America, then the ASX: Guzman y Gomez boss chases ‘recession-proof’ growth

Most days, Guzman y Gomez’s head office staff would be hard-pressed to catch founder and chief executive Steven Marks at his desk.

“If you come to my office, I’m never there. I’m always in the restaurants because that’s where the action is,” he said.

Mexican food chain Guzman y Gomez co-founder and CEO Steven Marks will roll out 30 new restaurants by the end of 2023.Credit: Louise Kennerley

Marks won’t be in the office at all this week as he travels to Chicago to oversee the rollout of the Mexican fast food chain’s third US restaurant, to open in mid-March, with a fourth to follow in June. His domestic expansion goals are even more ambitious: an existing network of 160 restaurants, 70 of which are drive-throughs, will become 190 by the end of the year, a rate of more than two store openings a month.

Eventually, he hopes to turn the franchise network into an ASX-listed company (no prizes for guessing what the ticker code might be).

Guzman y Gomez’s aggressive growth plans come at a time of rapidly rising costs in all directions, encompassing ingredients, fuel, energy, wages and more, and in an environment where budgets are being constrained by rising interest rates that are seeing consumers choose to eat in rather than dine out.

But Marks considers these factors tailwinds, rather than headwinds, and is confident the chain will grow in the year ahead, just as it did during the pandemic. In the 2021 financial year, the Mexican chain booked $418 million in revenue, a figure expected to come close to $700 million by the end of this financial year. Sales in the past 12 months are 30 per cent higher than this time last year.

“During these times, it’s almost even better,” Marks said. “If you get fast food right, it’s recession proof.”

People are “trading down” from fine dining, he observes, a trend that the chiefs of burger chains Grill’d and Betty’s Burgers also believe will serve them well. “We sit in the sweet spot. The quality of our ingredients are as [good as] fine dining, but we just serve it quicker, and it’s better value.”

But the mounting costs are hard to ignore. The price of chicken, avocado, tomatoes and cheese are top of mind for the founder, who hears about these concerns from his franchisees. With food inflation rising 9.2 per cent across 2022 (dairy alone rose 14.9 per cent), Guzman y Gomez passed on two price increases last year amounting to about 3 per cent, which Marks said was lower than other outlets.

The Mexican chain reviews its pricing structure every six months, with the next decision coming up at the end of this month.

Will Guzman y Gomez raise prices again? “There’s a possibility,” he said. “We gotta see the way everything plays out. But if we did, it would be minor.”

He’s conscious he can’t push pricing too far; Domino’s, for instance, saw sales volumes suffer after it hiked pizza and delivery prices to combat ingredient and fuel inflation, which chief executive Don Meij admitted was a misstep when delivery orders took a hit as a result.

So, if Marks’ strategy of minimising price increases is to work, he will have to keep attracting new customers and keep them walking through the doors. “If we can keep price at such amazing value, it drives revenue.”

Blurring the line between local and global

The New Yorker chief executive sees Guzman y Gomez’ success in Australia as being founded on two key platforms, quality of produce and affordable pricing, in a market that is becoming more competitive. US burger chain Wendy’s recently announced it was launching in Australia and intends to open “hundreds” of stores.

But Marks, who is in the midst of his own push into the US market, is sceptical that Wendy’s – the world’s third-largest burger chain – will be able to achieve this scale as easily in Australia.

“I don’t know what appetite [Australian] people have for Wendy’s,” he said. “I think a lot of times Americans come in, they’re like, ‘well, they love it in America, they’re gonna love it here’. It’s not the case.”

Guzman y Gomez founder and CEO Steven Marks still dreams of floating on the ASX one day.Credit: James Alcock

McDonald’s established itself early in the Australian market and has created a nostalgia factor for locals Down Under, he said, while Wendy’s is a relatively unfamiliar brand. Australians are also used to a higher standard of fresh produce, meaning a lower price point may not be enough to win Aussies over.

“Wendy’s is cheap in the US. Are they gonna be cheap here? But I think Australians are different to Americans in some aspects – they want quality, they know quality.”

While Marks isn’t at his desk much, he is preparing franchisees and the senior leadership team – which includes former Afterpay chief financial officer Rebecca Lowde – for the next phase of the business’ growth by engaging the services of executive coach Dr Peter Fuda.

Marks still harbours intentions of eventually floating Guzman y Gomez on the ASX, plans that were put on ice during the pandemic. Investors appear enthusiastic about the business: investment manager Magellan sold its 11.6 per cent stake in May last year for around $140 million, a 36.3 per cent premium. A few months later, superannuation fund Aware Super and a syndicate of elite Australian athletes picked up an undisclosed sum of shares in a deal that valued the business at $1.5 billion.

“There’s definitely a plan to IPO, we’ve just to figure out when’s the right time for GYG,” Marks said.

The business is ready, he said – every single Guzman y Gomez restaurant is profitable – but the founder appears unwilling to be distracted from his current focus of executing on growth plans in Australia and the US.

“It’s kind of nice being private,” he said. “Once you go public, it’s a whole different level of scrutiny, which is fine. But it actually takes up a lot of time.”

When the company does list, the chief executive – who has led the business for over 17 years – made it clear he intends to stay in the drivers’ seat. “We could IPO next year. It’s just deciding if we want to,” he said. “We’re just in the middle of such great growth, and I’m enjoying that.”

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