This is Part 2 of my interview with Sunil Bhatt, CEO of Genuine Hospitality Group, the corporate entity representing the award-winning chef, Michael Swartz. Today we covered the challenges of running a restaurant chain during COVID - among other things. Enjoy!
Transcript
Edward: This is part two of my interview with Sunil Bhatt. Today, we’re going to dive into his experience as CEO of Genuine Hospitality Group. Sunil, can you start by explaining what Genuine Hospitality Group is.
Sunil: We are a group of restaurants—mostly in South Florida, including one in Cleveland, Ohio—that we’re trying to bring residents here in South Florida the best possible food and hospitality that we possibly can.
The reason we use the word genuine is because when you come to Miami, a lot of times, people associate Miami with pretension or more glossy surface, superficial kinds of experiences in people. There are plenty of people in Miami who are not interested in that at all. That’s perfectly fine for TV and for travelers, maybe, who are looking to get that sort of Vegas.
There are so many people here who really want to have an experience where they are treated intelligently and not gouged, and not given crappy products put on a plate with a bunch of gold leaf on it and charged $200. Instead, they want natural wines, local products, simple preparation, great jazz, and service that is attentive while not being cloying.
The word genuine was really important when Michael founded Michael’s Genuine Food and Drink because it was really a little bit of off-brand for Miami. There wasn’t a lot of farm to table, ingredient-driven, authentic, genuine kinds of restaurants here.
It absolutely found a niche here in Miami with locals, then eventually tourists too, and eventually got him national acclaim because we have a bounty of products here. We have amazing fruits and vegetables growing here, an entire ocean full of fish, and incredible meat and poultry growing right here—at least in the Southeast. We focus really on giving people an honest product at a price that they can afford. We have people come six, seven times a week to eat at our restaurant because it’s affordable and it’s that good.
We fuss over it. We spend a lot of time using the lens genuine. That’s very important when you’re trying to scale something or do something to have a lens to look through that can inform decisions you make. Whether it be in hiring or training, decor, landscaping, buying the right product, or product development in general. Even in your finances. It genuinely matters to us what’s the lens we look through.
On the business side, we really think about doing the right thing. What’s the right thing to do? That to us is how we translate genuine. Whether it be on the legal side. There are plenty of opportunities every day for people to cut corners, trick someone, or mislead. Many illegal negotiations and how you treat your people and how you train them are lens of genuine, honest, pure—those things are in our logo. They are part of our values, and everybody knows that.
For us, the devil is in the details. That’s what makes Michael a great chef. He obsesses over the little things. Because he believes that the addition of a hundred little things together that you, as a guest, may not even know. For example, if I may, we have radishes in our bar. You could ask me why, but that’s the thing, Michael always loves radishes, and he thinks it’s a great thing to have on the bar. Those radishes—on a regular basis—get water down. We have a spray bottle behind the bar. Part of the steps of service of the bartender knows that every so often, he’s going to take that water bottle and polish up those radishes so that they look good.
It’s a little thing and there are hundreds of them in the restaurants, especially in the kitchen, in terms of the hygiene of the kitchen, the recipes, the commitment to integrity back there that add up to something that the sum of the parts is much bigger than any individual parts. We try to translate that into how we run the business as well. Whether it’s in contract negotiations, legal, or finance. That’s very important for us. That word—genuine—means a lot to us.
Edward: Michael Schwartz’s most famous restaurant is Michael’s Genuine. That’s the flagship, but it’s not the most profitable restaurant for you. Is that correct?
Sunil: It’s not. No, it is not. It is very profitable, however, relatively, our margins are nothing like software merchants, for example. This is in the SaaS company. When I say very profitable, for a restaurant, that restaurant does just fine. But we won’t hit a 20% net margin with that restaurant. But we can consistently execute because we’re rigorous about our cost structure, and we’re rigorous about how we meet every week to review day to day, week to week spending within the restaurant—COGS, personnel, OpEx.
We have safety nets underneath the team—the operations team in the restaurant—so that if for whatever reason costs get out of line, off the road, we’ll catch it before it goes too far. We put in that kind of discipline, which is very unusual with restaurant businesses.
Edward: Which restaurants are the most profitable? Why are they more profitable than the flagship?
Sunil: We run pizzerias. In the pizzeria world, your margins are going to be higher because the costs of the products are significantly lower than you would get in a fine dining restaurant. You also don’t need to spend nearly as much on your personnel in a pizzeria as you do in a fine dining restaurant, as you can probably imagine. Take us, people, to make the food, menus are smaller, service doesn’t have to be the kind of service you would expect to Jean-Georges—or in your case—Canlis up in Seattle.
Your personal costs are lower, your cost of goods is lower. Pizza is flour and water, and that’s pretty cheap. The cost for us to make a ball of dough is not even a dollar. But we can charge $14 for pizza easily and people are happy to pay it because pizza is hard to make at home. You can, some people do, but the doughs are science experiments. To get great pizza, you got to work really hard on it.
People are more than willing. The elasticity in people’s willingness to pay allows us to charge enough so that our cost of goods and our personal costs are much lower. Our margins in the pizzerias are significantly higher than they would be in fine dining.
Edward: How do you leverage Michael’s name and reputation of genuine across the rest of the footprint, and how is that different from say, Wolfgang Puck?
Sunil: That’s a great question. Wolfgang Puck, obviously, is a national figure—not just national, international. Wolfgang Puck created the celebrity chef. Before Wolfgang Puck, there wasn’t anything like Wolfgang Puck. Michael happened to work for Wolfgang Puck at a restaurant called Chinois in Los Angeles. Wolfgang happened to write the preface for our pizzeria cookbook, which you can buy on Amazon if you want.
Anyway, he is a good friend of Michael’s, and he is a legend. There will never be another Wolfgang Puck. There are Bobby Flays and there are folks like that, but Michael is not built that way. For me, when I think of Michael, I think of him as an asset. I obviously think of him as my great friend, my business partner, the father to three wonderful kids, and all of the other things that he is. But when I put my CEO hat on, I just think of him as an asset.
Michael is great at understanding various aspects of operations. He’s certainly very, very good when it comes to innovation and mentoring in terms of teaching and cooking. He is just a savant when it comes to cooking. I’ve cooked with him for 15 years, believe me, he is a savant. He has the same ingredients as you and me, and he will cook something that you’re like, what? You do that? And he’s like, I don’t know, I’ve been doing this since I was 16 years old, so I better [...] that.
Anyway, he’s a gifted world-class artist. Artists have certain skills, and it’s important for me, as the CEO of the company, to put him in a position where he can add the most value to us in succeeding as a business. Not just in terms of putting great food on the table, but also in terms of us actually being not just viable but successful and stable as a company. It’s also important to put him in a position he wants to be in. He’s a valuable asset.
Where he makes the most difference for us is in his coaching, mentoring, innovation, and operations. What he doesn’t love to do—even if he’s quite good at it—is be a shill. I’m not calling Wolfgang Puck a shill, but that’s not a core desire in him to be on TV all the time, to be going on the Food Network, or doing those kinds of things.
I don’t try to put a square peg into a round hole. I thought about it for a few years. We do leverage Michael as a celebrity, especially in social media. But we’ve also tried to focus on the Genuine Hospitality Group as an entity. Sort of like Unions Square Hospitality Group in New York. We’ve also tried to build the brands of the individual restaurants where they stand in the room without Michael. Because Michael doesn’t cook there, and in fact, Michael never cooks there.
We have amazing chefs to cuisines at our different restaurants. One of the things Michael has done incredibly well is seed some of his control to others. Very difficult for founders in any industry, especially when you’re a founder and you created something from scratch and you’re used to doing everything yourself. Being able to give over some of that accountability and responsibility without second-guessing, letting people fail forward, and do it differently than you would is a really tough task for a founder—especially a chef. Michael’s done an amazing job of that. Not always been easy for him.
But just even giving me authority over every aspect of the company, then giving the chefs authority over their individual restaurants, and the GM’s authority over their steps in the service front of the house, and on and on. He’s done an amazing job while being involved. He’s had to find a balance of where he can be useful but empowering at the same time. I don’t think we could’ve scaled if he didn’t have that ability. We couldn’t have.
There’s only one Michael. He can only be in so many places at one time. He's done a great job of letting go of control to me and to all the restaurant executive team and our management team.
Edward: I want to dive to some of your marketing channels. How do you grow a restaurant business beyond simply having a good product and a good location?
Sunil: Those things help. I’m not going to lie. We have not always succeeded. In spite of the fact that Michael’s brand—our brand—here in Miami is extremely powerful, and I don’t think it’s arrogant or overconfident to say that. Anybody would say that we are probably the most well-known—if not one of the two most known restaurant groups in Florida.
Edward: How did that brand come about? Was it primarily because you had such a good product?
Sunil: Yeah. He changed the game here. Anybody will tell you that. He was a game-changer for Miami in the way that I tried to tell you before. There just weren’t a lot of restaurants that cater to locals.
Edward: What do you do as a CEO to grow beyond the fact that Michael’s a savant chef that can create amazing products, and you can choose good real estate? But now, what? How do you excel above that baseline?
Sunil: What we try to do was we’ve tried to open restaurants that built on Michael as the foundation. But then eventually, developed a legacy of their own without the lying on constantly Michael Schwartz, Michael Schwartz, Michael Schwartz because it’s a little bit disingenuous in some ways. Articulating to guests that Michael’s back there cooking your steak every day is absolutely ridiculous. We’ve tried not to be disingenuous. We set our ethics. Our values exist everywhere. They go through hiring, menu development, pricing, and servings.
We have this playbook for how we like to run our restaurant. Whether it’s Latin cuisine at Amara, a pizza at our pizzerias, café food in our café, or whatever it is. Even through our events where we do weddings, bar mitzvahs, and rehearsal dinners. Any of that is fundamentally genuine. We’ve established the word genuine and taken ownership of that.
The zeitgeist here, that you’re going to get a genuine, authentic experience where you’re not going to get bullshit quality of the product, pricing, some crappy server who doesn’t pay attention to what we need, or some hostess at the door that’s got a red velvet rope that tells you you can’t have a table even though there are 25 empty tables in the restaurant just so it looks exclusive. There’s a lot of that in Miami.
We just don’t do that. It’s not our style. We don’t cater to celebrities. They rarely come to our restaurant—sometimes, not often. They go to other restaurants in Miami that are (I would say) less focused on locals. We decided we wanted to focus on locals, and we wanted to establish the nature of the word genuine across everything we do. We’ve marketed the word genuine. We aggressively market our restaurants. We do a lot of product marketing where we basically say, hey, we have a special pastrami pizza today.
We get people to come for the food, for the individual restaurant brands, for chefs in those restaurants, and for the genuine over the Michael Schwartz. Michael Schwartz is a Trojan horse for us in marketing.
Edward: And you say you market it and you push it out. Where are you pushing it out? What are the marketing channels you’re using?
Sunil: Mostly social media. Almost exclusively social media. And we’ve done a little bit paid search, a little bit of performance marketing in the past. Mostly for our catering business. A lot easy like lead gen. It’s easy. It’s very difficult to track in the restaurant space. If I were to buy keywords in Google or if I were to buy Yelp, it’s just difficult for us to track through to conversion.
From my perspective, we have one person in our marketing. He is terrific. His name is Joel White. He used to work in Green Mountain Coffee, Red Lobster, and Pepsi. But he’s in charge of everything. He’s in charge of all aspects of our marketing. We have the great social marketing firm we work with called Gather & Grow, and they do a terrific job. But I’m used to working in companies where I can track down to the penny what we’re spending, conversion rate, and lifetime value of the customer.
In our case, we’re doing almost all social media and email marketing. That’s pretty much what we do. PR and events, but it’s really hard to track. I don’t know from one day to next how many people sitting in our dining room saw an ad, looked at a post, or even [...].
Edward: You say social media and email, are these all organic social and organic emails? You’re sending it to people who have already subscribed to you or people who have already fanned your Facebook page?
Sunil: Almost all of our marketing comes through Instagram. We have bought some ads and we’ve paid for placements on Instagram in the past. But most of what we do is all organic. Whether it be on our website, through email, or through social.
Edward: How do you optimize that? How do you know how many times you should be posting, or what images are working, which ones aren’t, which ones are driving revenue, and which ones are just vanity metrics?
Sunil: Hard to know. We go off of engagement scores—how many people viewed, liked, and engaged with it through a comment. We try to use some of those metrics to understand what works and what doesn’t at that level. We’re just not sophisticated enough yet to connect revenue to Instagram posts. We just don’t.
What I’m told is, hey, look, you can connect the two. There’s a little bit of a stretch. I’m sure other people do much better jobs in much bigger, much more evolved (I would say) online marketing companies probably doing much better jobs than we do. We’re just a small group of 10 restaurants with 2 people in marketing, 1 ½ people in marketing, and 10 people in our headquarters total.
We basically hope that the fact that people are engaging—by commenting or liking—will indicate that people are going to come to the restaurant.
Edward: Many years ago, I tried to run a marketing business for restaurants. It didn’t go very well. You must be approached all the time by companies who offer, hey, do these coupons, we’ll do a paper performance and get people into your restaurants. Have you ever considered that? And if not, why not?
Sunil: Generally, the only marketing channel that we use that is anything like that is UberEats and DoorDash. That’s probably a whole another podcast, but it’s a fantastic subject to discuss. Because for you and me, having come from Expedia, it’s not very different in a lot of ways, especially with the pandemic and how reliant people are on take out delivery these days. It’s not very different from what hotels.com, Expedia, and Travelocity did years and years ago where they sat down right in between supply and demand and charged a very healthy fee for that service.
Delivery is very impractical to do on your own for all kinds of reasons—insurance, managing schedules, and hiring. These guys have a big billboard—UberEats, DoorDash, and Postmates. We’re paying some of the billboard [...] for sure, but I would say that is one channel that we do spend a fair amount of money in for marketing. I spend a lot of time trying to understand how incremental that business is, how cannibalistic it is versus coming to the restaurant. Because we’re going to pay 25%–30% of our revenue for every delivery order we get from these guys.
When you think about our margins, which are pretty narrow as it is—depending on how much you burden your P&L for that and depending on how incremental you think it is—you’ve got to be pretty smarter than how you use those services for sure.
Edward: You have 10 restaurants. Have you done, like phased in AB test to determine what that incrementality looks like?
Sunil: We have. We’ve done AB tests. It’s funny, AB testing is not something people are thinking about in the restaurant industry. When I first started talking about it, people were like, AB what? But we did an AB test here. Basically, we just turned it off, and we compared it to historical data. We compared it to another one of our pizzerias. What we found was not surprising to me. A lot of that business was incremental. We did see a significant downturn when we turned it off.
That’s because I don’t believe people are thinking, well, should we order in tonight or go out? They’ve made the decision at the top of the funnel that we’re ordering in. We’re not going out tonight. We’re on our pajamas watching Netflix. It’s just a question of where I’m ordering from.
If you think about burdening the P&L, staff are already there. We don’t have to add much more staff to create a delivery order. The rent’s paid for, the lights are already on. Depending on how you burden that income statement, really, just with COGS, a little bit of personnel, if you feel like you must—depending on how much delivery you do. And then the delivery fees, the OpEx—there’s a little bit of supply cost, but you can convince yourself that that business is profitable. Especially if you consider it to be 80% or 90% incremental.
Edward: Sunil, this has been fantastic. Thank you for being on the show. Before we go, I like to end with your quake book. Do you want to tell us what your quake book is and how it changed your thinking?
Sunil: Yeah. I read it a long time ago, haven’t read it since. I read A Connecticut Yankee in King Arthur's Court. Twain’s problematic in a lot of ways, for obvious reasons. I always think about just how grateful we should be for the tools and the life that we have. Especially given the privileged life that we lead here in the United States and specifically, at least my world.
If I went back in time, and they said, hey, tell us about this thing called electricity, airplanes, or anything. I’m not sure I could add any value to people 200 years ago or 150 years. Running water is a mystery. I have no idea how the lights come on every day or how television works. You probably know 10 times more than I do [...] predicting the weather.
If they said, hey, why don’t you just know that there’s going to be a hurricane in five days and you should probably take shelter? How do you know that? No, no, I turn on the TV, and then there’s a radar. What radar? What’s a radar? That’s the thing I think about is how we should never take too much for granted the wonderful blessings that we have. It would be a damn shame to waste this incredible luck that we have to be born at this time and not be very appreciative and grateful for it. That’s why it was my quake book.
Edward: Thank you, Sunil. That’s a great way to wrap up. Really appreciate your time today.
Interview: Sunil Bhatt, CEO Genuine Hospitality, Part 2