Ashish Tulsian:

Hi, welcome to Restrocast. Today my guest is Jerry Baldwin. He’s the Chief Procurement Officer at Steak and Shake Enterprises.

Jerry packs, or rather I would say unpacks, four decades of his supply chain procurement experience on this couch today. This is nothing but a crash course in restaurant supply chain, but what makes it really great is the fact that Jerry in his career has been on literally every side of this puzzle. He started as a salesman to the restaurants for their supplies, to being a distributor, to being on the buyer side as well as on the private equity side. He has probably seen all different facets of how a restaurant buys, how a vendor sells, how logistics happen, and how a private equity and organizatio, you know.. looking at the bottom line thinks about it. This was an extremely enriching conversation for me for not only supply chain, but a little peek into what are the challenges and opportunities restaurant industry has in the future.

Welcome to Restrocast.

Jerry, Welcome to Restrocast.

Jerry Baldwin:

Thank you very much for having me.

Ashish Tulsian:

I don’t know where to start because your career has been long and illustrious. I can clearly see that in each stint on LinkedIn, your career is rich in each one of them, but I would want to know where did it all start, your early years and your entry into the supply chain industry?

Jerry Baldwin:

Ahhh… Like many of us in the industry, I think I was born into it. I grew up with a single mother, and my mother was by trade. During those years, she was a Holiday Inn innkeeper. Holiday Inn was the predominant chain, hotel chain in America. Innkeepers were literally entirely over everything, the food and beverage and the hotel. My mother, I can remember from the time of about probably 10 years old up, and actually with pleasure, standing on a Hobart milk crate. I mean, standing on a milk crate at a Hobart dish machine, washing dishes in a restaurant, Holiday Inn restaurant, especially on Sundays, because I grew up in the rural South and Holiday Inns on Sundays were the gathering place for Sunday lunches, lunch buffets. They were very famous for those. And She would always be sure to help. I would be helping in the kitchen, washing dishes, bussing tables. They were exciting times when you’re 10, 11, 12. You were part of something, and you kinda felt important just because you were keeping up with the dishes. You were helping people, and you got the camaraderie, and you sit down and ate employee meals with people. So, it was kind of that sense of belonging and I stayed in the industry true to form, from that point on.

Ashish Tulsian:

Amazing. This was your 10-year-old? 

Jerry Baldwin:

Yes.

Ashish Tulsian:

You were just helping your mom as extra hands? 

Jerry Baldwin:

Yeah, running a restaurant at Holiday Inn. Yup.

Ashish Tulsian:

Wow. Okay and What happened from there?

Jerry Baldwin:

Well, I think most people in the hospitality, food service, restaurant industry, if you talk to any of them, even if they aren’t in it anymore, they miss the camaraderie. They miss the friendships they made. A lot of those friendships are made working 12-hour days, but it was fun. So, I stayed in the business. I did various parts of Holiday Inn. I did food and beverage. I did banquet management, catering. and, I was actually a food and beverage manager at a Holiday Inn, getting ready to be an innkeeper when I became engaged. I looked around a little bit. and A little self-evaluation was, I’m not sure how successful I’m going to be at being married, working 7 days a week, 10-12 hours a day. And There became the first change in my career. Based on that thought and an upcoming wedding, I decided I needed to change my career to something better suited to family life with a wife. and One of my favorite people who came into the restaurant, was my food salesman. Today, everyone would identify them as Cisco or U.S. Foods. 

Ashish Tulsian:

Umm

Jerry Baldwin:

In the rural south then, it was a company called PYA Monarch, and they ruled the southeast as far as food distribution. And I reached out to him and talked to him about becoming basically a street food salesman for a company much like Cisco. PYA Monarch at the time was a very large company owned by Sarah Lee. and He got me an interview and I went up and I became a street food salesman in Charlotte, North Carolina for PYA Monarch. I got married, had a child, got my own territory, made much better money than I made in the food and beverage business at Holiday Inn, and started raising that child and growing my career.

Ashish Tulsian:

You know, you said that you’re making an important point that camaraderie in the food industry is missing today. Why do you think so? 

Jerry Baldwin:

No, I think the people that leave it miss it.

I talk to more people on planes and all who says, you know, when I grew up, I was a waiter or I worked in a kitchen or yes, I did that. And they, as hard as it was, they remember that very fondly. They remember the friends they made, the camaraderie, you know, you could work 12 hours in a restaurant close and you could still all sit around and talk and laugh and, you know, have fun for another hour even before you went home. It just is a special attachment, I think, to people and friends that the food restaurant business creates that I’ve never quite seen in any other industry. And that was it. But I think there’s times for everyone where you have to pivot, especially to keep up with your own life changes. And so, food sales became my pivot at that point. It gave me a higher income. It gave me more time at home with my wife and child.

Ashish Tulsian:

But you still felt close to the restaurant and the hotels? Or was it more about like, it’s a different parallel world that never intersects?

Jerry Baldwin:

It was an interesting, another interesting change in my life because I ended up with a territory in Charlotte, North Carolina on Independence Boulevard, which was the busiest street there. Probably a good 70% of those restaurants at the time were owned and run by Greeks. So, I got to know all the Greek families and the Greek church and an awful lot of great colorful Greek language. You know, and I just kind of accepted them and they accepted me. And the camaraderie was just a different nationality. I grew up in the South. I didn’t know a lot about different nationalities. And I still, to this day, remember some of the infamous Greeks, restaurateurs in Charlotte, who built some huge empires there. And they were just the hardest working people I’ve ever seen anywhere. I mean, they worked constantly building the restaurants. Now, the interesting point I learned from that was, as I was growing up with those Greek restaurateurs who were working very hard, their entire family, the children couldn’t wait to get out of those restaurants. It was too hard to work. They didn’t like it. It was dirty. This was America. They were going to go to college. They were going to do this. I went back many years later and I drove around and went to some of these restaurants to see if the patriarch was still there to say hello. And lots were. But what I found intriguing to me was, in most cases, especially the sons, had left, gone to college, went and tried another career. They found themselves back running dad’s restaurant. It was just intriguing how many times that happened. Because they didn’t know they had fallen in love with it, too. But it was also a very good business, you know, and paid them well.

Ashish Tulsian:

Hmm

Jerry Baldwin:

So, I followed the Greek trail there for a while. But as I did that, I evolved. We’re talking in the early 70s. Chain restaurants were starting to evolve. Typically, because of the demographics of the Independence Boulevard area, if a chain was going to locate, he located there. So, I typically got the first unit of the chain. And then, as the chain expanded, I became probably one of the first specialized chain account specialists within the food sales division. I did that out of pure selfishness. Because if I got to know the owner real well and he built three or four more restaurants all around the city, they weren’t in my territory. But if he said, no, I’m only going to work with one salesperson, then I became his chain account rep. And so, I evolved into chain account management there. And I didn’t do down the street sales anymore. I only specialized in selling restaurant chains and servicing them.

Ashish Tulsian:

What were some of your earlier… earliest famous brands?

Jerry Baldwin:

Sizzler out of California was good. Western Sizzler. Then, there were a number of the Quincy’s, Western Sizzler, Ryan’s Steakhouse were very famous and very prolific then. It’s funny, there are only a few of those left. And we actually own the Western Sizzler now. But, you know, the steakhouse chains were booming. Sandwich shops were booming. And so, you know, I just made my living then working with chains.

Ashish Tulsian:

You started your own consulting, you know, early on. That’s what I see. What’s…

Jerry Baldwin:

Off and on. It was funny as I got more involved in chains and even working with different distribution centers and companies and manufacturers rep, they all had questions, you know, about the chain business. Well, how do we manage the chain business? And so, yeah, early on, I started, you know, very much, it was almost like an arm’s length way of helping people get started. A couple of people now are chain brokers that I worked with in the beginning. We created a separate segment in the brokerage industry that way. So, as chains spun off, they became a separate category. And I probably, it was a company owned by Sara Lee. The benefits were wonderful. I probably would have stayed there, but the company was owned, it was called PYA, but it was pretty much owned, controlled by the Pierce family. And we had eight distribution centers around the U.S. And I finally looked around and realized that to be a branch president or even a VP, your last name had to be Pierce or you had to marry one. Well, I didn’t have either one of those. So, I started looking at that point at going in almost 10 years. I’m saying, if I’m going to advance, I’m going to have to move on my career. And so, I started looking and made the point of, you know, all of your connections are still there. You know the vendors, you know the brokers, you know everyone. And I was called upon by a very unique company in Columbus, Ohio called Village Meats. Village was a company founded by two guys in Columbus, Ohio. They made the very first hamburger patty for the very first Wendy’s. And then they grew with it. And Dave Thomas was still running Wendy’s then. And we were literally a company that made two million pounds a week of fresh ground beef for Wendy’s only. And we distributed all of Wendy’s refrigerated products, including fresh produce and fresh ground beef in bulk package. It was one of the more unique distribution programs as far as I know ever invented because Wendy’s ground beef in a bag at the time would last for three days in the cooler.

Ashish Tulsian:

Ohh 

Jerry Baldwin:

So, the distribution system was set up that every Wendy’s in the country got a delivery every third day. So, you couldn’t route trucks or get any sales history or anything by the days of the week or, you know, Wednesdays are heavier because every three days a delivery was made. So, it was consistently changing the day of the week. And it was the only reason people thought it was some scientific thing. It was because that’s just how long the ground beef lasted. And the falters who founded the company eventually sold out to a Texas oil billionaire because they had integrated and owned a lot of feedlots. And Ed Cox Jr. in Texas wanted the feedlots. So, he bought the entire company as a white knight suitor off the stock exchange. And then we cleaned it up, got out of the distribution business, cleaned it up to sell and because he didn’t want to own anything in Ohio. And then during that period of time, I went from a salesperson, district manager, VP of sales to the president of the company. So, I got to work with some very good finance people in Texas and learned a lot about business on, you know, how to structure that, how to sell it, how to market it. And we sold it to Birchwood Beef and walked away. But therein started a somewhat of a theme for the rest of my life because I spent a little time, you know, in our family import-export business and then I went right back into the food business. But I, even now, I’ve been at Steak and Shake now for going on five years. But prior to that, I spent 10 years working with equity funds and typically part of a group where we purchase or put together multiple restaurant chains in some cases, you know, clean it up, do whatever we needed to do to restructure the company to make it right. We bought Quiznos out of bankruptcy one time. That one was a little more challenging than we thought.

Ashish Tulsian:

Your career talks about a lot of supply chain, you know, but what you’re telling me, you know, is the largest part of the career, the early career that set the theme for you was more about sales. 

Jerry Baldwin:

Yeah, it was sales. 

Ashish Tulsian:

What do you identify with?

Jerry Baldwin:

Well, it was funny because I was in the distribution business and industry. I managed sales for chain restaurants, but it’s impossible to manage sales for chain restaurants and not be heavily involved in operations. I mean, I’m sorry, in supply chain because everything’s about the products and the products have to be there and the chain doesn’t care why they’re not there. You know, they just want the product on the table. So you spend an inordinate amount of time dealing with vendors and supply chain if you’re in sales chain restaurants because you’re just trying to get the product to the door. 

Ashish Tulsian:

Umm

Jerry Baldwin:

And so I think early on while I saw myself in sales and that was my titles, I was always so heavily involved in supply chain along the way and it was almost just something that happened in the background. And so as I went into distribution and, you know, then I ran PYA Monarch’s chain distribution division and I went back to PYA Monarch, but I had stepped out. So I took a break, did some import-export. I actually got a call from one of the Pierce’s, the family that you had to be, you’re married, and said, would you like to come to WorkForce headquarters and run our chain division? Because, you know, he was one of the younger Pierce’s so you didn’t have to be his cousin to work there anymore.

Ashish Tulsian:

Hmm… Hmm

Jerry Baldwin:

And I was probably the most excited I was in my career to go back to the company I originally started with at a headquarters level with a CEO, Matt Pierce, who was just an incredible person. And it was the best times I ever had working. And we were doing exceptionally well at PYA and making a lot of money. Sarah Lee was leaving us alone for the most part. And then Sarah Lee had a CEO change and he decided for probably good reason that he didn’t need to be in the business of distribution. We were a constant thorn in the side because Sarah Lee would not sell PYA and we controlled the South Southeast. But so Cisco therefore said, well, we’re not going to buy Sarah Lee Danish because, you know, you’re killing us in the Southeast. And the new CEO came in and decided, well, I don’t think I want to be in this position where I’m not selling Cisco. So he put PYA up for bid and Cisco and U.S. Foods had a bidding war to see who bought it. 

Ashish Tulsian:

Wow

Jerry Baldwin:

Internally, we were all hoping Cisco would buy it because we knew they were really good at what they did. But U.S. Foods won out and they paid far too much for the company. There was just no justifying that amount. We couldn’t have done that and bought it internally. And ultimately it caused the blow up of U.S. Foods and they had to literally step back. Some people went to jail and they had to restructure during that whole all because they bought PYA Monarch and overpaid for it. 

Ashish Tulsian:

Wow

Jerry Baldwin:

So it was an explosive time in the distribution industry. And so I looked around at the distribution industry and it was just fraught with peril. It was struggling. Diesel fuel was five dollars a gallon and up. And I had an offer to move over to supply chain on the restaurant at that time because I knew the industry so well. And the supply chain guy, a chain restaurant company, is trying to manage distribution.

Ashish Tulsian:

correct

Jerry Baldwin:

and the products and supply chain and the vendors.

Ashish Tulsian:

But from a salesperson, you also become the buyer. Yes.

Jerry Baldwin:

So from that point, as a great seafood chain in the country called McCormick & Schmick, Doug Schmick, one of the original founders said to me, and that may have been the first time and I don’t know that I was smart enough to understand that until Doug looked at it, but he had that way of doing things. And Doug said, Jerry, the reason I want you to do this is you’ve been in distribution, you’ve been in supply chain, and you’ve actually run the vendor. So being Village Meats, he said, so you know where all the bones are buried

Ashish Tulsian:

Yeah

Jerry Baldwin:

and you know how the three work together. And it was probably one of my, even today, many people don’t remember Doug Schmick. He passed away, unfortunately. He was Bill McCormick’s partner when they started McCormick & Schmick Seafood. And the highlight of my career, I think, was Doug Schmick saying, I think you’re the best hire I’ve ever made. And you know, you take those things through your career, the things that mean so much to me, but I really respect that Doug as a person so much. So I started at McCormick & Schmick’s in supply chain and haven’t looked back since. And he’s right. It has been exceptional for me to be able to talk to the distributor and go, yes, yes, I was there. You know, I ran distribution once. Or, you know, the salesman, they go, yes, I sold chain restaurants. It’s a tough sell. Sometimes takes two or three years to get it. And the vendor, you know, I ran a company. I know what that was. So it’s made me well-rounded and it made me fit the equity fund model.

Ashish Tulsian:

Do you see, you know, when you see people in the supply chain, like people who are like, you know, have a career in supply chain, and the fact that they have not really seen, they have never been a distributor themselves, a vendor, you know, do you see the obvious gaps when these supply chain managers are trying to just make sense out of, you know, a certain time, a certain product, availability, delivery, and, you know, because they just lose the perspective on the other side completely? How do you?

Jerry Baldwin:

you know, that’s probably been one of my greatest things throughout my career. The last number of years is, hey, you know, we don’t have near enough bank strength in in restaurant supply chain right now. We lost a lot during COVID. When everyone cut back, everyone stopped hiring, everyone stopped training, they laid off the lower echelon. We have, I don’t think we have any bank strength. So we’re trying to rebuild bank strength, all of us. I think the greatest challenge of my career is hiring new people, you know, sharp people that are, you know, we’re going to be really good. And then having to stop and necessarily take the time to train them in those different areas. Now, I do that a little differently than most. I have some very good friends in the industry from David Parsley home who, you know, believe in large organizations, and you know, 30 to 50 people, and everyone’s a specialist in, you know, dairy, this, that, the other. I believe in very small organizations, I’m very hands on. You know, I really honestly don’t want more than three or four employees period. But I want us all to be doing supply chain collaboratively. And I want us all to be able to know why this person does it and why that person said what this means to distribution, and what distribution that means to the vendor or means to our restaurants. So I spent a lot of time, literally what you just said, trying to round out that education. Some of them are good at math, they’re good at supply chain, or they came from a vendor. But yeah, I think that’s the that’s the well rounded person we’re trying to get to. And I think there are a few of us, you know, left that have done all of that in the beginning.

Ashish Tulsian:

I think in supply chain, you know, what I do see is that, you know, I mean, I have a follow up question on, on the role of Cisco and US Foods today. But then what I do see is that when you don’t have the perspective of each, you know, stakeholder in that chain, you know, you’re basically fighting the wrong people most of the time, because you, you know, you just you think that world is trying to be against you, you want a certain thing to be at the right place at the right time, and world is conspiring other way, which is which is technically not true, 

Jerry Baldwin:

true, very, very much not true. Yeah.

It, it boils down to simple business and simple logistics on almost every case.

Ashish Tulsian:

Hmmm

Jerry Baldwin:

You know, I tell people all the time that logistics are the most important part. Because I don’t care what kind of chain you are, it matters where your distribution center is, and where your vendor is, because you can send out 10 RFPs. And typically, the vendor that’s going to win is the one that has the least miles to your distribution centers. You know, if their plants are closer, they’re typically going to win because the cost of moving that product is really more than the product. 

Ashish Tulsian:

That’s so cool.

Jerry Baldwin:

I spent a lot of time teaching that. And so it’s simple logistic. No one’s like you said, they’re not out to get you, they don’t like you. Now, having worked for equity funds for 10 years, I’m also aware that when an equity fund or someone, even a bank takes over a company, you know, they can certainly change all the rules and say, we’re only going to take business with a 30% cash on cash ROI. And it’s their prerogative to do that. Now, the reason change should be RFP in every item all the time is for that simple case.

Ashish Tulsian:

Hmm

Jerry Baldwin:

If your vendor changes hands financially, bankers, anything, you know, even just your banking rules could change. It can make them not competitive anymore. So you’re constantly checking your vendors. To me, that’s the only reason to check vendors and say, has anything changed that they’re not competitive anymore. 

Ashish Tulsian:

Hmm

Jerry Baldwin:

And then the secondary part of that, if the mileage is still there, then they should always win. But they don’t always do that. They do change banking rules, they borrow more money, they build an addition, they get overextended, you know, and all of these outside elements come into play. And then, you know, the other issue I have was, is from the restaurant side. And, and sometimes I feel like we’re the sheriff in town, because as we know, every general manager wants the truck there at, you know, nine in the morning and no other time, you know, and they want everything perfect, no damages, and on and on and on and on. And, you know, we, we negotiate contracts for the truck to get there the best time that fits on that particular route in the mileage scenario.

Ashish Tulsian:

Hmm

Jerry Baldwin:

 You know, but so you’re, again, educating your field that, oh, no, we’re going to accept, we’re not, I mean, we’re not going to do lunch and dinner, but we don’t have any issue with key drops either, even though that may be coming to think of the past. So, you know, it, it means from the general manager to the supply chain department, even in some case, new vendors, and there’s an education in the whole process every day of saying, like you just said, this is not rocket science and nothing’s personal here, but it has to work A, B, C, D, no matter what you do.

Ashish Tulsian:

No, I think, I think that, but that’s a big point, right? Because what you’re essentially saying is that the, the science is not in just getting the lowest bidder, you know, to get the contract, but also to understand the unit economics on your vendor’s side. 

Jerry Baldwin:

Right.

Ashish Tulsian:

And, you know, it’s not only about they being competitive today, what will keep them competitive for next year or three years or five years, you know, you know, the visibility, like where, where, where are they heading with it?

Jerry Baldwin:

A lot of longevity in this industry, you know, even with vendors, you know, we have, we have national accounts managers that have been around for, you know, 20, 25 years, sometimes switching companies, sometimes not. And, you know, people say, well, what do you do when you, you know, become friends with those people? Because you, you build relationship networks around the industry, because thank God, I mean, there are times, especially during COVID, if you didn’t have them, you wouldn’t have product. And so, you know, I had a old boss one time whose favorite quote was, I love you, man, but I’m going to miss you. And then, my vendors know that’s one of my favorite lines. You know, I know you’ve 20 years, and I’m bidding this, this, this entire category out. And I wish you success, but love you, man, I’m going to miss you if you’re not competitive. And I just think that’s the way it has to be. And you’re still friends, and maybe the next round, they’ll, they’ll win that bid again.

Ashish Tulsian:

What do you think is, you know, given so much has got concentrated with Cisco and US Foods, you know, over time, how have the challenges changed? What is the challenge today? If, if there are these two large concentrated suppliers, you know, who have the fleet, mileage is not a problem, I’m assuming, of course, here, 

Jerry Baldwin:

right.

Ashish Tulsian:

But, you know, most, most pieces in the puzzle are solved most. How does the, like, how does that play for a supply chain manager? Does that diminish the value of the job? Or is there, are there more challenges?

Jerry Baldwin:

No, I think it made it more complicated. 

Ashish Tulsian:

How?

Jerry Baldwin:

Well, when, when we purchased Quiznos out of bankruptcy, it was a number of equity funds. We had to make a distribution change. Because at one time, Quiznos had 5000 units, and they were in systems distributors. And at the time, River Run out in the Northeast, called me, I knew the owner very well. And, and Quiznos was now down to 1500 units instead of 5000. And he said, you got to get them out of here. At one time, I had 1400 Quiznos in the same territory today that I have 200. So it’s, it’s miles were just killing him. And the pieces per drop were very small. So I bring that up, because at the time we put that RFP out was the exact time that Cisco made the to purchase U.S. foods. And we’re actually under due diligence with the Department of Justice. Qand I came out very strongly against that merger, including, you know, letters and even testifying to the Department of Justice that no, this would not be a good thing. You could not allow the two largest food distributors in the country to merge into one.

Ashish Tulsian:

Yeah

Jerry Baldwin:

It was bad enough that they let them do the due diligence. And let each one see each other’s books, you know, from what vendor was giving them what deal.

Ashish Tulsian:

How long back was that? That’s quite surprising to me.

Jerry Baldwin:

Oh yeah, no, I would have to look and see what years I was at Quiznos, but it had to be mid-2014, I think.

Ashish Tulsian:

Oh, this recent?

Jerry Baldwin:

Yeah, yeah, Cisco made it. 

Ashish Tulsian:

wow

Jerry Baldwin:

Yeah, Google it when it’s there.

Ashish Tulsian:

Wow.

Jerry Baldwin:

Cisco made an offer to, like, just one, you wake up one morning, and it’s like.

Ashish Tulsian:

Wow, that would have been an ultimate monopoly.

Jerry Baldwin:

It’s like we woke up a few weeks ago, and Cisco bought Everdone. Shocker. Now, you wake up one morning, and Cisco is purchasing U.S. Foods. For the 10 years prior to that, I used U.S. Foods to keep Cisco in line price-wise. Because I’m going to tell you that almost every bid I ever looked at, U.S. Foods was less than Cisco, because they were more aggressive and hungry for business, and wanted the volume and the growth. So all of a sudden, they’re going to scoop up that competitor, and it would have just been a nightmare. Eventually, it would have worked out, because for many, many years, even with Cisco and U.S. Foods being as large as they were, the smaller independent food service distributors still control the percentage of the market out there. I mean, if you look at Chicago and LA, all those small guys do a lot of business. So that was the disaster. So what’s happened today, with U.S. Foods and Cisco being as strong as they are, they’re dictating terms today that aren’t exactly in the chain restaurant’s best interest. They’re cutting back distribution miles. They don’t want to drive miles anymore. There was a point in time where, especially U.S. Foods aggressively, to take a chain, they may have one center drive 300 miles or so. So you may be a chain, and if you bid with U.S. Foods, they may say, okay, we can work you out of 10 centers, for instance. If you bid a U.S. Foods program today, and I just did it, don’t be surprised if they come back and say, well, to cover your chain, we’re going to need 30 distribution centers. Now, what happens there is you’ve lost all your inbound freight advantages, and you’ve lost your ability proprietary, because you won’t even meet an LTL goal anymore. So what happens then is you have a small staff, and if you were in a Sigma or one of the chain distributors, you could manage it with one person that led all of those centers together. Now you have 30 broad line distribution centers, whether it’s Cisco, U.S. Foods, PFT, whoever it may be. Every one of them operate under an independent president. 

Ashish Tulsian:

Hmm

Jerry Baldwin:

So you’re going to add to your staff to manage all of these broad liners. Every one of them have different inventories. Each of them have a different streak in their IT and computer systems to help you and assist. So, 

Ashish Tulsian:

Oh, wow, they’re like that independent. 

Jerry Baldwin:

Yeah, they all have different strengths and who built what. And so all of a sudden, you’ve lost your inbound freight, you’ve lost your proprietary, you’re starting to lose your identity, and they’re obviously going to push and sell more of their own private label merchandise where they have the most sheltered income. 

Ashish Tulsian:

Yeah

Jerry Baldwin:

And I say that, and I don’t…

Ashish Tulsian:

They can almost dictate availabilities, is that what you’re saying?

Jerry Baldwin:

Yeah, yeah, and so it becomes a huge issue that how do you maintain your identity as a chain when you’ve lost so much control of your inbound freight, therefore your contract pricing, therefore the label you’re serving. You literally spend a day in Houston or Maryland for U.S. Foods or Chicago, and you’re approving 25 products that are like-kind products that they already have in inventory.

Ashish Tulsian:

So you mean in that example, like a 30 distribution center means your pricing contract is also not central?

Jerry Baldwin:

When we went to Quiznos, old story so we can tell it now, we bought Quiznos. They were in seven chain distribution centers who wanted out. It was a mess. Quiznos, we bought them out of bankruptcy. Cisco was making a bid on U.S. Foods, so U.S. Foods refused to bid. We had to go with a Cisco program, which put us in 36 Cisco centers.

Ashish Tulsian:

wow

Jerry Baldwin:

So you lost all of your inbound freight advantages. And a lot of your proprietary items, most of the time when they do that, they’re going to tell you they’re going to stock a maximum of 15 proprietary items. And a lot of those proprietary items, even if you could get them slotted, in 36 centers, you didn’t even meet the minimums of the vendor to ship it. There’s barely an LTL. An LTL is still very hard to get today in shipping lines. It dramatically changes the supply chain department within any chain when you go to a broadline center like that. And it was spread across multiple dozen centers with a set number of proprietary items.

Ashish Tulsian:

What’s happening at Steak and Shake today?

Jerry Baldwin:

Steak and Shake is an exciting transformation. Steak and Shake is one of the oldest chains in America. It was put in 1934.

Ashish Tulsian:

Oh Wow

Jerry Baldwin:

Gus Belt started it. Grinding meat in the restaurants. 

Ashish Tulsian:

1934

Jerry Baldwin:

1934. On Route 66. So we have all of that together. We publish the story a lot in our quarterly reports, but we changed the concept. And as we call it, we went through a transformation. We’ve been very public about it.We realized early on, just prior to COVID, that our model just wasn’t working anymore. Steak and Shake at the time was a diner with a drive-thru on it. We had waitresses in Silverware in China, and we hand-dipped ice cream and you name it. And our competitors’ numbers were much better, because they didn’t have all that. Led by Mr. McGlory, our chairman, we looked at ways to transform the thing. We reported it on every quarterly report, that COVID hit and you realized, as did every QSR restaurant in America, what dining rooms cost you and what items in dining rooms cost you. Because all of a sudden, all of us with drive-thrus didn’t have a dining room open. I mistakenly made an assumption that our costs may go up with the dining room closed, because we may use more takeout. But in every case, McDonald’s, KFC, everyone’s dining room, the food costs went down. Because no one in our history had ever measured what we give away in the dining rooms. Salt, pepper, ketchup, Cokes, everything. So we did not reopen a Steak and Shake from COVID without a remodel inside every store.

Ashish Tulsian:

Is that such a large percentage off? 

Jerry Baldwin:

We never thought that either, but it was when COVID hit. 

Ashish Tulsian:

Wow

Jerry Baldwin:

All of a sudden, it was like, wow. And it was wide opening. You didn’t see McDonald’s or anyone in a hurry to reopen dining rooms, because they now knew what the cost was to run that dining room. 

Ashish Tulsian:

Why do you think that’s true? 

Jerry Baldwin:

Well, I’ve talked to Chick-fil-A people. And if you’ve noticed any of the times, I called a Chick-fil-A person one time. He was on LinkedIn and said, you know, you’re probably not gonna share any numbers with me. And like any Chick-fil-A person, he said, no, we love to talk about anything. We think everyone should have success. Which is why that company’s so great. And We were so busy looking at the time of the cars through the drive-thrus. We knew how many cars we put through in an hour. But he was. They were only looking at how many cars they put through an hour period. That’s all that mattered to them was the guests and how many cars went through an hour. And I think everyone started using that metric now. And so that’s what’s important is how many cars you can put through that drive-thru in an hour. And there’s no one close to them. I mean, of course, their unit volume’s so ridiculously high. So we transformed it into a normal QSR. It’s been highly successful. I mean, our P&L shows it. We’ve turned to a profit, strong profit. Steak and Shake’s now a very profitable company. :

Yeah, We remodeled every unit to get to that point. And we love our kiosk. The shocking number for us was the amount of acceptance our customers gave the kiosk when they came in. And so, 

Ashish Tulsian:

Are you like a full self-ordering system now, or do you still have…

Jerry Baldwin:

We have kiosks, but we have… One of the things we require every restaurant we have to do today is we require them to have a hospitality host there. So when someone walks in the door, we A, want them greeted, and B, we want them, if someone wants to know how to use a kiosk or they need assistance to help them, 

Ashish Tulsian:

wow

Jerry Baldwin:

and if it’s someone that says, I don’t want to use that, then they’ll take their order right there behind the counter.

Ashish Tulsian:

awesome

Jerry Baldwin:

So that’s been very important for us to try to keep our contact with our customer and put the kiosk in. And it’s worked exceptional for us. We’ve been very pleased with it. So, yeah, we’re very pleased with our numbers. We think we’re competitive as we can be. One of the gentlemen here at the show this week is our new Senior VP of Franchising, and we’re moving ahead now. 

Ashish Tulsian:

How many locations?

Jerry Baldwin:

We’re 470 right now. Probably the most exciting thing we’ve done over the past few years, and we’ve said this at every shareholders meeting, is we adopted a Chick-fil-A type franchise partner program, and the owner is very excited about it. We have several hundred now that are franchise partners. Chick-fil-A was so famous for it, but you have $10,000, you get your own business, and it’s your business, you know? We do just like Chick-fil-A, and we manage the bookkeeping, the accounting, and at the end of the day, we split profits with them 50%. And we have literally changed people’s lives with that program. Some have, especially internal candidates that were GMs, they’ve doubled their income, and they have their own business. It’s worked incredible for us. I don’t think we have probably a single story where a franchise partner hadn’t stepped into a company restaurant and over a relatively short period of time tremendously increased sales because it’s their business. They’re greeting that guest.

Ashish Tulsian:

So that’s for the company, that’s for the equity stores, or that’s for the franchisees’ stores as well?

Jerry Baldwin:

Well, what we’re doing, the franchisees are normal, traditional franchisees. They own those. Our goal, and we’ve repeated it completely, is if we could not have any company stores, and they all be owner-operator franchise, traditional, I mean, participating franchisees, partners, we’d love the partner program. They give us great feedback. We have very intense meetings once a month in our office, and the first night of every meeting we invite two franchise partners from around the country to sit in the meeting through every part, finance and everything, and give us their opinion. You’re out there in the field. Tell us what we’re doing. Tell us how this works. And it’s been very, very good feedback, and we’ve been very receptive to it. So the franchise partner program we’re probably the proudest of because we have some incredible people out there that are running their own business and doing well in life.

Ashish Tulsian:

What’s the challenge? What’s your challenge? What are you solving for?

Jerry Baldwin:

My challenge is, contrary to popular belief, the world did not go back to normal after COVID. It just hasn’t, and I’m still, I’m a little bit both shocked and dismayed by that. I tell people all the time, and I don’t go to Target a lot, but if I, there’s a Target right near my office. If I go to Target today and walk through the store, I honestly feel like I’m in a third world country. I mean, there are still rows and rows of empty shelves. I mean, pre-COVID you didn’t see that. It’s incredible now that the amount of vendors that we have who are at max capacity and have no more capacity, and even amount of shortages we have daily is just incredible. And part of it is simply, and I blame this for the shortage of distribution right now too, is we had a very long period during COVID that on every side, it’s probably every vendor and every distributor we have, they stopped capital expenditure spending. They stopped adding warehouses. They stopped adding freezers. They stopped all of extending their business during COVID and just cut it off because nobody knew what the outcome of COVID was going to be, and they didn’t want to be spending their capital that way. So distributors are constantly adding on to freezers, coolers, and it takes a long time to build this infrastructure, and they all stopped during COVID, and they can’t get caught back up.

Ashish Tulsian:

So you’re saying while the demand is back up, distribution is still not there?

Jerry Baldwin:

Yeah, it’s not there today. I mean, anyone who, and I’m speaking later at this conference on that, anyone who sends an RFP out today for distribution is going to be quite shocked at the lack of capacity or the number of distributors that can even take your business in what areas. It’s very few distributors out there that can take on a national chain today if they wanted to. They just don’t have it. They don’t have the capacity in all the distribution centers. But we’re also finding that true with vendors. So I look around today, and I see supply chain is continuing to be one of the most challenging segments out there for that reason, and many people don’t understand that supply is that tight or that distribution is that tight. While we seem to be coming out of COVID, we seem to be seeing a little break in hiring employees, and that was another change we had to make right out of the COVID employees. Our owner had to make a decision to be the highest paid QSR in the land. It was the only way we were going to hire employees. So we made a public announcement of we’re going to treat our people with the golden rule, and it’s cut our turnover, and we’re continuing to work on that.

Ashish Tulsian:

What’s that? What are you doing?

Jerry Baldwin:

We’re increasing wages, and we’re doing competitive wage surveys in every market, and we’re at the top of every scale.

Ashish Tulsian:

How much do you think is the premium that you’re paying?

Jerry Baldwin:

I don’t know if there’s a premium. I think we’re all in the same area. It depends by region. Some are 15, some are 18, some are who knows. The hard part is for any of us to try to compete with a Chick-fil-A, for instance. Look at McDonald’s or everyone else in the world, including us, and if you’re doing $2 million a year, you have a great unit, and Chick-fil-A’s doing over $8 million a unit. When you have that kind of sales, you can hire a lot of employees. So I think everyone’s still chasing Chick-fil-A, but you can’t chase Chick-fil-A. It’s literally a culture.

Ashish Tulsian:

Yeah

Jerry Baldwin:

It’s not a business model. It’s a culture.

Ashish Tulsian:

On both sides?

Jerry Baldwin:

Yes. 

Ashish Tulsian:

Customers as well as people who work there?

Jerry Baldwin:

Absolutely. I have a daughter who lives in Charlotte, North Carolina, with two young kids. She told my wife and I one time that she doesn’t care where they go every day. She goes to the park or different places with the kids, and they stop by Chick-fil-A and grab the same thing, and she said, I’ve never driven up in my van that was raining that a Chick-fil-A employee didn’t meet me at the van with an umbrella to get the kids in.

Ashish Tulsian:

Wow

Jerry Baldwin:

I mean, that’s what they do.

Ashish Tulsian:

Wow. Yeah, I mean, the purse through purse speaks in volumes.

Jerry Baldwin:

Well, you know, the interesting thing about Chick-fil-A, if you go a long time back through, everything that we’ve all seen is, oh, you need everything pre-made, and it’s got to be fast, fast, fast, and every morning Chick-fil-A’s still bread and chicken in the store.

Ashish Tulsian:

You know, on your, I mean, I’m still somewhere stuck on the supply chain piece because on one side, I see what you’re saying, but on the other side, I can also see that chain restaurants are mushrooming across the country. I mean, this… 

Jerry Baldwin:

Oh, yeah.

Ashish Tulsian:0

And, you know, some of them are, like, post-COVID, have grown really, really fast. Really fast. Right. If what you’re saying, you know, holds true, how, like, what’s working, you know, for most of the fast casual chains, and who are the people who are really getting disturbed by, let’s say, the shortages and, you know, lack of capacity?

Jerry Baldwin:

You know, some of the ones that you shockingly look at is, for me, especially when you look at a lot of these, even McDonald’s today is on fire. Their numbers are the strongest they’ve ever seen. Their sales growth is the strongest they’ve ever seen. They’ve been through every…

Ashish Tulsian:

Owing to shortages. Mm-hmm. Is that because of the shortages?

Jerry Baldwin:

Oh, no. No, that’s pre… After COVID, some of these people have grasped on, and they figured out the right puzzle, so to speak, for the guest.

Ashish Tulsian:

Mm-hmm

Jerry Baldwin:

I think McDonald’s figured out how to get people faster through their drive-through in the way, and it’s paying dividends today. The thing that’s shocking to me, and some other restauranteurs I’ve heard say this over the years is, quite honestly, we all thought there would be a period of time or some moment in time along the way that some of the chains that you and I have followed for years and years and years that have gone through two and three bankruptcies and how many times can you change a salad bar and that sort of thing, we thought this shakeout was gonna remove some of those from the landscape, and we’re not seeing that happen. They just always seem to hang in there. No matter what they do, they always seem… Or they find a new owner or someone buys them and everybody tries to make the same attempt again. I think the issue with supply chain today is you’re not so much seeing it… Honestly, with COVID, you drove up and you read the list of what they didn’t have. We didn’t have straws, we didn’t have napkins. We managed to get everything, but we went to Mexico and everywhere else in the world to get it. But I think what you’re seeing today is, I think supply chain departments are doing an excellent job of getting product to the stores to serve. I just think they’re working a lot harder and just finding innovative ways to get it there more so than people are aware today in today’s environment. The other issue we have is there’s a couple of segments that, for one reason or the other, we would just like to change vendors. We believe that we could be better serviced by another vendor, but in two or three of these categories, when we’ve reached out to the other vendors, they’ve quickly said, we just don’t have the capacity to take on an entire new customer. We could take on one line or this or that and the other, so you’ve got to find creative ways then to deal with every issue from the other vendor that you ordinarily would just go through a very active RFP process and maybe replace the vendor. So I think you’re seeing chains keep vendors longer than in some cases they even should. They don’t have anywhere to go.

Ashish Tulsian:

You’ve worked in the private equity side a decade plus. Today, restaurant chains all over are struggling for margins. 

Jerry Baldwin:

Yes.

Ashish Tulsian:

And I think the struggle for margins was already there late in 2016-19, but post-COVID, it’s just gone through the roof. What did you learn at the private equity side when all the business is just Excel sheets and numbers and some of those people are able to buy, sell, turn around, make businesses profitable as well? What is it, what’s, what are the few things that you feel today’s restaurant chains can do?

Jerry Baldwin:

I think my biggest takeaway from a couple of hard examples from private equity from supply chain, I mean, we bought a couple of chains that had been very successful and had fallen on hard times and they were 12 or 15 years old or something like that. And I remember one in particular who I had a tremendous amount of respect for. And the first day we walked in as the new owners, I started reviewing supply chain and they honestly said, we have a theory here that vendor relationships and long-term relationships are the most important thing that we can have. So many of our vendors are the same vendors we’ve had for 12 years. And their next question was, okay, now that you’re here, what do we do? What do you suggest we start? And I learned at that point, the simple answer was you RFP every single item. And what we found, and this has always been my case study in this event, and I love my vendors, don’t get me wrong, but I’m also very sure that if I stay with the same vendor for 10 years and I never compare his prices, that there’s gonna be some creep in those prices just because they’re as comfortable with us as we are with them. And it’s just, oh, they’ll be fine with that. And I don’t even want to tell you how many millions we saved. And supply chain today is not just food. In that case, print services was one of the most outrageous savings I’ve ever seen in one RFP. But I think we have to continue to do our jobs. We can’t become complacent and say, you know, I love that vendor. They’ve serviced us for 10 years.

We all love that. But…

Ashish Tulsian:

But we’re gonna miss them.

Jerry Baldwin:

Yeah, I love you, ma’am, and I’m gonna miss them. But what I tell them, it’s not so much your national account rep or even the president of that company, you’re keeping honest. It’s the damn bankers and the equity funds that own them. You know, they have to understand you can have our business at X cost and you can make X amount of money.

Ashish Tulsian:

But doesn’t that, like, expose a chain? Like, when you say you RFP every single item, doesn’t it expose, you know, your business to the risk of, let’s say, poor quality or compromised quality in different ingredients? Because, you know, it also increases the bandwidth you need to make sure that each line, each item that comes into the door, you know, at competitive price now is actually as promised.

Jerry Baldwin:

Not if you’re, not if you are, not if you have an accurate and controlled RFP process. An RFP process, for us, is a request for a proposal. Here’s the proposal. Here’s the specs, you know. Here’s, after a nondisclosure agreement sign, here’s the specs. You have to meet these specs. By the way, you know, you all have your prices in. We don’t care about right that, right now. Send me a sample of your goods. And then we literally taste test, cook them to, you know. Because, that was the one thing we learned when you’re in a legacy restaurant chain like Steak and Shake’s been there since 1934, is you better not screw with a hamburger. And we don’t. You know, we take our legacy specs and our flavor and our quality to probably the nth degree of any chain out there. We have learned, and I truly believe that the food at Steak and Shake has a cult following. We have customers who are second and third generation. So, we still RP those items, but we control the spec every single step of the way. We just looked at two of our most important items this past week with the CFO and a part of the executive team. And the first question the CFO asked me was, what’s the price? I said, I don’t have the price right now. And I didn’t. Because I didn’t want to get caught in that battle in there. Oh, well, you know, because you will have bias. If you’re just trying to compare product A to product B and you know one of them costs less, you’re going to have bias. So, we do blind taste test products. We make them match the quality. And the other reason we’re doing that today, and that was a lesson from COVID, is we’re doing it today because when we walk away from this, we want the best vendor at the best price for the same product. But we also want a secondary backup vendor. Because COVID taught you very quickly that no one can supply 100% of your needs when a pandemic hits.

Ashish Tulsian:

So, the chain, the example that you took, right? And you said that you RFP’d every single item and you saved millions. Do you remember or can you talk about the percentage added to the bottom line? What was that in the percentage numbers?

Jerry Baldwin:

Well, it’s very hard to calculate that anywhere today, gosh, especially in the past three or four years.

Ashish Tulsian:

Because I see restaurants today struggling for even two or four percentage points.

Jerry Baldwin:

Oh, absolutely.

Ashish Tulsian:

It’s huge.

Jerry Baldwin:

But what’s happened the last several years is, and it’s required almost two or three different analysts to keep up because commodities have been so high. I mean, everyone’s taking price increases. And those price increases offset your food cost or COGS. And so, you may have done two or three things that you think are gonna show a point or two savings on your percentage line. But then if you raise prices by 6%, all of a sudden you look even better, but it wasn’t you. So, that’s the smoke and mirrors that everyone’s trying to deal with today. How much analytical horsepower does it take to determine what came from just price and what came from supply chain? And if you’re a hamburger restaurant, the last six or seven months is the highest, in our case, steak burger prices in 10 years. So, we do have customers that go, okay, the four for $4 used to be four for $4. It’s now $4.99. Yeah, because we’ve had commodities in dairy and beef be higher than they’ve been in 10 years. We hope to, we would like to see some settlement of that, but we’re not. I mean, we’re in the first of a seven-year herd rebuild for cattle. So, every hamburger chain’s gonna see steak prices high for the next five to seven years until they rebuild the herd. And that’s guessing and hoping and getting your crystal ball that you don’t have a drought or locust or anything else in the middle of all that. That’s just not a perfect world.

Ashish Tulsian:

I think that in a world where, and you talked about that as well, like the speed of serve, efficiency at the kitchen side is all that it takes. I think kitchen service and supply chain is going to run the rest of restaurants. The rest of everything is getting too robotic. Unless you’re like a fine dine Michelin star where guest experience is the game. 

Jerry Baldwin:

Yeah

Ashish Tulsian:

What’s your, What are you speaking on tomorrow? 

Jerry Baldwin:

Distribution.

Ashish Tulsian:

What’s your topic? Do you know?

Jerry Baldwin:

Yeah, I guess they decided to put this on because they’re getting so many questions of chains of what is the new distribution? What does it look like? What should they expect? We just went through a major distribution change in July. So, some of the people on the panelists are aware of that. So, we’re very fresh to what the market looks like.

Ashish Tulsian:

Would you like to talk about what’s that?

Jerry Baldwin:

No, that’s what I was talking about earlier, that everyone’s at capacity. There’s been no warehouses built. You can go to company after company who can say, well, I can service you in Florida, but I can only service you here and service you there. Ultimately, what you’d like to have in a distribution end result is the smallest number of distribution centers to service all of your units to maximize your inbound freight. There’s a trade-off there because the smallest number of distribution centers means your distributor’s going to have to increase his fee to drive the miles. The question anymore is, will they drive the miles? And that’s a real issue today. Driving the miles is not something they can answer. I mean trucking today is very good from across the country and long-term freight and all that. We have more trucks than we have food, but when you’re a distributor and you’re trying to hire a truck driver to drive and unload a truck, which is really hard work, it’s difficult. The longer they’re away from their family, the less they want that job. We all grew up in the QSR, and I think maybe Wendy started it originally when they were founded, loving key drops. Deliver in the middle of the night, you’re not fogging up our parking lot, you know, you’re not in the way of operations, you come in, your food’s there. Well, you never really thought about the human capital part of that, where this guy’s up all night working third shift unloading a truck, sometimes by himself in a parking lot in a not good part of town. And so we’re seeing from every distributor that they’re having a very hard time getting drivers to do key drops.

Ashish Tulsian:

So what’s the distribution, what’s the new distribution model then?

Jerry Baldwin:

Oh, I think the new distribution model is going to be less key drops. I think we’re going to see less truck drivers wanting to be away from their families and work third shifts. I think you’re going to see more than likely two drivers on every truck, and there were many years where one driver’s truck, but now they want to help her, you know, they just, they can’t do it anymore. Part of that is, and I certainly resemble this remark, it’s an aging group. They’re just not physically capable of unloading 150 pieces, you know, and wheeling it in. So they have helpers to do that now. So I think it’s going to, and it’s going to become much more expensive. It already has become much more expensive on a fee per cas basis, more so than we’ve ever seen. Because of all of those, we’re not going to do key drops. You can get a lot more key drops off in a night with no traffic than you can regular deliveries, where you can’t even get on the lot, you know. So there’s, it’s such a complicated issue. It’s going to change. We’re going to see more normalcy for truck drivers, and we’re all going to pay the price. Because as you know, ultimately when the chain has to pay the price, it ends up, you know, on the customer’s price at some point.

Ashish Tulsian:

Awesome, Jerry. This was really enlightening and enriching. I think I could only scratch the depth of the kind of experience, and I could almost see that when you’re speaking about these things fluently, like you have Excel sheets and stuff running in your head, and I was just trying to, you know, grasp some pieces of it.

Jerry Baldwin:

My wife says she married a geek with personality. 

Ashsih Tulsian:

She’s not wrong. You know, excited for what you’re doing at Steak and Shake.

Jerry Baldwin:

Yeah, we’re enjoying it. Yeah, I didn’t want to say out loud, even though we publicly post this number on billboards and everything else, but just between you and I, we have about, I don’t know, 60 or 70 percent of our franchise partners who paid the $10,000 that were Steak and Shake general managers, you know, previously for a number of years, quite honestly. 

Ashish Tulsian:

That’s a big one. 

Jerry Baldwin:

Depending on how good they were, they made $60,000 to $70,000 a year, you know, worked hard for it. They became their own business and owned their own store, and the average franchise partner last year made $136,000. So, in a lot of these cases, they’ve doubled their income, and my owner is very sincere when he says we’ve changed their lives. We had three franchise partners last year make over $280,000. 

Ashish Tulsian:

wow

Jerry Baldwin:

Yeah, and, you know, you can’t fault them. They did it. They ran the business, so we’re really proud of that fact with our franchise partners. If we can just get the rest of them converted, we’ll be happy.

Ashish Tulsian:

Well, all the best for that.

Jerry Baldwin:

Thank you very much for the invitation. Thank you. Enjoyed it.