the world. The most challenging thing as a listed business is thinking about growth opportunities because that is what investors are typically looking for. But that is why the opportunity for GYG is so attractive – they have a white space in Australia to get to 1,000 restaurants and the world is their oyster.