Ashish Tulsian: 

Hi, welcome to Restrocast. Today, my guest is Phil Friedman. He’s the CEO and chairman at Salsarita’s Fresh Mexican Grill.

This was one of the most inspirational conversations I’ve had to date. Phil, you know, started his food service journey as an officer in the U.S. Army in Vietnam in 1969. And from there, you know, contributing to planning and building chains such as Chi Chi’s, Pizza Hut, having a noteworthy contribution to life of great chains like Panda Express, to building McAlister’s and selling it, and then resetting to take Salsarita’s Fresh Mexican Grill to where it is today.

After these many years, and after almost checkboxing every possible success in the restaurant space, when I asked Phil that why is he still doing it, his answer was, that’s what I do. I do restaurants. This was personally an inspirational conversation for me.

I’m sure you’re going to love it. Welcome to RestorFast.

Ashish Tulsian: 

Hey, Phil. Welcome to Restorcast. 

Phil Friedman:

Thank you.

Glad to be here.

Ashish Tulsian: 

Phil, you know, you pack four decades plus 

Phil Friedman:

That’s correct. 

Ashish Tulsian: 

journey, you know, in the restaurant space. But, you know, I would like to, you know, start with, you know, your early years, and then how did restaurant as an industry or as a business happen to you?

Phil Friedman:

Okay. It’s interesting because I’ve had food service in my background without ever realizing it. So my first job in high school was being a dishwasher.

And it’s interesting in the industry, you find so many people who are first dishwashers. 

Ashish Tulsian: 

Yeah

Phil Friedman:

But kind of more important is, I was a Vietnam era college student. So I was ROTC, and I became a first lieutenant and wound up in Vietnam.

And long story, but I was a food distribution officer in Vietnam. And at 21, I was running a food distribution business that today would be valued at 40 or $50 million. Right.

And it just came to me. That’s the way it was. And so, okay, that was nice.

Ashish Tulsian: 

How did that happen? Like, you were a part of, what was this about?

Phil Friedman:

So I’m a quartermaster officer, University of Connecticut. And I picked quartermaster because I felt I had choice. I was a distinguished military graduate and decided I wanted, I liked that was more of a business-y type of military term, military occupational specialty.

And so I went to Fort Riley, Fort Lee in Virginia, and studied all the different quartermaster things. And then wound up being sent to Germany first. And it’s interesting, there weren’t many senior officers.

So as a second lieutenant, one of the jobs I had was, I was the clubs officer for central Germany. So as I said, there kept being these food service things that came in my life. So I actually had the clubs responsibility and a lot of other responsibilities.

And then one Saturday morning, I opened up, I was the administrative officer, I opened up the mail and I got my orders to Vietnam. So what happens in Viet, so that you go to Vietnam, at least in support, and then you get an assignment, right? And I was in long bend and waiting for assignment.

Ashish Tulsian: 

This was which year?

Phil Friedman:

What’s that?

Ashish Tulsian: 

Which year was this?

Phil Friedman:

This is 69.

Ashish Tulsian: 

69

Phil Friedman:

So I go there and they said, you have logistics training, but didn’t have food service. But they sent me to Saigon, and I ran the distribution center in Saigon for three months.

And then a lot of challenges, a lot of control, right? And one of the things I was proud of is I didn’t give food away because a lot of people, a lot of food was given away, you know, not correctly, I would say it that way. And then because I met a colonel there who thought I could do a good job, he asked me if I’d go to the Delta and straighten out a mess in the Delta distribution center.

And actually, it’s a big personal achievement in my life. But it would take, when I got there, it would take the people who were picking up, and there was a mess hall, so a sergeant or an officer, it would take them eight to 12 hours to get their material and go back. Well, they had to go back through enemy territory, so they were going back at night.

So by the time I left, we got that process down to two hours. Yeah, 

Ashish Tulsian: 

Wow. 

Phil Friedman:

And I was 21, and I was just figuring it out all myself. There was no manual.

It was just that I created the concept of truck checkers and, you know, getting pre-orders together. And it was just interesting. I really got to love the distribution business, right?

So put that aside because I get back from Vietnam, and I got into actual manufacturing supervision, which was not food service. It was running a manufacturing plant and folding cartons. And then I decided I needed to really become a student of business.

So I went to Wharton, got an MBA. And when I got out, I stayed in the packaging industry, but I was recruited about 12 months later by PepsiCo. And this is how I got into restaurants.

Ashish Tulsian: 

Wow. 

Phil Friedman:

So PepsiCo recruited me, and I had the option of working at their corporate headquarters. I didn’t want a corporate headquarters anymore. I’d done that.

I was a financial business planner. Or Frito-Lay, which was kind of bigger, but they had just an acquired Pizza Hut. And I thought, you know, for where I was, that was a small acquisition.

So I joined Pizza Hut, and they had a group of planners. And I was director of financial planning for three groups, international, new products, new concepts, and then distribution. And in those days, the larger food service companies had their own distribution network.

Eventually, as- 

Ashish Tulsian: 

This was for Pizza Hut International. 

Phil Friedman:

This was for Pizza Hut International, right. It was headquartered in Wichita, Kansas.

And in those days, if you were a franchisee, it was really neat. You essentially had a building shipped to you, and then it was assembled. And they had 10 distribution centers, so you got all your food for Pizza Hut.

So I did all of the planning for the distribution, and I really liked that a lot, and I almost became a distribution manager. But I had another opportunity, the founder of- So that’s my first introduction to restaurants, through the financial side. Right?

Ashish Tulsian: 

Wow. Okay. And that was what year?

Phil Friedman:

That’s 69, 70 now. So I got out. I did 69, and then I got out in 70, got my MBA a couple of years later.

Right. So it was the middle of the 80s by the time, when I got to Pizza Hut.

Ashish Tulsian: 

Hmm Hmm

Phil Friedman:

I got to get- 

Ashish Tulsian: 

Yeah, no, no. I saw that. Wharton was 87.

Phil Friedman:

Yeah, right. And then from Wharton, I got into eventually to Pizza Hut.

Ashish Tulsian: 

Got it.  

Phil Friedman:

But the answer to your question earlier, long answer is I got into restaurants through large multi-unit chains that were in the financial side, owned by Pepsi. Right? And then Frank Carney was one of the founding brothers of Pizza Hut.

He got the Chi-Chi’s franchise for the East Coast. One of the senior vice presidents I worked for became the president of that company for Frank, and he asked me to go along with him as the controller. So this is an interesting story.

I didn’t have any accounting courses. I was an MBA in marketing. So I actually used an accounting ledger book.

I learned accounting by doing it. I became a controller. But one good lesson, I hired a great bookkeeper.

So she would do a lot of the work, and I would tell her what my thoughts were. But it was really good. We built a number of restaurants.

And eventually, this is on the franchise side. So part of my also a lot of franchise experience. So we had the Chi-Chi’s franchise on the East Coast.

Eventually, we sold our company to the parent. I became vice president of planning with Chi-Chi’s. And Chi-Chi’s was a growth stock.

It was really progressing, a lot of growth. And it came to pass that I went a little sideways with the chairman on what the right strategy should be for growth. So I left.

And because of the deal, I had to buy out of my contract. And I took the time, but I eventually wound up at Marriott. And I worked for Marriott Corporate Planning for restaurants.

In those days, Marriott still owned the Roy Rogers chain, the Big Boy chain, full service restaurants on the East and West Coast. So I did the planning for all. And they owned the big one, because Big Boy was on the West Coast.

I spent a lot of time with the different businesses in different places. Heavy franchises, I got heavy franchising. And Big Boy was 1,100 restaurants in those days.

Ashish Tulsian: 

yeah

Phil Friedman:

And I really enjoyed working with the business unit leaders and doing their annual plans. And I got to develop a good relationship with most of them. There’s always stories behind all this, but I’ll keep going. So, 

Ashish Tulsian: 

No, no, please. I mean, dive in.

Phil Friedman:

Well, I’m going to dive in, not so much while I was at Marriott, but I did more work for Marriott after I went out on my own. I decided that I was going to try and go out on my own. And I was looking to buy, with backing from some of the people from the early Chi-Chi’s days, I was going to buy the Wendy’s group out of Pittsburgh.

And they were very good operators. But it was the time when Wendy’s decided to do breakfast, which didn’t work. So while we were putting a deal together, sales were going down 10%, and the money dried up, because nobody knew.

I had to go to work. So I called up my friends at Marriott, and they put me in the consulting business. So one of the fellows I worked with at Marriott ran the old hot shops, which was cafeterias.

And Marriott also had the toll roads, which was, as you know, if you go on the Chicago Toll Reserve. So I actually did the toll road strategies. And by the time they left, they owned 80% of the category.

And it was based on my plan that I did. So he was very happy to give me consulting assignments. So I consulted with the chains I used to work with.

I consulted with the big boy chain, the hot shops, or the restaurants. But the one that was really good consulting was Roy Rogers, because they were trying to figure out, do we grow Roy Rogers, do we sell Roy Rogers, heavy franchise? And we did some really good work.

But eventually, Marriott sold Roy Rogers to Hardee’s. But I still was doing the work with the other people. But they were slowly getting out of the restaurants.

Today, they’re really not in restaurants. So the fellow that brought me back to help and gave me a lot of consulting took over a company called Service America, which was a, in the late 80s, was a buyout. That was a merger of two companies, but it was a leveraged buyout.

And he became the CEO, and he asked me to do the business planning for the divisions. And then I did. And what does that mean?

I would travel, it was a billion dollar company, divisions would be 200, 300,000. We did stadiums, really a big, good business, a lot of food contract, food service, vending. So I got to learn all that business.

And I want to say, as I was doing this, I developed a reputation with people in the industry that as a business, I was a very pragmatic business planner. And a number of these situations were turnarounds. And a lot of executives would ask me to help them out of problems.

And that came to pass in Service America, which a billion dollar company, I was at the beach in North Carolina. I had done all the plans, working on a lot of stuff. They brought in a young CFO, but we were in trouble financially, and we had to restructure.

We had GE capital debt, and it was a $400 billion restructure. And the young CFO was uncomfortable signing a lot of documents and essentially feeling that there was too much risk. So they called me up, Phil, would you be CFO?

Because everybody knows you. I said, well, two things. I’m not a CFO, and I know how hard the job is, and no, I don’t want to do it.

And of course, I relented and did it.

Ashish Tulsian: 

Oh, wow. But could you have been CFO? You were not, I mean, you’re not qualified as, I mean, you’re not an accountant, right?

Phil Friedman:

Well, no, I’m not at all. So I told you, remember, but I’ve been a controller of a franchise system. I’ve been vice president of planning.

I was director of financial planning. But the reason they wanted me to be a CFO, I had all the business plans. And actually, it wasn’t bad.

I had a really good vice president of finance and a really good controller. And I am really good at working with people and directing people. 

Ashish Tulsian: 

Yeah

Phil Friedman:

And a lot of it, because it was a restructure, was cleanup.

So we had to deal a lot with bankruptcy avoidance. It was a lot. And the restructure took a lot of work, a real lot of work.

And it came to pass, we got it done. But it took a big toll on me. And I even said once that, and what happens in a restructure, you really have to be intense on the cash flows, right?

And a lot of people don’t necessarily feel comfortable with that. Somehow, I don’t mind crisis, and I had done a lot of turnaround. So you got to deal with the reality of your cash.

And it’s a great story, because we were in the vending business, and it’s very capital intensive. And I said, we don’t have any more cash to support the business. And then we learned how to do rebuilds versus new machines.

And I remember one fellow came to me and said, Phil, we thought you were crazy, but it worked. Because we had to deal with our reality, right? Anyway, so- 

Ashish Tulsian: 

Yeah, that’s where the pragmatic leadership- Yeah, yeah.

Phil Friedman:

Yeah, yeah.

So I did that. And then while that was ending, I knew I had to look for something else. And what came up, I was still doing consulting.

I’m really three people in terms of careers. One is just an industry consultant expert, and I’ve been on 12 boards because of that. And I was doing a lot of kind of, there was the financial side of history that accommodated the CFO.

And then there’s the executive running companies, right? And the biggest one, there’s been a few small ones where I worked in consulting, and I ran a company for a while. But the big one was, as service to America was over, friend of mine was running, became president of Panda, and we had stayed in touch.

And he asked me if I could help him with the business plans for Panda, Andrew and Peggy Churn. It’s still family owned. And Joe was trying to figure out-

Ashish Tulsian: 

Yeah. It’s a couple that- 

Phil Friedman:

It’s Andrew and Peggy Churn.

Well, the family now, but they own the chain. And so Joe said, I really need to figure out how to work in this environment that family owned. And I said, well, my perspective is work with them and really develop a solid bought-in business plan.

So I spent a lot of time working on the business plans for Panda, which really resulted in Peggy Churn eventually asking me if I’d become president, because it wasn’t working for Joe. So Joe left, they asked me, and I said, well, I really have a lot of clients, so I don’t want to give up my clients, but I’ll give you 90% of my time. And so I still had three or four, well, they’re really boards, other boards.

And I kept those, which they were fine with, I was on their board, and I became president of Panda for four years. And we kind of redid the strategy. At that point, they were trying to grow anywhere they could in the US with malls.

And they were- 

Ashish Tulsian: 

Do you remember how many units? 

Phil Friedman:

200? Yeah, they were in the 200, by the time I left, 300, right?

But what I did is, the big achievements I was part of is getting Panda out of the malls onto the street. And we call them street stores. So we went through a lot.

I actually skinny down the corporate staff because we didn’t need everybody. And we took a strategy of, let’s go everywhere, we’re chasing malls. We found out that Panda worked in very high volume, hyper square foot balls, but they were already penetrated.

So where’s your growth? Well, it had to be out of the mall, right? So we developed a concept called Panda Panda, which was in the end too complicated because it was on the street.

It was early, early quick casual. I mean, it was like when people were just starting to use the word, but we were doing too much cooking to order. So it came to pass that we looked at how we were doing, and we suggested, I suggested, and then they accepted it, that we take the Panda concept from the mall and put it on the street, right?

So today there’s 1800 plus Pandas, and it’s all the same concept that it was in the Glenside mall when it started.

Ashish Tulsian: 

So that’s so cool.

Phil Friedman:

Yeah. And what’s really neat is it hasn’t, I mean, it’s always evolved, but it hasn’t changed that much. So they had a core concept that worked really well, and they just kept going after it, right?

And they really kept doing it. So my big achievement was that we got onto the street, that I got focused on development in first California out versus all over the place. Don’t franchise.

There’s no reason to give the business away. And we don’t need to raise money because the cash flow is fine. So now it’s become extremely successful, right? And then so- 

Ashish Tulsian: 

Yeah, I think there’s still control.

Phil Friedman:

It’s- It’s still controlled by the Trent family.

Ashish Tulsian: 

Yeah.

Phil Friedman:

And which is great because- 

Ashish Tulsian: 

This is amazing. 

Phil Friedman:

There was a whole point I had. You don’t need to do anything except keep doing what you’re doing.

Ashish Tulsian: 

Yeah, yeah. 

Phil Friedman:

Because everything was so successful. So I worked a lot on, I mean, there’s new product development we worked on or whatever, but the big achievement was how do we grow?

And they’re certainly growth oriented, and they put money back in the business, and it’s a phenomenal success. So I was intra-president because at that time, Peggy was, she worked for me as the vice president of HR, and I worked for her as vice chairman. So it’s really kind of an interesting dynamic.

But it came to pass that she would be president, and I stayed on the board, but I was looking around what I would do next because it was four-year, I think the word I used is it’s been a great ride. And a friend of mine, Mike Stack, had been doing some work with an emerging brand in Mississippi called McAlister’s. And I hadn’t never heard of McAlister’s.

And Mike came to me one day, knew Panda was winding down for me, said, why don’t we take a look at McAlister’s? So I said, okay, let’s do this, Mike. I’ll go down there, we’ll take a look.

I’ve never been, I didn’t know anything. And when I visited, I saw something that was really strong. And that was, it was a brand in the deep south, but the customers were what I called Eddie Bauer shoppers.

That they were very much the, you could see these people anywhere. And it was good quality food sandwiches, quick casual. So we eventually got a deal with the owners and we said, we want to buy the chain, but we need time to raise the money.

Because I told Mike, Mike called me up, I was still at Panda in kind of this interim level of a board and an advisor, but I saw an office in California. And Mike said, we can buy them. I said, Mike, we got to do this.

We have to negotiate that we need six months to raise the money because you and I don’t have the money. And he did it. We got the deal.

And it was really interesting because we were able to position the acquisition as we were a management buying the company because Mike was working with the company. Okay. And they were supporting us and we raised the money mostly in Mississippi, which was the strategy.

Ashish Tulsian: 

Yeah. Because that’s where the people knew them. Yeah.

Phil Friedman:

And then we got some small business administration debt. We got some equity from insurance company. We’ve got a big investor.

We patched it together ourselves. And it was kind of neat because Mike and I raised the money ourselves. So we took a management, we took a fee for raising the money, which was really great for the Feberman family.

My daughter was going to Penn, so I was able to pay her tuition. 

Ashish Tulsian: 

That’s neat. 

Phil Friedman:

Yeah. It was, but we set it up right. We set it up. And I thought, I didn’t know if we were able, but the investor said, no, you did it.

You earned it. So we did that. We bought it in 99.

We closed in 99 at about 25 restaurants. We had to really change what was going on because I think one of the reasons the chain was for sale is this family owned and they had signed a lot of franchisees with territory agreements, but they didn’t have the support structure. So Mike and I came from the industry.

So the first thing we looked at is support, right? And what did that mean? We had to build a training team and we had to then also have good franchise consultants or advisors that visited the franchise.

So what we did is we took some of our best people that were in company operations and then put them in training and then put them in field support. And so you sacrifice the company restaurants for the sake of the franchise. And then one by one, either the franchisees worked out or they closed or whatever.

And then once we had built the infrastructure, took about 12 months or 18 months and we were still getting growth. Then we went out and we really started selling franchises. And so Chi-Chi’s went from, Chi-Chi’s, excuse me, the Callister’s went from the 25 we purchased to, we sold it to Roark Capital in 05 at about 200 restaurants.

Ashish Tulsian: 

To Roark? 

Phil Friedman:

Yes. And then I stayed on as still as the CEO, even though I didn’t cash out everything, but I cashed out a good part of my holdings, where I made a lot of money in the first round.

I stayed on, we recapitalized two or three times and then they eventually, I left in 2010.

Ashish Tulsian: 

Wow. And you left at like what number? But were you still the CEO?

Phil Friedman:

I was over 300. 

Ashish Tulsian: 

And you’re still the CEO post-Roark? 

Phil Friedman:

Yeah. Yeah, they kept me on. I kept some of my stock, I kept a good share of my stock in, even though I had done well. And so I always say the joke is my wife was very happy.

I was still working, right? Then I had more money and not, I was still working. But yeah, we set that up, we did that.

And I stayed on and running it and we kept growing. And where we got into difficulty was in the 09 recession, right? It was really tough.

And we were a quick casual. And I always said, and Mikal says, I would have to find reasons why people would spend two or three more dollars per sandwich for us versus going somewhere else. When we did a lot where people loved us, they loved service, they loved the taste, we’re too high pricing, right?

Ashish Tulsian: 

Were the sales really hit that hard in 2009?

Phil Friedman:

Well, that’s what I get to. They were hit, they were. And a couple of things happened in 2009.

Because the recession was pretty tough, we weren’t getting growth, right? So I had to, we were getting negative sales. But the more important to me is I had to get the customers to want to keep coming.

So we actually restructured the menu. And we added, I remember setting out the goal. I wanted an item that would taste great, that people would want to buy, and that would give me more profit.

Ashish Tulsian: 

What was that?. 

Phil Friedman:

And it was paninis. We didn’t have paninis. And we did paninis and they were a home run.

And a panini costs less because it has less protein, right? So you really have less product on a panini. And then the other thing I did is, I don’t know if for all that people in Elmwood House, they have huge baked potatoes.

So I was, people would always push me, could we sell half potatoes? I’d say no. But in 2009, I said, okay, we’ll sell half potatoes on, we sold the Panera plan and we did for two items for so much money, right?

So choose two, you can get a half potato and a half sandwich or a bowl of soup. So we did that and it was a home run. So we didn’t necessarily drive sales higher, but we really improved up and we were- 

Ashish Tulsian: 

The contribution margin, like- 

Phil Friedman:

Really improved. And that was essential because it was a tough time with the recession. So we were able to, we actually prospered in the recession. It was a restructure of the menu that really made it.

Ashish Tulsian: 

You know, I always wonder, and I don’t know, is it just too naive or, I actually wondered that, you know, during recession, is it the sentiment that makes people, you know, buy, consume less? Or is it, you know, is it tough for the restaurant space just because, you know, interest rates go higher, your money’s not available for growth?

Phil Friedman:

What’s- A lot of dimensions, right? So from the sales side, what’s really hard is the consumer is, it’s a disposable income equation, right? You asked me when I got involved.

I got involved in the 50, in the, you know, and still when there was hyper growth of eating out, right? You know, and then now the industry is kind of more of a mature, much more of a mature industry. So you really, the industry grows because of disposable income, right?

So for example, when gasoline goes up dramatically, which it did, by the way, in that recession, you know, people have less money to spend at the restaurant. So what does that do? It’s not that they eat, they eat less, it’s where they eat, right?

But the big issue is frequency. They may love McAlister’s, but they’ll go somewhere else, less expensive, and they come out to us less often. So what I did with the restructuring is I gave a reason to come more often or come back, keep the frequency.

So, and that, I felt very good about that. And I had three franchisee groups, because by then we had, everybody had to say to me, if you hadn’t changed the menu, we wouldn’t have made it. Because of the margin.

Ashish Tulsian: 

That’s phenomenal.

Yeah, that’s such an amazing insight.

Phil Friedman:

Yeah. And, you know, these are right.

Ashish Tulsian: 

And this is not something that’s linear. I mean, it’s not a, and most of the restaurants are not able to do that because- 

Phil Friedman:

No, you have to really, I mean, we did that on a weekend, we changed the menu, right?

But we had enough knowledge of what other people were doing, what we needed. You have to really, it’s not linear at all. It’s really kind of interactive to a lot of thought, right?

If I can get, if I can get the product right, I can get the cost right. And we’re going, I mean, roll forward now to, we’re going through that in the industry. You know, everybody’s rate prices two or three times.

Everybody’s seen transactions decline. Everybody saw them come back.

But not now. And then everybody’s going through the cost of doing catering through EasyCater, the delivery through DoorDash. So the cost structures are different.

So it calls for thinking of, okay, how do I get to margin I need, right? Which is very hard. And for us, it was really trying to improve through pricing and some products change, a higher flow through of profitability to cover all these operating costs.

But it’s very tight. It’s very tight.

Ashish Tulsian: 

You know, on road capital, I was, how was the experience of, I mean, okay, let me rephrase the question that I’m about to ask. 

Phil Friedman:

Sure.

Ashish Tulsian: 

Private equity is kind of looks like a necessity evil in the restaurant space where you need them as partners to grow.

You also need them as partners to, you know, make the exit and see the cash.

Phil Friedman:

So you look at private equity in a couple of ways, right? So I had a great industry leader said, you know, we used to be driven, the industry has evolved from founders and then first term executive driving a business, very personal, to private equity driving a business. So I think you use private equity a few ways, right?

One is for growth capital as a growth partner. And that’s what we did with McAlister’s, right? Cause it wasn’t a liquidity event.

Ashish Tulsian: 

Yeah.

Phil Friedman:

The founders got out when I raised the money, right? 

Ashish Tulsian: 

Correct

Phil Friedman:

So our reason to sell to Roark was, well, the first round of shareholders are willing to cash out. So there was a liquidity event, but not for Phil, right?

So I guess that was, but the other part of that was supported growth, right? So, but it is, you’re right, there is a component of no matter how you look at it, somebody is cashing out somewhere, right?

Ashish Tulsian: 

No, but my question is actually on Roark. I wanna know that, you know, we see these events happen every day and, you know, more often than one would, you know, appreciate private equity play or driving the restaurants, actually does not really go very well for the restaurants at times, you know, especially the brands, you know, where the founders are not at the play or the people who conceive those brands are not at the play anymore. I’ve seen Roark Capital being really, really successful in, you know, continuously buying brands and allowing them to prosper.

What’s going right for Roark?

Phil Friedman:

You know, I think it’s supporting the growth plan, right? Letting the cash flow stay in the business to support the plan, right?

Ashish Tulsian: 

But that’s, I mean, I would assume that any private equity that will buy a growing chain and is willing to probably let’s flip it.

Phil Friedman:

I don’t think anybody, I don’t think that other private equity would have so much of a different philosophy, but I think Roark is supporting the leadership in terms of not demanding, you know, quick paybacks. You know, and they just, they let, I’m using, what’s the example I would use? They, Arby’s, right?

They really found someone who figured out how to really 

Ashish Tulsian: 

Correct

Phil Friedman:

advertise Arby’s and they supported that. Because they, he and they put a lot more money into advertising than before, right? So I think it was when you, when- 

Ashish Tulsian: 

Yeah, they turned it around.

I mean, they- 

Phil Friedman:

The growth plan was supportive. It’s just, I don’t know if I have a better answer. You probably have to ask Roark what their secret is.

You know, all I know is I stayed, they made me very wealthy, and I left because Phil wants to not necessarily work for people, to be honest. So when I left there, I tried to buy Sauceritas with investors I know. The whole idea was for me to run it, right?

Ashish Tulsian: 

And even- So did you like fully exit?

Phil Friedman:

Yeah, I completely exited Roark. They still, I still, well, I left Roark as the CEO, but I still had a lot of shares. And then three years later, they completely bought me out.

Ashish Tulsian: 

Got it. 

Phil Friedman:

And I was fine with that, right? Because I was fine with that.

I was really done with, I was just, they did ask me, did I want my money right away? I said, no, you’re gonna eventually sell it or grow it, and I’ll wait. And I waited long enough and I did better.

Ashish Tulsian: 

Yeah, that’s a great exit.

Phil Friedman:

Yes, yeah. And then Sauceritas, I’m just trying to do it again. We’ve stumbled a few ways.

Ashish Tulsian: 

So what’s the story behind Sauceritas?

Phil Friedman:

The reason we stumbled is it was an old brand that had gone through a lot in the recession. And the people who were still franchise, and they had got up to 165 restaurants. And when I bought it, it was like 70, right?

And a lot of, then we added new restaurants, kept closing.

Ashish Tulsian: 

I mean, if we can speak about that, where’s the brand from? How did you, I mean, how did you chance on that?

Phil Friedman:

My goal, when I left, I formed the company after I left McAlister’s called Mississippi Holdings, LLC. And then my goal was that I would use some of my money and people I knew, and we would look for small chains that were either still founder-driven, or kind of first-generation management that was ready to move on, because they couldn’t grow it. And we looked at a number of things, and Sauceritas fit that mold.

What were those? It was founder-owned, the founders were still there. They wanted to get out.

There was some young management that had some equity in it. They stayed in, but eventually they got out. And I brought in a COO, because my plan was I would own it and have a COO.

So, but it was, because it had been through so much, a lot of the franchisees were really difficult, in difficult situations. So, as leases came due, they would leave and whatever. So, my famous quote is, I have about the same number of restaurants that I have when I bought it.

I’ve closed 40 and opened 40, you know. But we’ve tripled the, well, I didn’t say tripled. We more than doubled the average unit volume.

You know, we’ve done a really good job of growing the brand. And after about four years, I said, I was trying to work with what was there. This is not good enough.

So, we hired a great design team, great architectural team, and I repositioned and reconfigured the brand called.

Ashish Tulsian: 

Can you, can I double click on that? Because, like, can you talk about, like, what’s the brand, what’s the concept, what’s the brand like, and what did you do to that?

Phil Friedman:

Okay, so the brand, you know, is a, it’s a burrito, this is a burrito brand, meaning it’s steam table. You know, you can think of Chipotle. And, but our difference is we have, we do a lot more with salads.

We have a much broader offering of fresh ingredients in the cold station. And because of that, our demographic is different. We’re heavier women and heavier family, because we have more healthier options.

And that’s the way our sales is. And, but I stayed with the prior decor. Use my hands.

I stayed with the prior decor and the name, and that was a mistake. So, I should have been much more aggressive to change.

Ashish Tulsian: 

The name?

Phil Friedman:

Yeah, so five years into it, I said, okay, I gotta change this, because it’s only gonna not stagnate. And we created, we changed it to McAlister’s Grill, and Fresh Mexican Grill. And we did a real decor change with a great designer called Kathy Heumann.

And she really understood that we were selling fresh. And so the decor is light, white walls, a lot of green lettering, a lot of feeling and image of this is a place that has fresh food. And that’s what we did.

And the other part of it, and I wasn’t slow on this, but it was very hard, is the technology was way behind. So as we tried to fix it, we were learning as we were going. And we made some mistakes with who we used.

By 97, we had figured all that out. And we were going, and then we really had everything in place going into 99. We’re having a great year, and then the pandemic came.

So I look at Salseritas as two eras. The era of what was, that didn’t go so well, and the new Salseritas, which, I called it the new Salseritas, which was really taking off in 99 and the beginning of 20. So, and then in the pandemic, because we had our IT stack in place, but it was just early for us.

We were like, what the quote of the pandemic was two years of development in two months. And we were one of those. We were working with Olo.

We got the online figured out. We got DoorDash figured out. We got, we, like everybody else, invented our own curbside.

We had no idea what that meant.

Ashish Tulsian: 

Yeah, yeah, yeah, 

Phil Friedman:

Great curbside story.

So we had a restaurant next to a concept that had drive-thru, right? So people were stacked in the drive-thru. So I said, what, we had a creative manager.

He put a table out and he put boxed lunches on the table. And he said, get Salseritas. Oh.

And that became what was the beginning of curbside. But that was just the manager who said, I can sell to these people because they’re waiting forever.

Ashish Tulsian: 

Yeah, so you, wow, wow.

Phil Friedman:

And then of course we learned how to do curbside.

Ashish Tulsian: 

So now are you opening Salseritas only beside restaurants that have drive-thrus?

Phil Friedman:

No, that’s a good question. No, we’re trying to deal with drive-thrus. So the other thing is we were just had introduced, same thing, so much of the new Salseritas, we introduced drive-thru.

And we had three really successful ones. And then we went into COVID and they became great. We had all but one during COVID and they did really well.

And drive-thru is tough because what we had to do is say, people who use drive-thru are drive-thru customers. So it isn’t that they’re gonna be going down the line and say, give me this and give me that. They’re gonna have to know what they want or they read the menu, right?

So we said, let’s just get to be drive-thru. We put a one, two, three, four, five, six menu together, just like a burger place. And the number one is the highest selling burrito, meaning a chicken burrito with beans and Spanish rice.

So 90% of the people buy off the menu. So we were able to get ticket times at 90 seconds, which is pretty good. And we pre-packaged them.

Ashish Tulsian: 

Yeah, 90 seconds is great for a drive-thru.

Phil Friedman:

Yeah, and we pre-packaged the bag of chips as a side. So we acted like drive-thru, right? Now, some people said, well, I really like to get this, this, and this.

And we say, we’ll pull aside, we’ll make it for you. But the great success was 90% did that. So we now, today, as we look at, if you like a Salseritas, you can get a standard end cap, which we like, with a drive-thru or without, because it is tough to find drive-thru sites.

Every time we would look for a drive-thru, Starbucks would take it, right? And I can’t blame the landlord for preferring Starbucks, right? So, but we kept trying and trying.

So we, you know, coming out in the, during the pandemic, the one we opened was a converted Starbucks that’s only 1,800 square feet. And so we’ve got Salseritas of, we’d like you to be 20, 20 to 22, but you could be as low as 18. They have two of those that are drive-thrus.

And then we have a lot of older ones that are bigger.

Ashish Tulsian: 

Yeah, in general, what’s the? 

Phil Friedman:

Ashish Tulsian: 

24

Phil Friedman:

Yeah, You know, and that’s what I said, it would be 20, 2,000 to 2,400. We prefer to be on the lower side in terms of seats, you know, 40 to 70, right? And the two small drive-thrus have 40 seats, the smaller prototypes.

But we really don’t need them because we don’t need many seats because the sales mix now is with or without drive-thru. Catering is 20 to 30%, so that’s off-premise. Third-party or online ordering that’s going to the customer is 25%.

So you’re already at 55% not in a restaurant. Then in terms of ordering Salseritas, another 20% is takeout, meaning they order, they come and take it out. The curbside used to be a big percentage.

And then so- 

Ashish Tulsian:

But this is order ahead. 

Phil Friedman:

Yeah, yeah, it’s order ahead. Like these are, there’s just- Well, a pick-out could be order ahead or take it out, you know, but either way, you’re not staying in the restaurant.

And then people who actually sit down are about 30%, 20 to 30, depending on where you are. 

Ashish Tulsian:

And where’s the drive-thru with this? 

Phil Friedman:

Well, with or without the drive-thru, I said those are the percentages.

The drive-thru, it’s interesting that the drive-thru, it would be more of like the takeout would be, right? 

Ashih Tulsian:

I mean, is drive-thrus- 

Phil Friedman: 

Drive-thru for us is 20 to 30% when we have drive-thru. It’s a credo, I mean, it does add.

Ashish Tulsian: 

But do you still look for drive-thru stores?

Phil Friedman:

Yeah, we do, but it gets very competitive to get a drive-thru location. But we’re not overly growing now. So part of Saucerias today is we’re not growing, we’re about to reemerge.

And the reason I stopped, in the pandemic, we weren’t franchising. And so I stopped trying, and I don’t have a salesperson now, and I don’t really address it. But we’re working to get all of our numbers together to start franchising again.

Ashish Tulsian: 

So right now, you have how many locations? 75 today. 75?

Yeah. And what’s your franchise versus- 

Phil Friedman:

Okay, eight company restaurants.

Eight company.

Ashish Tulsian: 

Eight company.

Phil Friedman:

Yeah, and of the eight, two will become franchise restaurants.

Ashish Tulsian: 

Got it, but that’s, yeah, that’s amazing. And what, where do you see this going now? What’s the plan?

Phil Friedman:

Saucerias or the industry?

Ashish Tulsian: 

Okay. Saucerias. Saucerias.

Phil Friedman:

No, Saucerias, we’re gonna grow again, because during all of this, and as we turn the new Saucerias, we’ve increased our sales volumes dramatically, right? We actually didn’t grow during the pandemic, because we got so good at third-party. And then now catering’s come back, because catering was one of the laggards that come back, let’s come back strong.

So our top there is restaurants do about a million six, and you can make a lot of money at a million six, especially the smallest square footage. And we are flexible, meaning we’re not trying to get the best, we don’t have to have the primo site, because so much is off-premise. So as we start growing again, we had moved away from inline restaurants, but if we get in the right neighborhood and the right center, we can do inline.

Well, that’ll open up a lot of growth opportunities for us, and we can do 2,000 square feet, not the bigger stuff. So a lot of, like many people, a lot of our future is off-premise. And we have a really good IT stack now, so we can really support either direct online or through third-party online.

Ashish Tulsian: 

You mean your own brand online?

Phil Friedman:

Yeah, I mean, our webpage is really good, and we go direct, we can order direct through our PLS system. So you, if you want salsaritas, you can go to Salsaritas and order online, or you can go to one of the third-party aggregators.

Ashish Tulsian: 

Got it.

Phil Friedman:

All of it flows into our PLS system.

Ashish Tulsian: 

Yeah, that’s really good.

Phil Friedman:

And all of it’s been a lot of hard work and evolution. And I’m blessed with a young, smart team. I just have to listen, they do it.

Ashish Tulsian: 

So this is the investment that you made in the technology that was pre-COVID, or?

Phil Friedman:

Yeah, going into the mid-90s, going into the end. We and I personally invested a lot, because I didn’t take money out of the business, my partners didn’t, and we put money back into the technology.

Ashish Tulsian: 

Phil, what keeps you excited? This is, when you’re still talking about salsaritas, I can clearly see that. Like, you can see the future, where this is going, but what’s the excitement every day?

What’s keeping you busy with the restaurants?

Phil Friedman:

What keeps me excited is progression, progressing and seeing that we move forward.

Ashish Tulsian: 

But haven’t you done this too many times? You already know this, isn’t it boring? Like, you know how the numbers work and how this will fall in a few days.

Phil Friedman:

It’s not boring because it is a new challenge, right? Look at, you know, after the pandemic, we started looking really strong, both sales and financially, and I wasn’t gonna use a bad word, inflation came, right? And a whole bunch of other stuff.

For no reason, but that’s all not my control. So all of a sudden, the challenges almost seem worse than COVID. And then we had restaurants we couldn’t open because the workers wouldn’t show up, right?

Ashish Tulsian: 

Correct

Phil Friedman:

So all of these, I mean, it gets very tough sometimes to live with it, but it’s also challenging to overcome it. So I like business, I really like business. I like trying to figure it out.

And I think that there’s something about restaurants. Someone asked me a similar question. And I said, well, restaurants is what I do.

You know, as a fellow that’s a big investor, he likes me, we talked a lot. And I thought about that. I said, you know, I could stop. I don’t, I’ve done it, right? And I said, I really like it. And I think the other part of it is very personal.

I wanna, which will happen, at least with having got to a successful point, right? Because of the pandemic, and then I think two years of craziness with all the government spending that created all this dysfunction in the labor markets, and then the inflation, and frankly, the supply chain availability. Someone asked about, we just remembered that packaging was whatever you could get, you know?

And we really, and we did, we used Gordon Food Service and it’s a strategic type alliance. And Gordon was great. They would find stuff.

We would do short-term contracts, but it was every day of trying to make this thing work. And for me, it’s supporting my people doing it. So it gets frustrating at times.

It gets, why am I doing it at times? But, you know, it’s what I do.

Ashish Tulsian: 

You know, did you ever, like, I’m sure you have had, having these offers where, you know, you could have gone to the private equity side as well, you know, post your exit from Callister’s. Yeah. Why not, like, building is still the tougher road and it’s slower, but.

Phil Friedman:

I think you have to be introspective, right? I had a few kind of neat opportunities in one of those with a private equity firm. And I really, and I’ll tell you a story in a minute about why, maybe why, but I just don’t want to work for someone.

I could work with people, but I really prefer not to work for someone, you know? So I’d like, and that means I take risk and I put my own money in, which I have. And I remember when I was a young man and I was talking to my mother about my father and she said, one thing, he just doesn’t want to work for anyone.

He wants to be his own person. And I never really reflected on that until I thought about why.

Ashish Tulsian: 

Now I can see that from your journey, because especially the Panda story, I mean, you worked with, you know, Andrew and Peggy. Like in the conversation, I can hear that you were one of them. Like you were, your pod was three of you.

Phil Friedman:

Yeah, it’s interesting, because it’s very much, people ask me, have you worked for a family? I said, yeah. You know, so you had to work with Andrew and what his goals are, Peggy, and you got to try and understand both.

And then it comes to pass, then you just fell, right? And so it gets so complicated. But yeah, I like making decisions.

I get into trouble sometimes. I mean, I go too fast or I, even in the military, when I was an officer, I had a great, I was much better at Vietnam because you just had to do stuff, right? There wasn’t a lot of bureaucracy, right?

And I really, I liked it and I succeeded, right? And they asked me, why don’t you stay in? And, you know, I said, this is a crazy answer.

If I could stay in Vietnam, I would stay in another year, but I don’t want to stay in Vietnam. I didn’t want to go back into structure. It’s very much me. 

Ashish Tulsian: 

But, you know, I mean, and I’m asking this question a little selfishly as well, because, you know, though I run a tech company in the restaurant space, but I do wonder at times, you know, when I get offers to sell the company, you know, I do wonder that, you know, what next? What else am I going to do?

And that time, you know, I have two answers. One is, you know, I’ll start another tech company or I am going to probably become an investor, buy tech companies that are already working, right? My question to you is that you don’t want to work for a private equity because you don’t want the pressure of bringing returns to somebody else’s money, makes sense.

But even putting your own money, why not, you know, why pick a brand and, you know, kind of just, you know, build it the hard way instead of, you know, there’s so many brands that have management teams, brands are doing, you know, okay, and they’re ready to break out. And with your, you know, understanding of, you know, numbers and planning, you can probably flip them faster.

Phil Friedman:

Well, I think that, you know, if you have a brand that’s kind of there, but can go next, it isn’t that easy to impact the next step. You know, you have a successful brand that’s growing, but you can envision that they’re not nearly where they could be. But it’s very hard to convince the stakeholder, the owner of the stakeholders that this is great, but let’s do this, because it- 

Ashish Tulsian:

Because something is working for them already.

Phil Friedman: 

Yeah, and you’re just, you’re just another guy. Doesn’t matter what you were, you’re just another guy, right, another person, I should say, because it isn’t gender specific, it is. So for me, I wanted to be able to be in control.

Same thing, right? Now, I didn’t do a good job, because I’m not where I want to be, right? I just want to finish well, right?

But I’m also very happy I did it, because I worked, I tried everything I could. I think I figured out what has to be done, and we’ll get there. So even though we’ve had failure, in my mind, it isn’t over.

It’s just an, okay, I got to deal with it. But I think the, I’m answering your question that, for me, I just wanted to find something where, while I was using other people’s money, it was very high net worth people. I said, look, here’s the deal.

I’m putting my money in, and I’m in control. And they went along with it.

Ashish Tulsian: 

What do you, you know, anybody who is an entrepreneur, like, I mean, an entrepreneur in the restaurant space, what advice do you give them today? Like somebody who’s, let’s say, in their mid-40s, or, you know, 30s, and running in the restaurant space?

Phil Friedman:

Well, I really think, first, if, you know, make sure you have the organization that you need, right? It’s so hard to get bigger and better without organization. And that’s really important, because you have to have faith in the organization, but more importantly, you have to have people who could deliver for you, right?

In our age, you have to really have the technology figured out. You have to be in the game, right? Because technology is evolving, but if you’re in the game, you can evolve, right?

Where I had to do, is I was in that transition point where technology was, that we had, was way out of date. So we tried to make it better, but we didn’t, we just made mistakes. But I do think you gotta really work to get your technology right, even more so.

It just is always, it’s gonna be more so every day.

Ashish Tulsian: 

Phil, this was, this is, this is absolutely inspirational. And I draw, yeah. I mean, I draw so many, you know, so many things that I believe in, but you know, with somebody like you, they just got more validated.

Phil Friedman:

Thank you. 

Ashish Tulsian: 

Thank you for this chat. This was absolutely brilliant.

Phil Friedman:

You’re very welcome.

Ashish Tulsian: 

Thank you.

Phil Friedman:

You’re welcome. I enjoyed it.