I recently made a small private investment in a new restaurant concept called Royale Magnificent Burgers or just Royale Burgers for short. Why is a long time technology equity research analyst investing in a Dallas burger joint? In short, the timing is right, a great management team is leading the charge, the location is ideal and more importantly the financial returns look very attractive to accredited investors.
Royale Burgers will be a place where people can experience a gourmet meal. Moreover, the food will be made with superior quality ingredients sold at a reasonable price in a comfortable and eclectic restaurant environment. When the monarchy assumes the throne in January 2016, Royale Burger will re-define and dignify the hamburger concept to become a leader in the “polished casual” service category.
The timing is just right. According to the National Restaurant Association’s 2016 Culinary Forecast among the top food trends are locally sourced meats, locally grown produce and natural ingredients and minimally processed food as well as Chef driven concepts. Royale Burger fits all that.
Royale Burgers will be managed by the team of Richard and Tiffanee Ellman, who are the owners of Oak, Pakpao and El Bolero. The other partners are Plan B Group’s Royce Ring and Alex Urrunaga, who are well known for the successful Whiskey Cake, Mexican Sugar, Velvet Taco and Bolsa concepts. Alex also was my classmate at Southern Methodist University’s Executive MBA program and I have visited virtually all his restaurants on multiple occasions. Needless to say I was very impressed by their operations and the attention to even the smallest of details. Finally, they have also partnered with celebrity chef John Tesar, who owns among other restaurants, Knife Dallas that has become my favorite steak house.
The operating team and equity sponsor have a record of success so I am comfortable with their financial projections for the next several years. However, as investor, I am always most concerned about how I am going to make my money back and then a return on top of that. If you watch “Shark Tank,” it is one of the largest concern of all the Sharks especially Mr. Wonderful. In this case, the owners have agreed the overwhelming majority of the distributable cash flow will go to outside investors first. Once outside investors recoup their investment, the cash flow will go to all the investors based on their actual ownership interest.
The financial returns are attractive, but so is the risk profile. On average, publicly traded restaurant stocks have a beta of about 0.70, indicating it is less risky than the market itself though that does not mean it’s risk free. In an economic downturn, people still need and want to eat. However, they may visit retail stores less. Yes, lots of restaurants open and close, but you can say that about a lot of businesses such as technology. The key to success among other things is all about timing, management, capitalization and a great product or service.
The restaurant, which is under construction as I write this, will be located in West Plano Village on the corner of Parker and the Dallas North Tollway in Plano, TX. On one end of this one block area is the ever popular Eatzi’s Market & Bakery, while the very busy Cinemark West Plano theater where 18 movies are currently playing is just a short walk across the parking lot. In my opinion, the location is a home run.
Let’s face it, Texas is the Silicon Valley of restaurant concepts. In fact, the industry employs 1,182,900 people in 45,523 locations generating about $44.5 billion in sales throughout the State of Texas. The State is home to the headquarters of many public restaurant concepts that have spread nationwide including Bennigans, Bubba Gump Shrimp, Chili’s Chick-fil-A, Dave and Busters, Joe’s Crab Shack, Lone Star Steakhouse, On the Border, Pizza Hut and the Rainforest Café. Texans love casual dining. While Americans on average enjoy casual dining outside the home 1x-2x per week, Texans in Austin, Dallas and Houston on average dine out five times a week.
Is it the next Uber or Tesla? Probably not, however, I estimate the investment will exceed my required rate of return. Royale Burgers, in my opinion is: a great concept well timed to exploit the hottest culinary trends in America; going to be managed by a successful operating team with a record of success; exposed to Texas one of the fastest growing economies in the United States; opening it’s first spot in an extremely attractive location; and focused on returning outside investors capital first.
The very same group plans to open an Italian concept in Dallas early next year. I’m sure I will evaluate that as well since the city desperately needs a high-value mid-priced Italian concept that expats from New York and New Jersey would enjoy.