How a $600 loyalty program is boosting Montana based franchise Rib & Chop House Podcast Transcription

Nov 22, 2022

0:00:03.7 Sam Oches: Hey there, welcome to Take-Away with Sam Oches, a podcast from Nations Restaurant News. I am Sam Oches, Editor-in-Chief here at NRN, and this is the show where I give you an all-access pass to the restaurant industry’s most influential decision-makers. This week, I’m talking with Yaron Goldman. He is the CEO of Rib & Chop House, a comfort food forward casual dining concept based in Bozeman, Montana that is part of the Finally Restaurant Group and it has 13 locations across the Mountain West. Yaron joined the podcast to talk about how they’ve streamlined the concept to prepare for their just-launched franchise program, what he thinks about the impending recession and its impact on high-end concepts like his, and how loyalty has become more and more about providing access and exclusivity. In this episode, you will learn more about how you can save on costs without sacrificing quality, why smaller markets can carry bigger potential, and why paying your guests to be loyalty members is an investment that can pay massive dividends. Jumping now into my interview with Rib & Chop House CEO Yaron Goldman. Also don’t forget to stick around after the interview as I will share my six takeaways from this discussion, actionable insights that you can take with you on the go.

0:01:31.8 Sam Oches: All right, Yaron Goldman, the CEO of the Finally Restaurant Group and the Rib & Chop House. Yaron, thanks for joining me today. To start, for anybody who’s listening, not familiar with the Finally Restaurant Group and this concept in particular, the Rib & Chop House, give me the quick synopsis of what this group is all about.

0:01:51.0 Yaron Goldman: Yeah, for sure. Thanks for having me on, Sam. I really appreciate the invitation. So Finally Restaurant Group was founded in 2000 in Bozeman, Montana, and it started with the Rib & Chop House brand, which is a higher-end steak restaurant that the first location was in Livingston, Montana. And over 20 years, it’s grown to 13 locations with a couple of licensees, and we’re building a few more locations next year, and we just started a franchise program as well. But the basis for the brand and the business is really… It is a place where everyone’s welcome. We like to say we’re very approachable. If you come into a Rib & Chop House and your significant other and yourself want to celebrate anniversary or a birthday and get dressed up and have a big night, you can feel totally welcome as well as someone coming in with some kids after a ball game or want to hang out with their friends and watch some sports at the bar and have a great cold beer. It’s great for all of that, and we have threaded the needle with this brand to be able to make all of those groups of people feel very welcome all at the same time.

0:03:01.5 Yaron Goldman: It’s very unique in the industry. I haven’t seen a lot of brands that can thread that needle, and I feel like Rib & Chop House does a great job with that. Finally Restaurant Group also has three other brands. One is a Mexican restaurant in Billings, Montana called Rio Sabinas. Ideation came from the founder, Burke Moran, where he wanted to do some things from his father’s ideas of Mexican restaurants back in Louisiana, where he had a little bit of Cajun flair in the Mexican space. And we have one location there, and we also have a brewery that’s a sister company of ours based in Wyoming that actually supplies us with a micro-brew called Accomplice that we serve in our Wyoming and Montana locations that we only serve at our location. It’s a nice point of differentiation for people who are into micro-brews. And the Accomplice breweries actually won a ton of American Beer Festival Awards. And it’s a very, very high-quality brand. And then our fourth brand is called TJ Ribs, which actually was started in the late ’80s by Burke’s father, and then Burke purchased from his father in the late 2000s. And it’s a sports bar/barbecue place that has three locations in Baton Rouge, Louisiana, all really high volume.

0:04:30.2 Yaron Goldman: Food is amazing and just been a staple in Louisiana for a very long time. It actually hosts the LSU Coaches Show there. It’s very popular with LSU. We do a lot of catering and sponsorship with LSU football, which is very hot right now.

0:04:46.4 Sam Oches: Yeah, sure. Well, this is the first time that I’ve ever heard of a connection for a restaurant company between Louisiana and Montana. I never really would have put those two together, but sure.

0:04:57.6 Yaron Goldman: It is unique, that’s for sure.

0:05:00.7 Sam Oches: It sounds like it works. I will confess, I’ve never been to Bozeman. I’ve never been to Montana, unfortunately. I got to change this soon. I got to get up there. But tell me how the Bozeman community is reflected in Rib & Chop House in particular. How does this concept really come out of Montana? How is that reflected in the brand?

0:05:19.2 Yaron Goldman: Well, I mean, just from the way we have… We have what we call Rocky Mountain Hospitality, right? So the Marans are from Louisiana originally. So there’s always some kind of Louisiana flavor flair to the menu. But the biggest part is, at the end of the day, we are meat and potatoes, big steaks, good value, high quality. And you can get a beer, a steak, a potato, and leave for under $30 if you want to, and feel really good about it. And it’s really high quality. And that’s been one of the reasons for the success is we’ve only charged what we’ve had to charge, and there was no evaluation of markets to say, “Hey, we could probably get another 20 or 30 percent margin here. We wanted to charge what we had to do to make the bills and make it a profitable restaurant, but also be the community’s restaurant. And part of being the community’s restaurant is really making it a menu that’s, like I said before, that’s approachable and affordable and something that you can bring your whole family to and feel good the next day.

0:06:33.3 Sam Oches: And tell me about some of the evolution of the brand from the past couple of years, ’cause with COVID, with the explosion in off-premises channels, was that something that Rib & Chop House, is that something you guys have pursued with this brand too?

0:06:45.7 Sam Oches: Yeah. So when I got here in the middle of COVID, so I took over as the CEO in September of 2020, and it was kind of in the middle of the storm, right? So restaurants were at half capacity.

0:07:00.3 Yaron Goldman: Weren’t really set up for takeout and to-go. We were doing it on an ad hoc basis. And when I got here, we started really thinking about strategically, how do we structure the actual locations and what do we do for to-go’s and takeouts, and how do we do partnerships with third-party delivery in a way that we can still serve our food in an affordable way and profitable for us as well. And we were able to begin that process in late 2020, ’cause we never were part of third-party delivery before COVID. We just didn’t think it made sense. And then we were able to get about 7% of our total sales on third-party delivery within 90 days of working with them and integrating with DoorDash and in our markets. We only just decided to just DoorDash ’cause they integrated with our POS. Eventually, we may do other ones. We also want to keep it simple because the end-dining experience for our guests is so important.

0:07:57.3 Yaron Goldman: We want to make sure we really focus on that. So we were able to do some of those things with COVID. We also with labor, before COVID, our average person in our kitchen makes 13-14 dollars an hour. Beginning at ’21, we had our average kitchen employees making over 18. And some markets, mid-20s, and this is for hourly employees, that we just were not prepared from a unit economic standpoint to deal with. So we changed the model. I worked on getting more streamlined product in, all really high quality. But before I got here, we cut all our meat, all our steaks by hand. We take a lot of pride in that. But the numbers don’t make sense when the price of beef is double and the price of labor is double. And if you make a mistake with steaks, you’re going to either upset your customer or totally mess up your cost of goods. So we were able to change some of those things and work with our suppliers to have them cut to our specs and delivered to us, pre-cut, still high quality, still fresh, nothing frozen, and kind of manage the labor and the food costs like that.

0:09:13.6 Yaron Goldman: And we’ve done that in several of our prep and kitchen items to allow us to manage our labor and manage our P&L and actually lower food costs in this current environment, which has just been tremendous. Because before COVID, it all kind of just worked out ’cause sales cures all and everyone’s like, “Oh, it’s fine.” And when I got here, plus COVID, I took a different look at it in a different approach. And COVID kind of forced everyone to face the reality. Doing the way you’ve always done it just doesn’t work anymore. COVID changed the game for everybody, obviously.

0:09:47.7 Sam Oches: Yeah, going back to your, you know, going to your suppliers and having them do some of that prep for you. I imagine that if your customers were pretty cued into that, that might make them a little upset. But at the same time, it sounds like you’re doing this, so you’re not passing the buck on to them and increasing the prices a lot. So I’m just curious, you know, for having sort of a premium message to your customers, how do you continue to really offer that premium experience, but then find these opportunities to save on cost? I guess how do you balance those things without ruining some of that brand promise that you you are extending to your guests?

0:10:27.8 Yaron Goldman: I know, absolutely. I would say I’ll give you some examples. Like when we were looking for ways to manage costs our… Some suppliers came to us and said, “Hey, we can offer you a frozen steak,” which we said we just won’t do. We’re just not going to do a frozen steak. But instead, we said we want to do our same product, but cut it for us to precisely the exact spec we need. And actually, it’s an improvement in quality. Because before, if you ordered a 15 ounce ribeye, you may get 14 ounces, you may get 16 ounces, you have too much marbling, maybe not enough. But when it’s done like this, it’s perfect every time. It’s the exact same product, where we take that labor out, and now we’ve repurposed it to make other things that we make from scratch. So we get a ton of credit for. I mean, when we made the change for the steaks, we had literally zero comments or complaints. Our guest satisfaction stores actually went up ’cause we’re more consistent. And people do like consistency, right? They don’t want to go in and order and order a 10-ounce steak and get an eight-ounce or they get a 12-ounce one time.

0:11:31.0 Yaron Goldman: And they think, wow, 10 ounce is a lot, which really not ’cause they gave them 12-ounce steak. And the next time they get eight, and they think they’re getting shortchanged, or we’re lowering the portions, because we were very adamant, we will not lower our portions. We’re known for a place when you leave your phone, you feel really it’s… Most people have to go boxes, right? So we don’t want to change that. But you know, making certain dressings from scratch, and making sure we get credit for that. And then other things that we were making from scratch, we weren’t getting any credit for and then working with suppliers and again, using our recipes, and having them make it for us. Everything from our gumbo, our gumbo is what some one of the things we’re known for. And we were able to get our recipe to suppliers, and we go through so much of it and be able to ship to the stores. And that to us was a big win. And our guests actually thought it’s a better quality than what we’re doing. And again, repurpose labor, and now we’re able to do more specials.

0:12:29.2 Yaron Goldman: Actually, this week, we’re rolling out our most updated menu with new menu items, new salads, new side items all made from scratch. So as long as we balance that, then it’s fine. But the other part is making sure you don’t just go everything comes in a box, you heat it and serve it you can at this level. And for this price point. That’s really important to us that we balance both and one of the things I also implemented when I got here is we do focus groups, we bring in our loyalty and royalty members in for tastings, and we get their feedback and we test the test test everything we do before we just roll it out. Because before I got here, someone would have an idea in a conference room and the next week could be on every menu. And we had no idea what the consequences would be of that. And as you know, Sam, you can’t just do those things, you have to really be thoughtful about adding subtracting anything to the menu or changing any recipes, ’cause there’s so many different things, unintended consequences that you’re just not sure. And that’s why you got to test it.

0:13:30.6 Sam Oches: I’m curious, what do you think are the priorities from the customer? Speaking of all this, because, of course, quality and food drives the restaurant industry, right? By and large, people go to restaurants because of a craving. But I’m curious what you think their priorities are now because, you know, all of this talking about, you.

0:13:48.1 Sam Oches: Know, streamlining some of the operations, it feels to me like customers don’t need to hear the words hand carved anymore, right? Because on one hand, yes, they want quality. But on the other hand, they want lower price, they want convenience, they want also an experience. And I’m sure Rib & Chop House experience is key to what you guys are doing too, from your perspective, and as you do focus groups, what are you hearing from customers that those priorities are that they want from Rib & Chop House?

0:14:15.7 Yaron Goldman: I’d say several things. Number one, in each year since I’ve been here it’s been different, right? End of 2021, it was as simple as can we get a table? And will someone serve? And will you bring us food? I mean, I know that sounds ridiculous.

0:14:32.9 Sam Oches: Really low with the bar.

0:14:35.0 Yaron Goldman: Well, the bar was can you be open for the days that we used to be open? I mean, I don’t want to have the restaurant names because it might sound inappropriate. A lot of our competitors were closed three days a week or closed for lunch seven days a week or all the stories you’ve heard everywhere. And we were blessed not to have to close any of our restaurants or any anything we’re having to do with with staffing. And the way we did that is we all just worked really, really hard. And we paid a lot of people a lot of money and bonuses and everything we could do to stay open ’cause we felt like staying open is the key. So in ’21, the expectation was, I mean, I know it sounds ridiculous, but I was like, “Can you just serve us?” because there were so many places around the country that it was in our markets, it was hard to just get into a place.

0:15:20.3 Yaron Goldman: But now that we’re all, you know, kind of back to normal. I think the priorities… Is this the experience… I think when you come in to a Rib & Chop, and this is, you know, very similar, I think, for casual and fine-dining restaurants, it’s part of the experience is obviously it’s service and you want great food. But you know, what is the music like? And if you’re there to watch a game, do they have the game you want and is on the good TV or what you know, and will they, you know, take care of those things that you want to see if you have children like one of the things when children come in, we haven’t… We automatically bring a child an apple with some yogurt, if they come in, whether they asked for it or not, because we know that when you have a meal with a child, the child can want the food right away, and they don’t want to go through all the the pomp and circumstances. Here are cocktails, here are specials, kids just wants to eat. So I know parents really like that. So again, approachable is what we say we are.

0:16:16.4 Yaron Goldman: But I think from an expectation, it’s about the overall experience outside of food and service, which is obviously the table stakes. I really think that the level of music, the decor, you know, the feelings of the… For someone who wants to watch the ballgame, can you, you know, bifurcate that area of the restaurant to someone who wants to have a nice meal and a bottle of wine doesn’t care who’s playing. And then again, that goes to design and music and all those different things that I think we do a really nice job with.

0:16:47.1 Sam Oches: Yeah. So it sounds like a lot of the work that you guys have been doing since you came into the group is to really systemize this and to streamline and to make sure to, a word you use consistency was key and obviously to have multiple units and to scale, all of those things are key. But you guys are also now going to franchise this concept. I’m curious, first off, is this what you were brought in to do? ‘Cause as I understand, you have a franchise background where you brought in to set this thing up for franchise growth. And then, you know, second part of the question is, what did that look like? How have you gone about setting this brand up to prepare it for franchising?

0:17:25.3 Yaron Goldman: Well, I think it was more… I was brought in to help steer the ship through the COVID times and then get us through and how do we get to growth? ‘Cause the company has grown in the past and then taken some steps back for a variety of reasons. It’s founder owned and founder run and that creates its own unique issues and not always negative but sometimes can be because there is this status quo and all these sacred cows and all the things that go along with that when you’re founder owned. But my job was how do we get to growth? And my first thing with a franchise background is, excuse me, by default, you can’t grow if we’re not consistent. If every location is run by whoever the GM is and how they think it should be run, I don’t know, I just don’t know how you grow that. If Bobby runs it one way and Sally runs it one way, in my world, in my mind, I don’t think that’s possible. And maybe you can get to 4, 5, 6, even 10 or 12 restaurants. You can’t get to 25 or 50 by doing that.

0:18:35.0 Yaron Goldman: So streamlining and getting the processes in place to me was the first step. And the idea behind franchising, although it was in the back of the mind of ownership when they hired me, it was more we want to grow the business. I personally believe and I think we all believe here, this has the potential to be a 50, 100 unit regional brand. I don’t know if it’s a national brand, but I think it has potential to be a really nice regional brand. And part of that was if we franchise, it’s a little capital light. And the opportunity for someone to come in and be a single unit operator is very compelling and can make a really healthy return. But to be frank, I don’t know this concept where we are today is going to be great for someone who says, “I want to do a 10 unit area development agreement and build four or five a year.” I don’t know that we’re set up for that yet. Just also the markets we’re going to target over the next three years, which are smaller markets, 50-100,000 people. Denver maybe, maybe. But we’re not going to Dallas.

0:19:46.9 Yaron Goldman: We’re not going to Chicago. We’re not going to larger markets because we know what works. And these smaller towns kind of going as the big fish in the small town. And the day we open, we’re one of, if not the best restaurant in town. There’s a lot of equity with that. And I really believe single-unit operators who become franchisees in this business, in this brand, will do really well.

0:20:10.9 Sam Oches: I really appreciate that. I mean, I come from a small town myself. And I mean, I think to this day, Chipotle is one of the nicest restaurants in town. And there are hundreds of communities across the country where they just don’t have that great restaurant concept that people can go to for date night or whatever it might be. They’ve got to drive pretty far away. But with the franchising strategy, to your point, you hear about somebody say, “I’m going to go to Denver and I’m going to drop 20 or 30 locations into the Denver market.” Do that in Dallas. Do that in wherever. And so this is all kind of a little bit unique. Tell me about talking about that sort of single-unit operator. How does that really benefit this concept and this franchising strategy? What are the advantages to this? Put the one in the smaller market with one-single-unit operator and kind of repeat that in multiple small markets across the country.

0:21:06.0 Yaron Goldman: So we’re going to be focusing on the Midwest and the Mountain West to do that. We’re going to try to stay somewhat geographically coherent, ’cause I know that I’ve been a part of other brands. I’ve seen other brands that say we’re going to stay in a local market and then someone waves a check to them 2000 miles away and they go, “Okay, we’ll sell you that market.” And they can’t service it and they can’t do all the things right. And they lose standards. So we don’t want to do that. But the idea of the single-unit operator in some of these smaller towns, I feel like you’ll have better control. And if we have great processes and great standards and systems in place, then to me, then we just need someone who wants to go in and own that restaurant and be the owner in the face of that location in that market. One of the things we always talk about is being the community’s restaurant. And we really do a nice job of that. Everything from coaches shows and almost for every college that we’re near when we go into a town, you know, those are the type of things that you can do in these small towns and really, like I said, make a big splash and and just really give back to those communities.

0:22:17.1 Yaron Goldman: And you get a lot of brand equity when you do that. So as we rolled out our franchising program, as suspected, we’re having people in these smaller towns say, “We want one here. We want one here. How do I sign up?” So we’re already getting a really nice pipeline of people who are interested, not all necessarily qualified, either financially or operationally. But we’re getting there and that… And it’s literally only been live for three weeks. So I think we’re going to have some nice traction there. And we have two licensees currently, and they’re part of that model. I mean, they both individually own one location and do really well and are very happy with it. And I don’t know necessarily if they would do great if they open a second location. I think that’s maybe not their skill set, and that’s okay. And on some level, and you could talk to a lot of restaurant franchisees who have eight, nine, ten. Some days, I bet they wish they just had one. They could run and they would do great, you know, ’cause a lot less stress and they can cash flow really well on the one with all the overhead and things.

0:23:22.7 Yaron Goldman: So I think at the beginning, this really does make sense. Now, if we evolve and we get to 25, 30 restaurants and we can have an economic model that can have someone be able to make money above the store level at a rate that makes sense and they can own three or four. That may make sense. But on the short term, I think this is the right approach for us and owning it’s okay too, ’cause you hear all these brands that always want multi-unit experience, development agreements and all those things. I just don’t know that’s for us right now. And I’m not apologetic, excuse me, apologetic about it either. I think it’s totally fine. Everyone should have a space to be in. And for where we are right now at this level, I think it’s fine. And you know, AUVs of 4 million dollars, people can do really well.

0:24:08.0 Sam Oches: Sure. Well, yeah. And speaking of economic model, tell me a little bit about the economic model for going into a small community, because, you know, certainly not to downplay the potential of a community. But I take it that these communities are probably a little bit lower income than, you know, a bigger market, of course. And depending on the community, you know, maybe they don’t have a lot of forward trajectory, you could say. Is it enough that you’re going to get… You’re going to trade, you know, you’re going to get a better deal on rent, you’re going to get lower costs across the board in this community to make up for, you know, the fact that maybe you don’t hit the kind of sales figures that you would in a bigger community? Is it just a wash? Tell me a little bit about the economic model and how it can make sense to go into a community like that.

0:24:54.1 Yaron Goldman: Yeah, well, I think the best example is we’re going to be opening up. We signed a lease. We start construction a few weeks for Great Falls, Montana, small town, but a ton of growth the redeveloping downtown only has about 50,000 people, but it also has the military base there and they’re doing a bunch of investments in there at the military base that one in particular deals with ballistic missiles, one of three places in the country that has ballistic nuclear missiles and they’re updating everything. So it’s like a billion dollar project over the next 5, 10 years. So that area is just going to be booming. But when you know, booming for Great Falls is going to maybe 50,000-75,000 people. But we have very little competition. Everyone knows about us. When we signed our lease, we made the local news. We were on the paper. They asked myself to come speak at their business development conference there ’cause they were so excited about a Rib & Chop House. Everyone will know we’re open within a month of us opening. And if I went to a market outside of Dallas or outside Chicago, I may get a blurb on the fourth page of the paper that we’re there.

0:26:10.3 Yaron Goldman: And we’re taught, you know, we’re behind, you know, we’re in some shopping center where there are seven other fast or casual dining restaurants, plus a couple of fast casual and some QSR and it will take four years for anyone to kind of know who we are. We have to do what we’re doing. It offsets the idea there’s a bigger population by the fact that there’s less competition. And we’re like I said, the big fish in the small pond. The real chat and as well to your point, the real estate is much, it’s much more effective. I mean, inefficient from some of the costs of these larger towns where the cost of real estate is is just… It’s to the point it makes no sense to open locations of this size. But I’ll also say that the…

0:27:00.2 Yaron Goldman: Other part of this equation is they’re harder to run from an above store level ’cause you have locations that are, you know, three hours apart from each other. So if you have 10 locations in the Denver market, you may only meet two people who are traveling, you know, maybe, you know, the traveler, they can visit five locations in one day.

0:27:19.7 Yaron Goldman: Right?

0:27:20.5 Sam Oches: Yeah.

0:27:20.6 Yaron Goldman: And it’s totally different. So we have a different above store model, and that costs a little bit more to operate. So there’s some offset. It’s not all perfect, but it’s a good trade off for us.

0:27:31.1 Sam Oches: Yeah, it makes a lot of sense. Pivoting just a little bit, I really want to talk about your loyalty program, ’cause this is a unique loyalty program. This is, as I understand it, $50 a month, $600 a year, and the customer gets 10% discount off every meal. Is that correct?

0:27:48.3 Yaron Goldman: They do. They get 10% off every meal, they get top of the waitlist if they come in without a reservation, so they can feel special. And they also get $50 a month in gift cards. So really, at the end of the day, it’s a gift card program. And yeah, they’re committing to eat with us every month ’cause if you get it, you’re going to use it, right? And it’s just being gangbusters. We think we’re going to end our loyal, our regular loyalty program, and focus just on the royalty program. So we have a traditional loyalty program, we spend $10, you get a point after you get 100 points, you get, you know, a percentage off or a free meal or whatever it may be. But I think we’re going to exit that all together. And then the royalty program may have different levels. Because the reason we even have to cap it, ’cause we capped it right now, we have a we’ve sold 1000, about 100 per location. The licensees have not been a part of it yet, to be clear, just because we wanted to work through it before we did anything.

0:28:49.9 Yaron Goldman: As a former franchisee, I thought everyone would appreciate us working through a new idea before we were just roll it out. I’ve seen it both ways. It’s always nicer to have the franchise or take take some of those lumps. But the key is right now, we have people on waiting lists. And the reason we’re not just selling it to them is if they come in and want to, you know, a table, we put them at the top of the waitlist. We can only do that for so many people. So our next level of the world will be, you know, this will be like a founders club. And then below that, it will, we haven’t thought of the name yet, I’m not smart enough, we have people who are will come up with another name for it. And we’ll sell them this exact same thing without the waitlist. And the feedback from our royalty members is they really like the waitlist. But I think for new people, we could sell it in a way. And again, what we’re trying to do is it’s really… It’s having people commit to eat with us every month because they’re getting the gift cards.

0:29:50.0 Yaron Goldman: And even though they get 10% off, they’re spending almost 20% more, which is fascinating.

0:29:56.0 Sam Oches: I was gonna ask you about. How does it work out for you guys in the end? Because to me, all of this sounds like this ends up being a cost to you. But you’re actually encouraging to eat more and them to eat more and order more than they otherwise would.

0:30:09.3 Yaron Goldman: They do because they order more appetizers, they order more alcohol. They’re our biggest fans. I mean, some of the… Like I’ll give you an example of 50% of our I’m looking at my numbers at me or 50% of our royalty members come 1-2 times a month. But 15% of them come 5-6 times a month. So with an average PPA of $75, the $50 is gone quickly. The gift card. And they come in ’cause they get 10% off they come in because they feel special. And it’s like a little bit like being part of a club. Like special like a like the way people feel good about being you know, elite level for airlines or something like that. So we’re kind of basing it on that. I think the traditional loyalty programs are just… They’re commodities at this point. Everyone expects it. There’s a loyalty program for absolutely everything that people are just don’t even care anymore. They don’t want to give their number out. They don’t want to get the text messages. They don’t want to do that. This is kind of special. And they also get a beautiful set of steak knives when they sign up.

0:31:16.1 Yaron Goldman: We’re also sending out Christmas gifts. We just finished it last week. We have a cookbook. Rib & Chop has cookbook, we’re gonna send every member as a thank you and Merry Christmas. And then next year, we’re trying to evolve it to wine tastings and special tastings and things of that nature. So we’re gonna really try to make it sticky and something that they brag to their friends about and get more people because I do think there’s some… There’s something here that’s special that we need to dig into and figure out a little more. So this was kind of this year was really one large test and then next year we’re gonna take it to the next level. But again, I think being in smaller towns, you do this. Being in a larger town I can’t… I don’t see us having as much success in a larger town with a program like this.

0:32:02.0 Sam Oches: Right? Yeah, I mean, you know, to your point, the loyalty program has evolved to this place where anymore it’s about exclusivity and it’s about experience, right? I mean, it’s not about the punch card 10th sandwich free. It’s about feeling like I’m a part of the family of this company. That’s why you see these NFT restaurants popping up right? I mean, at the core, what they’re offering is exclusivity and the feeling like you’re a part of something special. You’re a part of a club, a part of a family. So that’s what you guys are obviously creating. So I mean, what is your gut feeling on how franchisees will feel about this? Because ultimately, on surface, it seems like there’s a cost to them to be able to run a loyalty program like this. But you guys are clearly being able to prove to them that this is going to be advantageous in the long run, right?

0:32:51.4 Yaron Goldman: Yeah. I think it’s no different than when people sell gift cards for $100 and you get a bounce back of $20, right?

0:33:01.6 Yaron Goldman: I mean, for us, we’re given a bounce back basically of 10%. That’s all we’re really giving them and they absolutely spend more. So I would tell franchisees, this is a huge win for them. But again, coming from that world, we won’t force anyone to do it. And the only thing we’re going to force people to do is hold standards on these types of programs. If for some reason someone doesn’t want to do it, we just… We’ll let them see the numbers eventually that I feel like they’ll come to us and go, “How can we get started?” I mean, everyone we’ve spoken to is just… Thinks this is a really neat idea. And so far, like I said, it’s been a big win for us. And I think if we can get it to the next level, this has huge potential for us. This is really the future of loyalty. People getting the exclusivity and the residual income every month, right? Why do people push gift cards at the end of the year so hard?

0:33:55.2 Yaron Goldman: Because they want that January sales. And what we’re doing is we’re just smoothing the line to basically do it all throughout the year. Now, it’ll be interesting to see how many gift cards we sell this year for Christmas time, right? It’ll be interesting to see if this has changed anything. You know, I don’t know. We’ll find out. And then the last thing I’ll say is, in ideation is also a corporate membership because a lot of people who own businesses near us want something to give to their salespeople to take people out or for their staff or something like that. So we’re thinking about how to be creative and maybe some kind of exclusive corporate membership for just our really heavy users. And that may only be like 10 per location. And I don’t know if there’s a big upside financially. That’s more just, again, brand equity and the stickiness and having them bring their group of 15 people to us as opposed to our competitor.

0:34:48.4 Sam Oches: That’s the black card, right?

0:34:50.7 Yaron Goldman: Yeah, exactly. Something to that effect.

0:34:52.4 Sam Oches: Platinum, yeah. So I’m curious. I do want to talk about sort of our economic conditions that we’re in because, of course, as we speak, we are at the tail end of Q3 earnings season.

0:35:03.2 Sam Oches: We’ve gotten a glimpse at what the major restaurant companies are reporting. And we, of course, are really mired in inflation still. And everybody’s talking about recession. Why this, of course, is relevant for you is in these economic conditions, people tend to trade down. So they tend to trade down from casual dining to fast casual, fast casual to QSR. You start to see a lot more value deals pop up. We’re already seeing that in all the companies that have been reporting. Chipotle talked about that they’re losing customers to McDonald’s. So we already see trade down happening. We already see a lot of the companies doing deals and bundling and discounts. And recession will only really will make that even more important for a lot of these companies. I’m curious for a company such as Rib & Chop House that places such a premium on quality of food, the experience, being this nice night out. How do you protect against that? How can you set this brand up to get through inflation, potential recession? How can you guys really survive the economic conditions as they are?

0:36:11.3 Yaron Goldman: Yeah, so when we think about people trading down in our markets, it’s more trading down within our menu. And that’s what we’re seeing, right?

0:36:21.1 Sam Oches: Interesting.

0:36:21.5 Yaron Goldman: So we’re seeing people come in and instead of ordering the $44 ribeye, they’re ordering the $26 filet or ordering the $26 filet, they’re ordering the $16 burger. And we have a menu where people can come in and kind of trade down within that. But what we’re losing are the people that they would always come in for the burger, the wings or something like that. Those are the people that we’re losing from a transaction count. And to make sure we don’t lose that guest count, we have to do a really nice job of execution. To me, I’ve come from an operator background. I just think execution is the key because when I saw at least in ’08 and ’09, the last time where the great recession, and I personally believe we’re in recession right now, whether it’s official or not, it doesn’t matter. You can see it is execution because people, although they appreciate a value deal at this level of casual dining, and even quick casual in my experience to some extent, they just really want a good experience.

0:37:26.0 Yaron Goldman: They want to feel like the value can come not only from the dollar, it can come from feeling that they were treated well ’cause each dollar counts more to them than it used to, right? It’s like I spent $40 on X or Y, you probably hear yourself saying that sometimes to your friends. Or you may say, “I paid $40, but it was amazing food or great experience or high quality shirt or” whatever the purchase may be. So I think we really have to be on our P’s and Q’s with operations and execution. That’s the way we fight this. We won’t do bundles. I mean, we’ve done in the past, before I got here, I’ll just say some specials that don’t make sense for our brand and who we are. I don’t want to go back to that. I think we’re executing a high level at a couple of really, really nice years based on not discounting, but just executing a high level and giving great quality. And then we’re adding new menu items and quarterly we’re doing that and we’ve engaged some outside R&D people to help us. All those are all the things that will really engage our guests to be able to withstand the recession that I think we’re going to be going through for the next year.

0:38:35.3 Yaron Goldman: And hopefully we stand strong at the end. I also think we have a really nice real estate from the standpoint of where we are real estate is percentage of sales and our real estate costs. And I think we’ll be able to withstand that and hold the line on our cost. And we don’t want to take any more price. We’ve taken price a couple of times and we really don’t want to take any more. And I think also the other side is commodities will start coming down and that will actually allow us to maybe even lower some prices, which we’d like to do on some more stakes and do what we can from that standpoint.

0:39:11.2 Sam Oches: Going back to also some of the streamlining, you talked about some of the streamlining you guys have been doing. Also, what we’ve seen in the reports from the major companies recently is a lot more of that. It’s a lot more of trying to automate invest in technology. Outback Steakhouse, I’m sure a competitor of yours, they reported that they’re going to be investing in both front of house and back of house technology to try to streamline things ’cause you can save on cost of the operation. Then you can improve your profit margin even as we go through a recession. Beyond the cutting the stakes and preparation that you guys are doing that you have shifted to anything else operationally speaking that you can look at as far as streamlining the business. Are you looking at technology? Can you do some of these things to maybe further get you through the recession without having to… Having costs get out of control, I guess.

0:40:06.6 Yaron Goldman: So I think in our, and Sam, I can’t wait till you get a chance to come to a Rib & Chop. But I think for our brand, technology needs to be used, but not seen by our guests. Where we go to the model where you order at the table like Darden’s done with Olive Garden and other brands I’ve seen that are doing that, which is great for their brands. It’s totally fine. There’s nothing wrong with it. Like at our TJ ribs brand, which is a little… It’s a different guest. We’ve been talking about potentially doing that. But for Rib & Chop House, it doesn’t make sense for us to do anything like that where the technology is going to come in for us is how do we streamline products that come in using what I call speed scratch prep as opposed to pure prep where you start from scratch on everything. So speed scratch is where you do… You have some things maybe made for us to our spec and then you mix two or three ingredients and then have someone… You put the recipe together and things like that. So technology from a back of the house standpoint, new equipment, all those things are in play front of the house, the only thing really at this point from a technology standpoint, we’re looking into and we’ve been doing we’re doing a better job is tying to our reservation system and having a system that keeps up with each table on where they are in their meal to try to update our reservation system.

0:41:39.0 Yaron Goldman: So people know how long the wait is. And if they feel like there’s, you know, 30 minute wait, they’ll come in and get on the list. If it’s more than that, they’ll just go to the next place, right? So table turns and all that. But the guest experience in my view and our team’s view and really everyone’s view here is it still is a relationship and they want to talk to the server. They want to know what the specials are and all of those things. I mean, we’ve even talked about using the order, the handheld ordering for the servers to use, which a lot of people are doing now. We’re not quite sold that that won’t mess up the guest experience. We like our servers to talk to our guests. And again, small towns, a lot of them know each other. You know, once they’re in three or four times, everyone kind of knows each other and they’re talking and having conversations about what’s going on in the community. And we don’t want a guest experience where someone just sitting there typing on a tablet just being order takers. We really want more of an experience for our guests.

0:42:41.3 Sam Oches: Makes sense. All right. Your own last question for you. Five years from now, what do you hope to have accomplished with this brand?

0:42:49.3 Yaron Goldman: I’d like to see this brand, you know, 25-30 units with several really profitable franchisees and a waiting list for more franchisees, which would be excellent. And I think that’s totally realistic. You know, everyone would say we want to be at 100 units, but, you know, you got to walk before you run. And I think in the next five years, we could absolutely see that. And I’d also like to see our AUVs north of 5 million. We’re doing a lot on that side as well. And we have to continue pushing AUVs higher. But I really believe that this brand has legs and the food is just phenomenal. The people are phenomenal. And if you haven’t been at Rib & Chop, try to get out there and go to one if you get a chance.

0:43:31.1 Sam Oches: Excellent. Well, I will be doing that. I got to get myself to Montana and check out a Rib & Chop House. But Yaron, thank you so much for your time today. I really appreciate it.

0:43:39.1 Yaron Goldman: For sure. Thanks, Sam. Thanks so much for having me on and and have a great rest of the year and happy Thanksgiving. It’s a little early, but happy Thanksgiving.

0:43:47.8 Sam Oches: Same to you. That was my interview with Rib & Chop House CEO Yaron Goldman. So what should you learn from this interview? Here are my six takeaways. My first takeaway is that you can streamline prep and production without sacrificing quality. A few years ago, Rib & Chop House was still hand cutting steaks. But when Yaron came in as CEO, he noticed an opportunity to really make that process more consistent. So they went back to their suppliers and they asked their suppliers to cut the steaks to spec, which they did. And now Rib & Chop House has much more consistently cut steaks. And what’s interesting, the byproduct of this is they’re able to save on their costs, save on their prep. But the customer actually likes this more. They’re not concerned about this sacrificing quality. They’re not concerned that the suppliers cutting the steaks is going to ruin quality in any way ’cause it’s the same quality meat. It’s not frozen. It’s still fresh. But also, as Yaron was talking about before, when the staff was hand cutting steaks, the guests could sometimes get a 12-ounce steak.

0:45:15.1 Sam Oches: They could sometimes get an eight-ounce steak. It was kind of all over the place. It wasn’t consistent. So now that they have this consistency, he said, “Guests are actually happier. It did not sacrifice quality in any way. It just made it all more consistent.” And so that has actually really driven a more positive customer response.

0:45:34.3 Sam Oches: My second takeaway related to that is you cannot grow if you are not consistent. Yaron is preparing this brand to scale. They have just launched a franchise program. He thinks they can get to 25, 30 locations the next couple of years. Eventually, they could get to 50-100 locations as a regional concept. But if he didn’t focus on this consistency, they might not be able to accomplish that. If you have a GM or an owner operator in each individual location just kind of doing their own thing, the operation would be all over the map and you wouldn’t be able to invest in the guest perception. The guests wouldn’t be able to come into a Rib & Chop House and know exactly what they’re going to get because it wouldn’t be consistent. You have to streamlize and you have to systematize your restaurant concept in order to start scaling it.

0:46:25.0 Sam Oches: My third takeaway is that it pays to be a big fish in a small pond. Rib & Chop House is based in Bozeman, Montana, which itself is a smaller market. But it’s investing in similarly sized markets across the Mountain West with about 50,000-200,000 people. That’s a little bit counter to what some other concepts like to do. Of course, a lot of companies, especially those of you who are fast casuals, you look at these big markets where you can drop in 10, 15, 20 locations. You can get into a downtown core where you can capture that lunch crowd, that business district. This is not Rib & Chop House’s strategy. They want those smaller markets because according to Yaron you can be that big fish. You can be the community restaurant. You have fewer competitors. It’s a lot easier to get the attention of the community. And ultimately, it’s cheaper. You have cheaper real estate costs, cheaper operational costs. All of this makes these smaller markets be hugely appealing. And, of course, remember, there are hundreds of communities like this all across the country. This is a theme I’ve had on this show pretty often. I come from a small town where there aren’t many chains that are investing in it because of its size.

0:47:39.6 Sam Oches: But ultimately, the Chipotle in my hometown is killing it because people do ultimately in those towns crave a better restaurant, a better experience. And so if that’s your strategy, if that’s what you think your restaurant wants to be, there are a lot of towns and smaller markets out there who are ready for your brand. My fourth takeaway is that if you treat your loyalty members like royalty, they will pay you back. I’m really fascinated by Rib & Chop House’s loyalty program, which has a lot of components. So bear with me. But from what I can tell from what Yaron said, they offer a 10% discount. They give you $50 gift cards every month. They give you a set of steak knives when you sign up. They’re going to give you a cookbook for Christmas. They move you to the top of the waitlist when you arrive, all in return for $600 a year or 50 bucks a month. This is essentially a gift card program. But Rib & Chop House is really going all in on these royalty members. And for good reason. These guests are visiting more frequently. Yaron said that even though they have a 10% discount, they tend to have a 20% higher ticket because they spring for that appetizer or that nice bottle of wine.

0:48:52.6 Sam Oches: At the end of the day, customers want exclusivity out of their loyalty program. They want to feel like they’re part of an elite club. And that’s exactly what Rib & Chop House is providing. So even though there is this cost upfront for Rib & Chop House to essentially pay these loyalty members to come, it pays off. And now, as Yaron was saying, he thinks these guests, especially in these smaller towns will go tell their friends. It will become an exclusive opportunity for folks in these smaller communities to feel like they’re part of that club. My fifth takeaway is that customers find value in how they feel in your restaurant, not just in how much they pay. I, of course, wanted to talk to Yaron about the recession and how we’re already starting to see restaurants talk about trading down. We already heard Chipotle say that their guests were trading down to McDonald’s and that they were receiving guests from casual dining. And I wanted to know what that meant for a company like Rib & Chop House. Well, Yaron says, yes, they see some trade down. Mostly they see that in their own menu where guests trade down to maybe cheaper items on their menu.

0:50:00.9 Sam Oches: But he made the point that he’s not too worried about trading down out of the concept altogether because he thinks if you execute at a high level, if you provide a really high quality experience, then your customers will find value in that. And that they’re looking for that great service, great food, of course, but all around a great experience. And if you give them that, they will come along with that price point, even in a recession. My sixth and final takeaway is that in full service, the back of the house is where we should expect to see most tech innovation. Yaron doesn’t think he’s going to invest in technology at the table side. He’s not sure that it makes sense to streamline the labor in the front of the house by inviting in all of these new tech tools like kiosks and things like that. He thinks Rib & Chop House guests still want that personal human interaction. It’s not going to stop him, though, from looking at tech innovation in the back of the house to see how they can use technology to streamline their operations. That’s a theme that we’re seeing from some other restaurant companies.

0:51:04.6 Sam Oches: I brought it up in the conversation, but Outback just announced that they are similarly going to look at back of house technology to streamline operations to save on costs that the technology revolution that’s happening right now that has big implications in back of house. But for full service restaurants, the front of the house, your hospitality is part of the deal. It’s part of your differentiators. You might not want to rush to investing in kiosks and self-service like some fast casuals especially are doing right now. Those are all my takeaways for today. I hope you enjoyed this episode. Please remember to subscribe to Take-Away wherever you listen to podcasts and to leave your feedback. You can also email me at [email protected]. Thanks again and talk to you next week.