May 2019
Vol 6 | Issue 224

Q&A with Andrew K. Smith and Greg Warnock of Savory Fund

Managing Directors

Principle Series:

Savory has identified an inefficient corner of the food and beverage (F&B) industry where over-sized returns can be created within a 36- to 48-month window. With majority investments in independent, high-performing, profitable and secure brands, Savory looks to scale solid concepts into regional powerhouse brands, with targeted returns of 3x invested capital and 25% IRR. This investment strategy is highly defensible, especially in a late-market cycle. The current management team has decades of F&B industry experience, with a recent 11-year track record scaling five brands into a $200 million F&B business. Managing Directors have up to 30 years of investing experience in over 120 companies, including technology, consumer products, and F&B.


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Why should I invest in the Savory Fund versus other opportunities in the market?

The Savory Fund is uniquely positioned to generate oversized returns in the food & beverage industry. Savory is a well-seasoned due to its performance team and value-add services that have been field tested and proven over the past decade, mitigating the risk for its LP base. Leveraging their operating experience and track record, Savory will target existing restaurant concepts that have proven performance over a period of time, reducing the typical mortality risk that is seen in the food and beverage industry within the first few years of operations and in concepts with fewer than 3 units. Savory will unlock their true enterprise value potential.

There are thousands of restaurant brands that have between three and eight locations but lack the skills necessary to grow from thirty to forty units. The skill set to start a restaurant is much different than the skill set it takes to scale a restaurant concept to dozens of locations in multiple states. Savory is the best positioned fund and team to assist in unlocking this hidden enterprise value.

What progress has the Savory Fund made to date?

The Savory Fund currently has three current assets, all cash-flowing and growing at 35%+ year over year. The companies include award winning R&R BBQ (Voted Top BBQ in Utah by Food Network), Swig (The 40/40 List for 2019: America’s Hottest Startup Fast Casuals) and Mo’Bettahs (Hawwaiian Food is Flouring in Utah - New York Times). All three brands were acquired in October of 2018 and to date, all are achieving upper quartile performance against its peers. Savory has experienced tremendous growth within the portfolio since the acquisition of the first three portfolio assets. Based on annualizing revenues from Q1 2019 and assuming a steady state of G&A, the Savory Fund portfolio is already demonstrating a more than a 3x holding value on the original acquisition price. This is due to many initiatives within the Savory brands, including but not limited to the following: 1. Swig – The performance team has focused its time on optimizing store-level performance in order to drive returns to the bottom line while increasing top line revenues. Labor initiatives and food cost measures have resulted in an increase in EBITDA of more than 15%. April’s financials demonstrated a 28% store-level EBITDA, and a 9% increase in same store sales. 2. Mo’Bettahs – After working with the founders, the Savory performance team improved the operational layout, flow and systems and altered them to embrace all off premise sales, including drive-thru, catering, online ordering and 3rd party delivery. To date, this new location has demonstrated a 25% revenue increase in average store-level performance. The team continues to optimize the drive-thru operation at this new location and will now look for drive-thru locations to duplicate this performance, in addition to other in-line real estate options where the company already performs at a high level. 3. R&R BBQ – Acquiring top tier talent has been a major focus of this growing brand over the past six months. A new division president was just hired at the beginning of May to guide this high growth brand into the future. Additional industry veterans were added in executive level positions, including restaurant management, training and operations. These individuals bring expertise in growing restaurant brands over the past 20 years from 15 to over 400 locations. This is something very few will ever experience as a team, and Savory has this team in position now.

Why are you confident that you can execute this strategy effectively?

Savory is confident in executing on this strategy due to the following four main points:
1. Entry level pricing is reasonable – Savory has successfully acquired 3 assets at 3.5-5x four wall EBITDA. These multiples continue to hold as we negotiated new transactions.
2. Investment returns are driven through organic growth – Savory will invest additional primary capital and roll existing cash flows to scale each portfolio company through ‘at cost’ organic growth.
3. Market is stable and the Savory investment thesis is defensible in a late cycle market as well as in a down market. 4. The Savory performance team is an industry leading team of 45+ industry experts that have decades of experience in the food and beverage industry and have performed on this investment thesis for over ten years. This team is key in the creation and establishment of processes and procedures with the goal of driving top line revenue growth and increased bottom line efficiency. Expertise in fields of restaurant operation, training, human resources, accounting, finance, facilities management, real estate development, construction management, marketing and sales are all covered within this value-add team. Savory will be able to create an industry leading portfolio of only the best restaurant concepts throughout the U.S. leading to outsized returns.


Andrew K. Smith and Greg Warnock of Savory Fund

Andrew K. Smith brings more than a decade of experience in the F&B industry. He is a recognized and award-winning expert on investment selection and diligence, restaurant site selection and development, team development, and operational efficiencies across multiple brands, geographies, and throughout various market cycles. Prior to co-founding the Savory Fund, Andrew was Chief Executive Officer of Four Foods Group (“FFG”), an F&B investment and operations firm founded in 2008. He developed an innovative partnership model that propelled exponential growth across five thriving brands, both under franchise and independent structures. FFG demonstrated the strength of its proprietary platform with Kneaders Bakery & Café, scaling to over 50 restaurants in fewer than nine years. FFG grew annual revenues to more than $181 million in 2018. Previously, Andrew founded three technology companies. CaptureQuest was founded in Provo, Utah, as a streaming media marketing software company and was one of the fastest-growing companies in Utah within the first three years. After weathering the dot-com collapse, Andrew successfully navigated a sale of the company to Category 5 Technologies that was then sold to public Avalon DMS (NSDQ: AVLN). He then founded MoneyWizard, a financial software sold into wealth management firms nationwide. It was quickly acquired by a Michigan-based financial services firm in 2003. AxisPointe was founded in 2003. A private equity round by San Francisco-based Blum Capital fueled the company’s growth to become an Inc. 500 company with sales growth in excess of 500% between 2006 and 2008. AxisPointe was sold to Quality Built after surviving the 2007/2008 market collapse. Andrew received a B.A. in marketing communications and finance. He enjoys collecting exotic cars, fly fishing, and spending time with his two teenage sons. Andrew is 43 years old and has been married to his wife, Shauna, for the past 20 years.

Greg Warnock, Ph.D., Managing Director of Mercato Partners, brings public company experience, private equity investment, fund management, and operational experience to Mercato Partners. His experience spans retail, technology, biotech, and marketing businesses. Prior to Mercato Partners, Greg co-founded vSpring Capital, a regional investment firm targeting both early- and growth-stage companies. As lead Managing Director he assembled the team, secured the SBIC license, developed the investment practice, and oversaw the administration of the firm. He led the investment committee in over 50 financings in 35 companies. Previously, as an individual investor, Greg financed over 30 small businesses, was principal in more than 20 M&A transactions, and launched and operated several businesses. Greg provides strategic oversight and investment governance as he currently holds board seats at several portfolio companies, including Cradlepoint, PrinterLogic, and Stance. Greg’s experience as a board member has led to several notable harvest opportunities, including the 2011 IPO of Skullcandy, where Greg served on the board for 10 consecutive years. Throughout his career, Greg’s experience as a fund manager has given him the opportunity to develop deep relationships with a variety of investor types, including US domestic and international institutions, family offices, and an expansive network of high-net-worth individuals. Greg was also the founder of Junto Partners, an educational initiative designed to train and mentor aspiring entrepreneurs, and is a past chairman of the board for the Community Foundation of Utah. Greg has been named Utah Business Magazine Outstanding Director, Utah Business Magazine Mentor of the Year, and he was honored with the Supporter of Entrepreneurship Award by Ernst & Young. Greg received a B.S. in computer science and a Master of Human Resource Management from the University of Utah. He completed a Ph.D. in entrepreneurship and venture finance at the University of Utah David Eccles School of Business. Greg enjoys collecting and restoring muscle cars. He is 58 years old and has been married to his wife, Diane, for 35 years.