COTTONWOOD HEIGHTS — Launching a big-budget investment fund focused on the notoriously risky restaurant sector seems like a counterintuitive move — especially so amid ongoing COVID-19-related restrictions choking the flow of hungry and thirsty patrons.
But the same team keeping popular Utah brands Swig, R&R Barbeque and Mo’ Bettahs thriving in the face of the coronavirus pandemic has partnered with Utah investment veterans Mercato Partners to do just that.
On Thursday, Mercato announced a new $90 million investment fund aiming to back “compelling, up-and-coming restaurant concepts by providing access to capital together with a team of experienced industry professionals to fuel growth and operations.”
The Savory Fund is relying on a recipe that combines the investment acumen and experience of Mercato co-founder and managing director Greg Warnock with the food industry expertise of Andrew Smith and his team of some 50 sector specialists.
Anyone who has tempered the shelter-at-home blues with Mo’ Bettahs’ Hawaiian comfort food, R&R’s smokey delights or Swig’s panoply of dirty soda combos knows that the traffic flow hasn’t really waned at these Beehive State favorites. And it’s thanks to Smith and company that these three brands now have locations throughout the state, and beyond, that ensures no one has to travel far to get their fix.
Warnock recognized the negative stigma that has grown around food service as an investment target and noted the things that will distinguish the operations that managers of the new fund will be looking to back.
Henry Randle hands out beverages at Swig’s drive-thru window in Millcreek on Wednesday, June 3, 2020.
Kristin Murphy, Deseret News
“The restaurant industry carries an undeserved reputation among certain investors for business risk and razor-thin margins, giving rise to market inefficiency and opportunity,” Warnock said in a statement. “A differentiated brand with several profitable locations and years of consumer loyalty offers a compelling risk-return profile for investors.
“By providing both capital and relevant expertise, we have unlocked tremendous success. Savory’s limited partner investors and portfolio brand founders appreciate the Savory approach to driving incremental growth and value.”
Smith and his team saw great success with their previous endeavor, restaurant conglomerate Four Foods Group, that grew from a single Utah County Kneaders location opened in 2008 into a multibrand, multistate restaurant monolith that, when it ended its run late last year, had cumulative revenues north of $1 billion and almost 200 venues in operation.
Smith joined Mercato as a partner about 18 months ago and said the three brands currently under the Savory umbrella — R&R Barbeque, Mo’ Bettahs and Swig — have not only been able to stay viable throughout tough COVID-19 restrictions, but are collectively up about 30% in business volume over last year and are adding staff.
Also, Smith noted plans are in place to open 16 new locations for the trio in the coming year.
Smith said even great restaurant concepts with dedicated followers can run out of gas once they expanded to a handful of outlets without the help of both a long-term strategic plan and the capital to put it into action. That’s where the Savory backing will come in with both funding, and a team with a proven track record, Smith said.
“Greg and has team at Mercato Partners have over $500 million under management,” Smith said. “This fund brings that private equity expertise together with our operations background and a team of site locators, replicators and financial experts. ... There’s really nothing else like it anywhere.”
Brothers Kimo and Kalan Mack launched their first Mo’ Bettahs in Bountiful in 2008, aiming to bring authentic and affordable food from Hawaii, where they grew up, to customers in Utah. Even operating at a high level of success, including expansion efforts, the business got to a point where the brothers needed some outside help to achieve their growth goals. And that’s where Savory came into the picture.
Customers line up in Swig’s drive-thru lane in Millcreek on Wednesday, June 3, 2020.
Kristin Murphy, Deseret News
“We created Mo’Bettahs to give guests an authentic Hawaiian experience, which we were able to successfully provide through lots of hard work and deliberate culture curation over the past 10 years,” said Kimo Mack in a statement. “Despite that success, we had reached a plateau in our expansion efforts. We were stretched thin and being pulled away from our core strengths.
“The Savory team helped us to achieve a breakthrough in performance and together we quickly grew our business to heights we simply couldn’t have reached on our own. Our partnership with Savory and its value-add team remains one of our greatest accomplishments.”
Smith said he expects the Savory Fund will close two to three deals, likely to come in around $5 million-$10 million per investment, by the end of the year and complete the fund by the end of 2021.
Mercato had a huge win earlier this year when one of its portfolio companies, Utah-based financial technology firm Galileo, was acquired by Bay Area personal finance giant SoFi for $1.2 billion in a cash-and-stock deal.
Jennifer Huntington, general manager of Swig’s in Millcreek, pours a drink for a customer on Wednesday, June 3, 2020.
Kristin Murphy, Deseret News