Dan Rowe (00:01)
All right. Welcome back to Smart Franchising with Frans Mart and today we’re talking with a super Mumbo multi-unit multi-brand franchisee and have ⁓ Naveen and Al with CMG with us today. Mumbo is the new acronym for what almost everyone who gets into franchise really wants to become. Mumbo means multi-unit multi-brand, but it’s basically big and it’s less about the brand and more about building

Navin Nagrani (00:08)
Shit.

Dan Rowe (00:28)
a successful company with franchising and leveraging resources and building restaurants to the point where they sell fund themselves and then layering and new brands and leveraging your team and all that other good stuff. So CMG has over 600 locations across 10 brands. And the most interesting thing to me is that they’re owned by eight partners. So it’d be interesting to see how that functions, but you guys are a top 15 franchisee.

And I think a top five that are private or right or private or independent. Is that right?

Navin Nagrani (01:00)
Yeah, I mean, if if you look at sort of ⁓ it’s a little bit nebulous, right, because all of the franchisees in the country are mostly private, say 98 % of them are. So there’s different ways to measure them, right? You can look at number of employees, you can look at revenue, you can look at EBITDA, you can look at obviously number of locations and brands. But, you know, based on sort of different metrics, if we sort of just our own mumbo jumbo, if we kind of threw everything on the table,

And we said, where do we rank up against everyone else? We’re certainly in the ⁓ top hundred multi-unit franchisees and I’d say even top 20. And then a lot of the larger franchisees and folks that we respect tremendously, they’ve grown through sort of other people’s money, whether that’s ⁓ debt or equity. And some of the largest franchisees today have institutional investors or family offices where

Fortunate and lucky in that we’ve grown and we’ve scaled and we’ve been able to sort of recapitalize our business through just various successful growth, acquisition, strategic initiatives where today we own 100 % of the equity they partners. That is correct. And I would say that we’re probably in the top five, yes.

Dan Rowe (02:15)
Nice.

Nice. So CMG, so you guys are in KFC, Taco Bell, Sonic, Little Caesars, Rent-A-Center, Tide Cleaners, which I think is a great idea and I wish I thought of that, and a bunch of others. So I want to get into that, but thank you guys for joining us. I really appreciate it. So do me a favor and introduce yourself, a little bit about your story, what you guys did even before and leading up to the journey today.

Navin Nagrani (02:45)
Yeah, Al, you wanna kick it off?

AL BHAKTA – CMG Companies (02:47)
Sure, yeah, so Al Bakta, one of the founding partners of sort of the original framework of CMG. CMG is really an acronym for the word Chalak, Mitra, and group. The word Chalak means ⁓ sort of smart and wise, and the word Mitra means friends. So it’s just…

a group of wise, smart friends that got together about 25 years ago. So ⁓ we started in the restaurant space as a one unit franchisee of a concept ⁓ actually that we got introduced to in 1999 while we were in college, the brand called Genghis Grill when it was really a two unit concept. originally became one of its first franchisees and

opened up our first store in 2002. And so that’s sort of how we got started. And we always sort of tell everybody that our first day we opened for dinner from four o’clock to 10 o’clock, not a single customer walked in the door. And so we had SBA loans and we had personal guarantees on the leases. had, ⁓ you know, we basically borrowed money from friends and family to try to,

sort of make that first restaurant ago and no customers walked in the door that first day. So that first, at least for dinner anyways, and that’s ⁓ how we got started in the franchising restaurant world. But yeah, and you know, we can sort of fast forward that journey where we’re at today. yeah, you know, that original journey and those partners, you know, we’re all still together. We’ve got Nick, who’s not on the call here, but Nick and Ron were some of the original partners. And then

Manish and Bushbrook were some of the original investors with us that have sort of been along the journey. And I’ll let Naveen introduce himself and how we got associated and partnered together.

Navin Nagrani (04:50)
Yeah. So just rewinding the tape, you know, going back, you know, 15 plus years, you know, I have somewhat of an institutional background. I worked for a little bit. I was a junior economist at the Federal Reserve Bank, and then I was a strategic consultant. And then I really built my career at a company called Hillco where I led our restaurant group. And, you know, I met these guys many, many years ago when they were just sort of in the first or second innings of their sort of journey.

I was immediately attracted to the ⁓ sort of the values and the energy and sort of quite candidly the cojones these guys had to just sort of bet on themselves and, you know, try to do whatever they could to be entrepreneurs. And, you know, there was, there was something exciting about what they were doing, even though they were, you know, relatively small in terms of scale at the time they just had Genghis and, you know, it really started with a friendship. know, Al mentioned the original founding partners. There was a gentleman, ⁓

Sanjay Patel, was a physician. you know, at the time he was really the sort of Wall Street capital markets guy. You know, the Indian community is very close. And when when the initial group started, they were really raising friends and family money. And this physician really was the gentleman who vouched for them. He’s, know, he’s still a partner in the business. He’s a dear friend of all of ours. His daughter is actually getting married next month and we’re all going there as families. But, you know, it really was just a, you know,

a small entrepreneurial organization that had massive ambitions. you know, I saw something in them and, because I worked on a lot of, you know, related mergers, acquisitions, distress deals, and these guys were always looking for deals, you know, we sort of built a friendship. We never really transacted much when I was at Hillco, but, you know, there was a set of common values. then, you know, when I an opportunity to exit Hillco several years ago,

It really was just sort of coming back to the tribe. And, ⁓ you know, I was fortunate that, ⁓ built a lot of rapport and goodwill and, know, they sort of led me into the tent and made me, ⁓ an equal partner. But, you know, I I’ve seen sort of the, get to see the best and worst in people when you’re either making a lot of money or losing a lot of money. So I’ve seen all sides of it. And, ⁓ you know, today we were fortunate that, ⁓ we have enough scale where, you know, I think we have a voice in the, in the marketplace, but, know, we’re still.

very much hands-on and involved in the business day to day. those same set of values that I saw back then still exist today. And I would say just as a business, we’re getting started. ⁓ We’re still excited about where we’re going.

Dan Rowe (07:29)
600 units and you’re just getting started. I love it. I love it. but you got to think about, you got to think about how special that is and like what a gift it is, is not only to be as successful as you are, but to do with friends, right? To actually do it and friends. And you said you guys are all going to your partner’s daughter’s wedding. It’s like, that’s like a really cool thing. mean, money does weird things to people. And the fact that you guys are doing it this way. I mean, that’s kind of how it’s supposed to work. It just doesn’t always go that way. Right.

Navin Nagrani (07:33)
Yeah.

Yeah, it’s a little bit of a challenge in a unique business model. If you think about as an analog, the other very large multi-unit franchisees, the mumbo-jumbo’s of the world, a lot of them, it’s singular where there’s ⁓ one gentleman, ⁓ or perhaps maybe even one lady, but from our perspective, there’s one person that’s really controlling the show.

There’s nothing wrong about that, but I would say that the analogy we use is we’re a basketball team, right? Where each one of us has our own unique strengths and that helps offset some of the blind spots and ego. And there are some disadvantages in that we do invest in sort of a quorum and kind of nights on the round table. so…

If someone is overindexed on an idea and too excited and no one else is, there’s a little bit of a ⁓ Congress or a little bit of ⁓ democracy there. for the most part, our model works in that we’re able to check each other. through the balance of being able to leverage each other’s strengths, we get to actually benefit from that. And it worked over the years where…

I would say that the rhythm that we have today is really good. Al, I don’t know if you’d add anything to that.

AL BHAKTA – CMG Companies (09:24)
Well, no, I think that’s right. I mean, we’ve gotten to know each other’s strengths, as you mentioned, and also weaknesses. And sometimes, you you get the sort of only find those out as you’re going through this journey and understanding everybody over 25 years has been a great ride. It’s just been a humbling experience. And I think all of us are getting better at those skill sets and understanding where we sort of play, you know,

where we play best in that team that Naveen talks about and where we probably shouldn’t be playing and sort of sit on the bench. And so I think that’s been an awesome sort of way to sort of learn. we’ve had a lot of tough times. We’ve gone through, it sounds great to say we have hundreds and hundreds of stores and multiple brands, but we’ve gone through ups and downs. We bought some brands on our, we bought brands in the past where we’ve franchisors and

You know, we’ve done a lot of things and made a lot of mistakes where Naveen mentioned over-indexing on an idea or, know, somebody might be able to convince the other, the rest of the group to say, let’s go do this. And we probably shouldn’t have done it. You know, there was probably red flags and signals that we should have listened to. And I think we’re getting, as Naveen said, we’re just getting started. It’s a 25 year startup journey that I think we’re just starting to get better at that and really.

calling each other out very cleanly, openly, and just open dialogue about what’s the best thing for the company and our people at the end of the day. it’s just, it’s been fun. It’s been a great ride.

Navin Nagrani (11:03)
Yeah, and Dan, know, one thing I would say that’s kind of interesting, you know, I’d love to get your kind of comments on is sometimes when you see a large franchisee, whether they’re in one unit or several units, they get very large and then they start to sort of think about trophy assets in the sense that they want to buy a brand. You know, not that there’s anything wrong with that. We’ve come to the conclusion that our

highest and best use and where we have the most fun and where we can add the most value is just being a large top five franchisee within systems that we absolutely love. And so we curate and we spend a lot of time, diligently seeing what brands we want to be in. And then we just say, okay, how can we be super relevant to those brands and become something sizable and sort of have a legacy? We don’t have outside investors, so we don’t have to.

look at exiting in five years or whatever, but you’ve seen through just being in the same arena with us, large multi-unit franchisees or large franchisees get into the ownership of brands. What do you think about that? We’d rather just fly the plane versus fix and fly the plane, but some people have had and found success doing that.

Dan Rowe (12:18)
Yeah, I’ve been at this business 35 years and the industry’s littered with people that became successful as franchisees and then sabotaged themselves by bad decisions. Right. And so, ⁓ in a number of ways, like you could wind up investing heavily in a brand that doesn’t work. There’s a lot of people that got wiped out, taken their franchise profits, rolled it into real estate at the wrong time, right. Gotten, gotten to trouble. The appeal of being part of a franchise or is the idea that

you know, that it’s better to get a royalty than a pay royalty, right? And when you guys sell your business, you’re, any one of your franchises is worth five, six, seven, eight, nine X multiple, whatever, depending on the brand. When a franchise or sells that number could be four times that number. there’s, there’s attraction to that. Not every franchisee should be a franchise or not every franchise or should be a franchise or right. And so, ⁓

But I get the appeal. The appeal is, look, we’re really good. We’re really successful operators. ⁓ I don’t want to name names, but there was another franchise and his premise was to go start buying brands like a number of franchisees bound together in different parts of the country. And they were going to buy brands and then be the original franchisees of those brands and participate on both ends. you know, it’s, it’s a longer conversation about why then that didn’t work out. But what you guys are doing is just simply.

wise. It’s just wise. It’s sage. Like if you were giving somebody advice, you’d tell them to do exactly what you’re doing, which is you guys are operators. You guys are, you buy franchise territories, you operate the hell out of them and you just keep expanding, expanding, expanding, know, and compounding your returns and whatever. So it’s like, it’s, it’s so, it’s so many times it’s hard to do what you’re doing because you guys, and this is why there’s probably, you know, the good news having 80 you guys is you keep each other from

from getting too distracted and keep reminding yourselves like this is what we do. We’re at 600 now, we wanna be at 2600 and then let’s go talk about doing dumb things. You gotta find out how to make me the ninth partner. I don’t know if I bring anything to the table, but I want a spot.

Navin Nagrani (14:25)
Yeah, yeah, makes it a ton of sense. Yeah.

AL BHAKTA – CMG Companies (14:35)
careful,

we have the urge to do dumb things all the time. ⁓

Dan Rowe (14:39)
that I would be a dumb thing. ⁓

So, the good news though, and this is helpful for people to know, like 600 unit company started with you guys as a franchisee of a two unit concept, right? And it’s funny because the dichotomy between when you got into Genghis when you did, I mean, that’s really early and really raw. Like they don’t have anything figured out at that point.

And then now you’re attracted to so many brands that are enormous, right? That are bigger. but like, like, let’s go back to the beginning when you guys first got into Genghis, like what, made you choose that brand? ⁓ how’d that go?

AL BHAKTA – CMG Companies (15:19)
Yeah, I mean, it certainly wasn’t, you know, an MBA business school plan at all. was certainly, we were sitting in 1998 and we were sitting at that second store here in a suburb of Dallas called Addison. And we were at the bar while we were in college and Nick, one of the partners, you know, wrote a comment card and said, Hey, if you guys ever franchise, give us a call. While we were in college, we had a couple of businesses. We had a

Navin Nagrani (15:25)
You

AL BHAKTA – CMG Companies (15:49)
a small game room, we had a pool hall. So we had some things that, you know, fairly humble, smaller operations. We were sort of running while we were in college and putting ourselves through school. But so we thought we knew a little bit about business, but, you know, at the end of the day, you know, we just, he wrote that and they called us, right? I mean, that was the biggest thing is that we liked the concept as a consumer. And, you know, then they called us when they started, you know, their franchising program.

a little bit later and that was sort of how it began. so we actually in between there, there is one story I’ll share is we tried to buy a two unit Schlotzky’s franchisee here in Dallas. She was selling her two stores for $40,000. We had sort of pulled the money together to pay cash for this operation. was underperforming, sort of almost break even-ish.

but we felt like they were, know, it could use a lot of work and we think we could have put the effort and work in it. We went to go to Austin at the time where Slotsky’s was headquartered and it was an all cash deal. We had to present to Slotsky’s corporate folks. And at that time they declined us to actually buy the two units existing operations. So back to your Sage advice standpoint, I would still tell people.

stick with an existing, you know, established brand and buy existing first before you start building. And we completely did the opposite of that and built ⁓ a Genghis grill, you know, when the brand wasn’t proven yet. it was, yeah, it was.

Dan Rowe (17:27)
I like both

of us. liked schlotzky’s way back in the day. lived in, I lived in Texas in the early nineties. Like I like schlotzky’s and I like gang is the first time I saw gang is I’m like, that’s a really cool concept. It’s great food. So, mean, I could see the attraction, but you actually said you, put your finger on it when you said it started at the bar, right? The bar is the, ⁓ the bad idea started the bar. ⁓ but then, so, so what happened after that? Like, give me maybe just kind of a quick run and like how you.

AL BHAKTA – CMG Companies (17:46)
Sometimes bad ideas start at the bar, right?

Navin Nagrani (17:50)
I think.

Dan Rowe (17:56)
how you went from that to where you are now.

AL BHAKTA – CMG Companies (17:58)
Sure. Yeah. So

that first store, took a little bit to start getting, we got it to break even about 12, 18 months later. We were doing all sorts of things ourselves. You know, we were figuring out marketing plans. were trying to, you know, the franchise or at the time was small and they were trying to sell franchise locations. And so they had some early success on selling franchise stores, but then a lot of franchisees were opening up and shutting down, you know? And so as the brand was sort of

struggling in the beginning, we were sort of just fending for ourselves, trying to make sure we made payroll. so, but yeah, we got it to break even after about 18 months and then, make, started making a little bit of money. And, ⁓ you know, while the other franchisees started calling us saying, Hey, I heard you guys did a movie theater marketing slide. I I heard you guys did a little charity event. I heard you found it cheaper chicken, you know, vendor, et cetera. And so those are.

Those are things we were sort of naturally doing. And then we ended up buying a corporate store, ⁓ which was doing sort of double the volume that we were doing. ⁓ but we were making a little bit of money. They were losing about a hundred thousand dollars a year on double the, in Genghis, in Genghis. Yeah. So the second store in Genghis basically where we basically said, Hey, that store is doing double the volume we are, and it’s losing money.

Dan Rowe (19:11)
Which brand was that? Which brand was that?

AL BHAKTA – CMG Companies (19:23)
we’re doing half the volume and we’re making a little bit of money, ding ding, let’s see if we can buy this from corporate. And so we bought that store, raised some more friends and family because we sort of them our numbers and said, look what we’re doing, believe in us, we can go run this. that store was, we made it profitable in first quarter. It was losing about a hundred grand a year, the year before we bought it. And we made about $65,000 in Q1, know,

Dan Rowe (19:26)
Bingo, bingo, bingo.

What are two or three

things that you did different than corporate? I feel like I know the answer, but I want to hear you say.

AL BHAKTA – CMG Companies (19:55)
Yeah,

you know, everything, I mean, we basically were, worked every shift, got it super involved and, you know, improved the staff, the service. you know, really follow the playbook and the spec of what they, what they wanted to run them as. And, and, and, you know, just really servicing the consumer speed, you know, got the food costs back in line, got, you know, just everything that we were doing at the other store.

⁓ We implemented that and so it was just, you know, it’s nothing, it’s blocking and tackling its operations at the end of the day and being involved and taking care of the customers, taking care of your team. So that’s really what drove it. But anyway, so that store was successful for us and then we ended up buying another franchisee store out and then 2004 ended up buying the brand when it had about six stores left, three of which we owned. so, and again, not by strategy.

It was really based on, we’re the largest franchisee in a system of six. We need to actually sort of salvage this, see if we can open stores without royalties. And that was the idea of actually buying the brand in 2004. So, yeah, that sort of got us there. then we obviously, store number seven, we opened ourselves and redid the whole model. We sort of reduced the development costs, increased the value proposition.

And that’s that store. Number seven was hugely successful. And then that sort of launched the brand and the success we had. got it to in its heyday, got it to over a hundred stores, about half we owned and half franchise. But while we were growing that we started diversifying. So two of the partners got into KFC and Taco Bell. got approved in 08 in that system and opened up our first store in 09 and, and, you know, great time to open up a restaurant, which was the 2009.

Dan Rowe (21:49)
The crash.

Navin Nagrani (21:51)
Yeah.

AL BHAKTA – CMG Companies (21:52)
Luckily, that first KFC Taco Bell store we opened in the suburb of Dallas was successful. And then we ended up buying some distressed stores in 2010 that were about to go dark in the Midwest, about 20 stores that we bought and turned around in KFC. And that’s how we got on the map with Yum. And then we ended up buying some corporate stores from them in 2012.

So I mean, that’s the trajectory of the growth of how we sort of went from.

Dan Rowe (22:23)
this is something that you could teach someone because usually struggling stores, you could have them for a song. And so what it just to go back to the theme of how you guys turned around struggling stores, what are two or three things that you guys did to make struggling stores, good stores.

AL BHAKTA – CMG Companies (22:39)
Yeah, I mean, from a KFC standpoint, we put in a point of sale system and actually plugged it in and, ⁓ you know, sales started ringing, That was, you know, royalty started going to corporate. I think they were very happy about that. That was one of the many things, but that was, you one of the fundamental things. second thing Bushbrook will always say is have chicken.

Dan Rowe (22:49)
⁓ man.

AL BHAKTA – CMG Companies (23:04)
In KFC, like the biggest problem with KFC operations is that they’re always out of chicken. so, you know, we, we ensured that we followed the playbook of actually the playbook that, that KFC had written for us and just follow it to a T and have chicken that tends to lead to sales. And then, and then just accountability and bonus programs for our team and incentivizing the right behaviors. Right. And, and then holding people accountable. Right. I mean, it’s just.

That’s generally the playbook of how we’ve been able to do what we’ve done. But yeah, historically, been able to turn around a lot of underperforming markets over the years and multiple brands. And that’s sort of our MO. Navin always says we’re little bit scratchy, know, scratching dense, scrappy. And we do sort of pride ourselves on that mindset that we started with.

Dan Rowe (23:54)
There’s, mean, there’s

a lot of people that make a lot of money, like generational wealth amounts of money, taking and flipping struggling stores and almost to everyone you’re like, well, what do you do different? goes, I just followed the system. just executed it. I just operated.

AL BHAKTA – CMG Companies (24:09)
I’m

Navin Nagrani (24:10)
Yeah, well,

yeah, Dan, if you think about it, ⁓ just from a learning perspective, there’s two types of capital, right? You’ve got human capital and financial capital because we don’t historically when we’ve bought stuff, we’ve been had a lot of financial capital. We’re not like, know, KKR or Apollo doing leverage buyouts. And then we’ll talk about it a little bit, but like our Sonic business, which were the third, fourth largest franchisee.

You know, we have 191 units and growing. We’ve literally started with a four unit acquisition and we’ve done about 30 separate and A transactions, you know, buying underperforming franchisees or buying corporate stores. You know, we built several, but you know, it’s really about just having the right human capital. And, you know, as Al mentioned, getting the right people on the bus aligning incentives. But you know, if you bring in the right people,

That sets the culture. And if you allow people to be successful and you give people a chance, there’s so much human capital in the franchisee world. A lot of these people grew up in the system. They’re not highly educated, but they’re artisanal in the sense that they know what they’re doing. But a lot of them are sort of stuck in this environment where they’re getting a salary. They’re getting sort of the opportunity to take care of their family.

A lot of these people have these amazing artisanal skills and human capital, but they haven’t been uncorked, meaning they haven’t been given the opportunity to create wealth for themselves and their family. And so if you find the right person or the right people and you give them an opportunity to do what they know, what they love, because they’re obviously, you know, been doing it for a while and they’re passionate about it. And that’s how they got to be a point of success. And you give them a chance to just say,

Here’s a chance where you can actually be a partner in the business and you can actually do what you love, but just have an opportunity where you can build that sort of wealth and have that opportunity. That is very meaningful for them. It’s very meaningful for us. And so a lot of our success, while we talk about just brute force and doing all these things, those are all true, but it’s also just being able to curate the right human capital and try to find the people that have values that align with us. then…

quite candidly doing something that lot of people don’t do is just give them an opportunity to make money and you know, kind of ride the bus with us.

Dan Rowe (26:38)
Well, you’re changing their life, right? You’re giving them an opportunity to have a different life, which also affects their generations, right? Their trajectory is going to be different. Their family, you know, their sort of kids see, okay, I, there’s a different possibility here. It’s a really big thing, but stay on that for a second. like, and without, mean, I’m not trying to get you to name names, but like you take over a batch of struggling stores, those stores struggling. Usually what has happens is that then they start cutting whoever owned them before cuts.

all the good people leave, they’ve marginalized the people that are still there. How do you take that and what’s then, how do you shift the mindset of saying, no, I need good people in here that can actually turn this thing around and then grow it to a whole nother level. So how does that work from your end? However you want to talk about it from how you find the people, how you incentivize the people, know, give them a path for even more prosperity down the road, going from unit level to multi unit or however, however, how does it work? Give someone some advice.

Navin Nagrani (27:37)
Yeah, I’ll start. then, know, Al’s been sort of in this movie longer than me, so he can certainly add his salt and pepper. But I would say is a sort of contrary to your point about all the good people leaving. Sometimes in an organization, they’re sort of like the last of the Mohicans, where people are so loyal to the brand and they feel like it’s more than just the job. And, you know, because they’re so involved in the business.

We found that there’s always good people in an organization. Maybe they were mistreated or maybe the ownership changed. Maybe it was short-minded in nature where they were more financially driven versus sort of looking at the large arc of a business. there’s always good people in an organization if you can confine them. But we’re sort of in advantageous position because we have 600 units. We have a large surface area of people.

that work within our systems. have sort of a roll in X of people that we’ve worked with in the past. And for us, it’s a little bit like a money ball exercise. Like if, you know, we’re buying a brand and we want to sort of bring in sort of the right people, you know, if we’re developing units and we’re buying land and building units, that’s a different type of, you know, person that you’d want to bring in, you know, someone who understands, you know, construction or the energy that’s needed when you’re opening up a new store.

you know, and creating that, bringing people in, hiring them. Then there’s also just sort of the aspect of a turnaround. If you’re buying, let’s say, a hundred, you know, corporate units from a brand, you know, you want to figure out what, what it is that you need to do to kind of make the business more efficient, instill the right culture, instill the right incentives. And so we have the benefit of being able to leverage our existing bullpen. And then we also have a network out there in the marketplace.

And so we really take a moneyball type exercise where, you know, we don’t try to find the, you know, the Ivy league, you know, PE, you know, wants a million dollars and sit in the ivory tower. You know, no one bleeds for the Prince and the watch tower, but you know, the person that’s done turnarounds, we know what questions to ask. We can tell whether or not they’re being real or, you know, they’re just giving us sort of, you know.

the opposite of what you call mumbo jumbo, just giving us mumbo jumbo bullshit. And so, we’re really good at curating talent and then giving them the right incentives. don’t know if you’d add to that.

AL BHAKTA – CMG Companies (30:09)
Well, no, and I think a lot of the acquisitions we’ve done, ⁓ whether that be from franchisees or corporate acquisitions, there’s actually a lot of talent there. So there’s just not been nurtured properly. They’ve been ignored. Like Naveen said earlier, they’ve been marginalized. At the end of the day, we love keeping the existing team in place.

And really just rewiring their whole mindset and changing that culture. And when it works, it works. And it’s very magical when you can actually keep the existing folks that are there and say, listen, try it this way. I assure you it should work. And if it doesn’t work, this is how we’re going to help you to make sure it works. And it’s just that level of support that you provide them. just honestly giving a shit. A lot of times the previous ownership

And they’ve realized that nobody cares. once they’re disenchanted at that point, it’s a game over. And so we’ve just seen that if you actually care and you help them solve their problems, they tend to actually thrive. And the existing talent a lot of times is, and I would say 80 % of the time we’ve had success with just the existing people that are there. And if we can get a

Dan Rowe (31:31)
Wow. Wow. Just motivating

them, existing people, motivating existing people. Wow.

AL BHAKTA – CMG Companies (31:36)
Yeah, because, because it just, yeah, they just weren’t paid attention to there. There wasn’t a program in place for growth. And a lot of times it’s tools, you know, you, after the turnaround is like, well, the fryer doesn’t work or, you know, we’ve asked about fixing the air conditioning here in the middle of Texas summer from, know, and it’s always, it’s been like this for five years where they’re just up taping it and

Dan Rowe (31:45)
Yeah.

⁓ man.

AL BHAKTA – CMG Companies (32:02)
Well, you know what we do? We go ahead and fix that AC or replace it. Ding, ding. And, you know, just you listen to them. You actually give them the tools that they actually need to do their jobs. And then it just starts snowballing in the right way where it starts. You know, they start saying, wow, my voice matters. They’re listening. I’m making more money. my benefits are better. ⁓ the store’s doing better. ⁓ you know, wow. We now we’re going to get a remodel because our store’s doing so well. And so.

All of that is sort of rewiring. It doesn’t work perfectly all the time everywhere, but I would say 80 % of the time it’s really the team that’s there. ⁓ We get the best talent. We bought stores from family members that didn’t talk to each other and now both family members work for us. Or we’ve bought stores from people that their kids are now working for us and are multi-level managers or regional managers.

We’ve got examples of that, you know, that it’s just been some great stories that we have over the years. I mean, we’ve got folks that started in operations from the early days, 23, 24 years ago. And, you know, he’s, you know, he’s in FP &A, you know, doing M &A work. There’s lots of other growth stories we’ve been able to tell over the years as well, which is sort of, you know, that’s fun stuff, you know.

Navin Nagrani (33:26)
Yeah, you know, a couple of kind of tidbits there like our first Sonic acquisition with as I mentioned was a four unit acquisition and the gentleman that we bought it from it was a family. You know his two sons were heavily involved in the business and when we bought the business, you know we agreed to lease the properties. He kept the real estate and both his sons still work in our business. Once heavily involved as a leader in our Little Caesars business and once heavily involved in our Sonic business and.

He wanted them to be able to continue their journey and be entrepreneurs, but he wanted them to have a little bit of a foundation. And so from that perspective, it’s kind of interesting when you talk about people whose whole lives were sort of baked into a business and then, you know, it’s more than just the financial event for them. They want to make sure that the business and its people that they hired and groomed, you know, have sort of a future. mean, you know, we’ve talked a lot about the restaurant business, but a good percentage of the

you know, the brands we operate in are outside the restaurant world. So, you know, we own about 40 something ACE hardware ⁓ stores, which is more of a licensed model than a pure play franchise. But, you know, it works very similar. And if you think about buying an ACE hardware store in a small town, you know, the people that have worked in those stores, the amount of knowledge that they have in terms of, you know, being able to go into a store and asking, you know, one of these, you know,

associates of ours, hey, how do I fix this issue? I need this done. What’s the right tool? Or come in with some broken widget. What do I do here? mean, there’s no way in hell that we could replace that human capital. And those people have so much knowledge that have been able to sustain a business. quite often, we just come in and …

give them what they need to be successful. We take off a lot of the administrative work. Think about all the stuff that happens behind the four walls of a restaurant, like the payroll, the accounting, the legal, the HR, the IT, the capital markets, the benefits, and then just let them focus on what they do. then sometimes it’s just a matter of thinking outside the box. like as an example of the ACE hardware stores, if you think about that business, it’s heavily driven by consumers, people go in there,

a good percentage of the stores that we had acquired weren’t open on Sundays. You know, for whatever reason, just that’s the business. That’s what they’ve done. You know. Yeah, exactly. And so just something as simple as saying, hey, if we opened on Sundays, we could probably overindex on sales and it could be an opportunity where the business can make money and you as an individual can make more money because you’re creating more value for your store. And, you know, obviously there’s the the sort of the collegial

Dan Rowe (35:56)
That’s DIY day.

Navin Nagrani (36:18)
friction of, we’ve never done that, but then we should. But then something like that where you could say, hey, here’s an opportunity and who would like to do this? Maybe you can send them. That creates a dramatic impact on the business for, like you said, like a DIY side day. So it’s it’s a thousand things like that you could do that potentially change the outcome of a business and sort of create that positive flywheel.

Dan Rowe (36:41)
I was going to ask you, so anything interesting about the way that you guys incentivize or compensate your people, you use the term moneyball. love the movie and my mind went to exactly what I think you mean about that in the context of building your team, but maybe just give somebody some insights on how you get the most out of your people. What’s a good smart incentive program or how do you align your interests with those guys?

AL BHAKTA – CMG Companies (37:07)
Yeah, I mean, I think what the main operators sort of our VP of operations, you know, the, CEOs of these particular businesses. mean, we, you know, they’re effectively partners in the business. ⁓ even though there’s eight main partners of CMG at the portfolio level, you know, those, the executive level folks have equity in the business. it’s, know, primarily sweat equity. have to sort of be with us for a period of time. And so there’s.

know, cliff vesting that’s involved, but like they get to sort of work their way into an equity position. That’s, you know, that’s the sort of a, we’re going to, you know, we, have a saying called fill the boat and, know, we, we sort of stand by that. It’s a big piece of the puzzle. So the leadership has, has equity in the business as long as they stick around with us and, and, and they help build the business with us. that

that sort of builds loyalty and trust and they get a decision. Like we don’t just buy more stores or build more stores without them having a say, you know, and so, and they know how it gets capitalized and we do a refinancing. They know how, you know, what we’re paying to the bank. And so they’re involved in all of those aspects as a partner would. And in that portfolio, they know that their decisions are, you know, are.

have an impact one way or another, right? And so that starts there. And then really where it matters on the front line of any of these businesses, whether it’s the restaurants or the retail businesses, it’s whatever the outcome you’re looking for, the KPIs that you, the outcome of the business. And generally it’s it’s sales driven and then what they can control, right? In ⁓ a…

Ace Hardware, can control shrink and pricing and labor, right? In restaurants, typically it’s food and labor. And so if you just sort of focus bonus plans around that and then what other behaviors improve the operations, right? Is it OSAT, know, customer service scores or balanced scorecard or whatever that particular brand and culture is, you incentivize that or bonus that?

That’s usually how we design bonus programs, right? And, they tend to work and we tweak them, you know, I mean, there’s obviously tweaks and we get suggestions from the team, but generally that’s what drives sort of behavior is that they start getting quarterly checks or monthly checks and bonuses. It just, it, it, there’s, there’s a nice momentum swing in the business and it takes time and get some early adopters, people that just say, screw it. The old way doesn’t work. I’m going to do it.

Dan Rowe (39:47)
Yeah.

AL BHAKTA – CMG Companies (39:53)
And there’s ones that don’t want to change. so, like I said, the 80 % of time we can get existing teams to move and really generate great outcomes. But then there’s 20 % of the time that doesn’t happen. You’ve got to make changes, right?

Dan Rowe (40:08)
Yeah, we give carry interest to all of our key people. And even though they get a piece of the action piece of the profits, I feel like I always still make more, right? The minute that you make them a partner and they get a piece now they’re they own it. I do far less in these brands than I would because I’ve got someone that’s got a vested ownership. But I find myself that even though I’m giving them a piece, I’m not actually making any less, right? Like the end of the day, the dollar amount I make.

just as much and I actually do less. I like, and what you said is you’re not only compensating them, you’re making them feel like a partner, like by giving them input and giving them a decision. And so, you know, it’s the way you make them feel, only, uh, money. think that that’s, I think that that’s important. Hey, you said something about non-food brands. So why don’t, why don’t we get into that?

Talk about some of your non-food brands. Would I really love to just spend a few minutes on it? What are the brands? Why do you choose them? What’s the appeal of diversifying with non-food? You know, give me some of that. I said, Tide, first time I saw Tide, I’m like, that should have been my idea.

AL BHAKTA – CMG Companies (41:14)
Yeah, I mean, I’ll start maybe Naveen can certainly add he’s been a big piece of the puzzle. I would say I’ll rewind a little bit is in 2014 we sort of sat there and we had, you know, we had our Genghis Grill brand, but then we also had a pretty sizable KFC and a sort of a budding Taco Bell business and we had some smaller brands that we owned and we started sort of putting together the

what our sort of vision, our mission, and our sort of core values and our dreams is what we call it. And it started like this and it was a two day session where we all really sort of hashed out sort of guardrails and really the playbook of what I would say the next 10 years have been. And we really sold off a lot of our… ⁓

We sold off all brands generally, including Genghis. Everything is sold. We decided to just go be a franchisee. then that took a few years to sort of diversify. That took a few years to divest, and then we wanted to diversify. And we realized that, okay, in the food business, you’re going to be sort of conflicted. We were in hotels as well, sorry, in 2010. So we’ve been franchisees in Hilton. ⁓

Marriott and IHG. So we had the restaurant franchise, we had the hotel side. And in hotels, they don’t have the non-competes where you can actually be a Marriott and a Hilton franchisee and open one right across the street from each other. our world, in the restaurant world where we’ve grown up in, it just can’t do it, right? And so if you’re in a chicken brand, you’re in a Mexican brand with JFC and Taco Bell, you’re pretty much, you can’t do anything else. then, so that left for us, know, burger.

Dan Rowe (42:55)
Yeah.

AL BHAKTA – CMG Companies (43:09)
Pizza, you know, maybe a sandwich, maybe a breakfast. And so we realized, okay, at some point you’re gonna get ⁓ sort of boxed out. And so how do you diversify and keep doing this? And we really felt like there was a lot more opportunity in non-food brands and the ability to sort of scale and consolidate in other franchise systems. Ace Hardware is a perfect example, right? It’s 40…

4,500, 4,700 stores domestically, something like that, 5,500 globally total. And average franchisee owns less than two stores. they’ve historically, they didn’t like institutional capital. The word private equity was shunned upon. And for us, we’re not private equity, right? We’re truly an operator. We’re truly family owned by the eight partners. And so…

You know, it resonated with them. It resonated with us and, ⁓ you know, we’ve been scaling in that brand and, and, and that’s, that’s been the criteria. We were looking for brands that sort of had very similar characteristics to QSR where there was consolidation that was available. We didn’t want a ton of private equity, honestly, in these businesses, drive up sort of value and multiples. And we, we wanted to be sort of the.

the ones to consolidate and try to be one of the operators that can sort of ⁓ be a brand steward, but also work with the brand hand in hand and where we’ve had success in a KFC before or Sonic, we wanted to do the same thing in other brands. So tier one brands that had consolidation opportunities where we can add a ton of value, I think, and obviously the unit economics, right? mean,

The brand’s got to be around and we think there has to be a reason for it to exist. But the unit economics need to make sense. Us coming from sort of a pretty, what I would say, a low margin business. mostly everything else was pretty impressive. Like you look at Valvoline, you know, they’ve got 2000 stores and $2 million AUVs, you know, at 25 % sort of EBITDA margins. I mean, that’s sort of better than even Taco Bell, right? And so it’s like, wow.

You know, and so we’re like, man, if we had those margins to work with, you know, imagine, imagine what we can do with it. So again, tier one brands, we, you know, ability to consolidate ability to add value as an operator. And then could we get to scale? Even if we have to start small, could we get to scale to be a, a larger franchisee in that system where, know, where we can sit on the FAC or franchise advisory boards and have some influence and some say in our investment.

over a course of time, right? Because we were, you know, we’ve been in KFC and Taco Bell since 08 and we wanted that same trajectory for all the other brands we entered. So the retail brands sort of met a lot of those metrics and, know, I’ll let Naveen sort of talk, but, know, Renne Center, Ace Hardware, Valvoline, Tide Laundromat. Tide Laundromat technically doesn’t necessarily hit all of those, but it is Procter & Gamble. It is Tide.

and it’s laundromat business, right? So it wasn’t like we’re getting into something new. It’s an emerging brand maybe, but at the end of the day, it’s taking an old model and putting a logo on it, and it’s the best logo in laundry. But I’ll let Naveen sort of speak to it.

Navin Nagrani (46:37)
Yeah,

yeah, no, I mean, just to build on what Al said, if you sort of boil down all the stuff that we own today on the franchise or license side, they’re all consumer facing businesses. They’re all multi-unit. It’s a consumer that we understand. And so from our perspective, it allows us to sort of change the diversification, but also stay concentrated in what we know. like, you know, because we were

heavily focused on just QSR, being able to jump outside of that, our initial sort of foray was we became the largest rent to own franchisee with a very large acquisition, a corporate divestiture from Renaissance Center where we essentially bought the West Coast or California market with about a hundred stores. And that was sort of interesting for us because we had to start to do things that we normally did from a capitalization perspective, looking at sort of

asset-based lending versus cashflow lending, looking at receivables and just understanding the logistics of having to deliver inventory to someone that lasted more than 24 hours, right? If you think about like a sofa versus a chicken sandwich. But over time, that led us to saying, almost like a, if you think about like Warren Buffett, not that we’re anything close to,

his investment skills, but we admire him greatly. You sort of look for business models that have been around for a long time that have sort of a moat and they sort of have the benefit of what you call the Lindy effect. I don’t know if you’ve ever heard of the term Lindy, but basically it’s everlasting, right? Like it’s been around for a long time. It’s gone through different economic cycles and the brand has relevance. so

If you think about the brains that we have today, like KFC or Favilleen or ACE or Sonic or Tide, even though it’s a relatively new business model within Procter & Gamble, they’ve been around for, you know, 100 years. Like, ACE just celebrated its 100th year anniversary. And so in a way, it’s almost like a video game with a cheat code. We’re just benefiting for a brand that’s been around for a long time. And we’re just, you know, we’re not we’re not smart like you, Dan, in the sense that we could pick sort of those emerging brands that have

know, legs in a thesis, we just don’t have those those skills. So we just sort of, you know, rest on the strength of what’s already been around and what’s been proven. And we just sort of take that bet. Right. The upside might be less. ⁓ But, you know, we sort of have the ability to ride and compound capital, you know, from a from a large quantum of capital perspective. You know, so, you know, it’s it’s it’s different strokes for different folks. But from that perspective, that’s that’s proven to be sort of

lucky for us and successful in that sense.

AL BHAKTA – CMG Companies (49:31)
Yeah, downside protection. mean, for sure, if upside is limited, we certainly feel pretty good about our downside on these areas. And it took us some time, I said, sort of 2001, 2002 timeframe to 2014 to sort of reset the vision of the company and to be on this trajectory that we’ve been on now. ⁓ It took us some time to understand that, right? We were trying to find the emerging brands or the

Dan Rowe (49:31)
Yeah, sir.

Yeah.

AL BHAKTA – CMG Companies (49:59)
And reality of it was we realized we’re good at running a playbook and find a brand that’s been around a long time that has a reason to exist and where we can add value.

Dan Rowe (50:09)
Yeah.

Navin Nagrani (50:09)
Yeah, remember.

Dan Rowe (50:10)
What’s the word to use Naveen that you talk about?

Navin Nagrani (50:13)
Yeah, it’s called the Lindy Effect. It’s L-I-N-D-Y. And I’ll tell you sort of what that means. So it actually has, like, if you Google it, there’s like a Wikipedia and there’s whole definition behind it. But the Lindy Effect basically goes back to 40, 50 years ago in New York. if you think about just the, even sooner than that or earlier than that, but there was a comedy club in Manhattan that ⁓

Dan Rowe (50:15)
when we

Navin Nagrani (50:41)
people would go. So think about like the Jerry Seinfelds or the Eddie Murphys of the world. And this was sort of an emerging comedy club. So people go out, try out their act and, you know, very, very small percentage of those people became successful, ended up, know, like a Saturday Night Live, but most of them bombed and did succeed. But there was a very interesting phenomenon. There was a cafe across the street from the comedy club called the Lindy Cafe.

these comics would go there after hours, after their sets, and they would bullshit with each other, and they would talk. And the Lindy effect is actually the phenomenon where over time, a lot of these comedians came and left, but the cafe, the Lindy cafe actually stayed. And so the Lindy effect is basically like a lot of people come and go. Sometimes people make it, sometimes they don’t, but the Lindy effect is just the recognition that the cafe, that a lot of the people just go to.

happened to stand there for a long time. So when you talk about the Lindy effect, we just mean that something that’s been around, maybe behind the scenes without all the noise and all the hoopla, sometimes you just bet on the thing that’s just been there. And that’s kind of what we’ve been benefited from. Funny story, talking about New York and Manhattan, I remember many years ago, we went to an auction in New York for a brand and it lasted till like midnight.

Dan Rowe (52:00)
Thank you.

Navin Nagrani (52:03)
maybe even past that, I think it was like till one o’clock in the morning. then afterwards we were so disappointed. We’re like, all right, let’s just go have a good time. And we actually ended up going to Halal Guys, you before like going out and, you know, or maybe it was even after we went out and we were like, this is the most amazing thing, right? Like, you know, there was a line, you know, we had sort of the opportunity to get a big bowl of the shwarma and you squeeze the, you know, the tahini sauce and the hot sauce.

AL BHAKTA – CMG Companies (52:31)
That was very fast.

Navin Nagrani (52:33)
They

were like, this is the best thing ever. But like even in our mind, you know, being entrepreneurs, none of us, was, was Al, Manisha, myself, none of us were like, Hey, we should talk to these guys and figure out how we could potentially franchise this. They’ve got, they’ve got something special here. So like going back to what I said earlier, there’s a certain amount of DNA that you need to be that chemist to kind of find those people and put things together. We would be the guys that came in when things were boring.

know, Napa Lyle guys is an established brand and has, you know, lots of units. We’d be the guys that just came in and said, okay, you guys, you guys have figured everything out. You’re already on third base. We’ll just, we’ll just kind of, you know, play from here. but you know, there’s.

Dan Rowe (53:09)
Yeah. Well, I’d say, I’d say you figured it out because you guys definitely

have your own lane that you’re doing quite well. And we only talk about the brands of mine that work. don’t talk about the swing and the misses, which there are plenty. Hey, you said something a second ago. This would be really helpful for people. No, I just have a couple more questions. Advice to franchisors.

Navin Nagrani (53:17)
Yes.

Dan Rowe (53:32)
about not frustrating their franchisees or advice to franchisees about getting their franchisees wanting to open up more stores. So you said the FAC, right? The franchise council. Franchise councils are formed in large reason because the franchisees feel frustrated and unheard, right? And they want a ⁓ you know, brain meld and they want to, you know, basically, ⁓

increase their numbers so that they sound bigger. But it’s the whole reason that those things start is because something’s not working. But give some advice just from your experience, like what are the things franchise or do to frustrate franchisees that are really unnecessary?

AL BHAKTA – CMG Companies (54:13)
You know, I’ll take a crack at it. Yeah, I mean, listen, I would say back to the FAC versus sort of the associations like the franchise advisory council, you know, regardless sort of how they start, I think they’re healthy. ⁓ As long as the franchise or has has a seat at the table and it’s a franchise or lead meeting, ⁓ the franchise associations, you know, ⁓

This could be the part that we may want to go back and edit later, but I’ll say it now. You know, those things probably are not productive, right? I mean, at the end of the day, I don’t think the brands appreciate the franchisee sort of.

having their own meetings and getting in huddles and sort of, you know, call it what it is, effectively becomes a bitch session for the franchise or against the franchise or I just don’t see that those are as productive. ⁓ Maybe there’s historically has been some need for it over the years, you know, for different brands, but.

We’ve seen the FACs, the advisory councils and the committees at each of these brands. We think that’s a healthy thing where it’s led by the franchisor, right? It’s hosted by the franchisor or the franchisors in all the rooms. And it’s really them pushing their initiatives or ideas and getting feedback.

from the franchisees. I think that’s healthy. the representation there of size is also a good thing. You just don’t want all the large guys on the FACs. You want some smaller operators. You want some regional guys that in markets that may not be core markets, et cetera. And as long as you have a nice quorum, I think it’s pretty healthy. ⁓ In terms of just advice, mean, look, I think

Unit economics, unit economics, unit economics, right? You want to, the currency of trade for all franchisors is growth and you want new development. We will build stores all day long if the ROI is there. You just don’t have to even incentivize people to build stores ⁓ if the unit economics are there. And so everything should be looked upon via that lens.

And the moment franchise wars have to sort of answer ⁓ to Wall Street for numbers that they got to put out ⁓ to their institutional investors, if they’re private, for numbers they have to put out. the attention goes on new development for the sake of new development, for return of capital for shareholders on their end, and loses focus on unit economics. It really starts going

you know, the wrong direction. And it’s, this is not something new. I’m not spitting out any, new facts. This is just historically been the case for all brands and where brands have struggled, right? And not just brands we’re in, but other brands in the industry. So, and it’s the same on restaurants versus retail versus automotive, et cetera. If we lose, if, if, franchise or, and franchisees lose sight on unit economics and ROI and sales to investment ratio.

it and only focus on developing because, you know, because we’re trying to beat the competitor or we’re trying to, it always goes the wrong way until you got to refix the brand again. Right. It’s, it’s, it’s tried and true happens every time. So the advice is just don’t lose sight on really what matters. Right. And it’s the unit economics because franchisees like us and all good franchisees are going to build stores, ⁓ you know, at the end of the day, because the returns are there.

⁓ Capital chases where it’s treated the best. It’s some saying like that and Navin might know the exact saying is that capital goes where it’s treated the best, simple as that.

Navin Nagrani (58:12)
Yeah, no, and I’d say a couple other things that I think, Dan, you’d find probably ⁓ interesting and you’d support. One is a lot of emerging brands or existing brands have sort of a philosophy of whether they’re going to operate corporate units versus just be pure play franchise, franchise or I think there’s a lot of value in having at least some number of franchise or corporate stores that you run like you would as a franchisee. just pseudo, you assume you’re

you know, separate entity, but you know, you’re operating this business. You assume that there’s a certain amount of money that’s coming, you know, to essentially the house, even though it might be left pocket, right pocket. But when you actually run your own stores, you get to test out things. So if you’re trying to do new things like promotion, product, et cetera, remodels, you get to see what the actual benefit of it is before you try to, you know, scale that out and push that onto other franchisees. I remember, and we’re fortunate that, you know,

Not that we have a perfect hand, but I wouldn’t trade our hand in terms of the brands we have against anyone else’s. We love what we own today. But during COVID, there were still brands that were asking about remodels. And it didn’t make sense because no one was actually going into stores. So why are you spending dollars remodeling the interior of a restaurant when no one’s actually physically going inside the restaurant? It’s sort of things like that. So if you sort of have to eat your own dog food.

I think that makes a lot of sense. then what’s also interesting is franchisees, both big and small, don’t really have a good way of learning from franchisees, from an operations perspective, what are they actually doing, and then sharing that with others. I mean, there are committees like advisory councils and stuff like that, but as an example, we run our GNA incredibly well because we’ve been able to, over 25 years, compound

whether we’re doing it ourselves and we have best-in-class vendors or whatever sort of concoction we have, we know how to actually manage our businesses from above the four walls. And that’s something that some of the franchise systems would probably be able to benefit from learning and then somehow sharing that with other franchisees. And so there’s things like that where when you have a system with a bunch of franchisees, franchisers monitor sort of with the revenue unit count.

all that stuff, you you’re paying your royalties, but when you actually look at some of how they make the sausage, how they operate, how they run their businesses, how they hire people, you know, incentivize them and stuff, I don’t think a lot of those learnings are shared across the system. And so that’s probably an opportunity just as a general franchise, franchise or franchise income.

Dan Rowe (1:00:55)
Yeah, I’ll say a couple of things. I agree with you about we never, I would stay away from brands that are franchising that don’t have company stores because it’s not a good use of their money, but they want you to invest in it, right? And I think that you need to have enough operating soul and operating DNA and bench strength. Like what if you’re a lucky franchise or that’s opening two new restaurants a month, where are your opening teams coming from? you know, those, it’s like you got in,

And also if you have to, to your point, a franchisor has got to be going through the same stuff that you’re going through in order for you guys to have intelligent conversations about making things better. And so, I would, mean, all of our brands are always building merging brands. We always want a growing number of new company stores. And then, you know, I think

The idea of sharing information, one thing that we do with our brands and we’d started at Five Guys. Like we would list every single week, everyone’s sales, everyone’s secret shopper scores. And we would share that with every franchisee. And I mean, this was 20, you know, it’s a long time ago, but we would at least send that out and then we would show trailing numbers. And so you could actually look at the model and see how stores sales turn around. It’s almost always correlated to the secret shopper scores.

But what also happened is then, then you add a peer group of other franchisees telling their franchisees with low secret shoppers scores to get their shit together. And, and then, and so now, and nowadays with like some of our new brands, we actually take every one of our stores, PNLs, and we lay them out side by side and share that with everybody. Like all the, all the main KPIs, not the entire panel, but all the main KPIs. And we do it one to show people what the best people are doing, which is very,

Navin Nagrani (1:02:26)
Yeah, makes sense.

Dan Rowe (1:02:47)
⁓ inspirational and motivational and people if they’re having a hard day, but see 10 other people are killing it in a certain thing and make them feel better. And then the other thing to your point is we actually do foster wanting them talking. Like I want my best franchisees out there ⁓ helping. yeah, that’s, that’s, that’s smart. find most franchisors at least emerging ones, no, not even merging ones, even growing ones. There’s some big chains that I know about.

They spend very little time. They spend a lot of time training their franchisees, how to make the burger, how to wash the car, very little about how do you actually build a franchise company that scales? Like how do you build a multi-unit thing? And, you know, and it’s a weird phenomenon because think about it. You guys have 191 Sonic, so it’s 191 times the sales times the royalty. That’s a huge check, right? And if Sonic was smart, they’d figure out how to get you guys into 591.

Right. And, know, because it’s, it’s very little for, their revenue from you to go through the roof. It’s not a whole lot more work. Right. So, ⁓ and I like, I like Sonic and you make me, make me want to go to one now, but what, ⁓ anything else.

Navin Nagrani (1:03:58)
You should

go, just so you know, the ⁓ Smash Burger that Sonic just came out with is, I wouldn’t call it legendary because it’s new, but I put it up against Five Guys, know, like your best burger at Five Guys. I think the Smash Burger is legit. I think it’s definitely a legend in its making. So if you haven’t gone lately, you should go check one out.

Dan Rowe (1:04:19)
But what do

you think about five guys? I’ve met them when they had four and now I think they’re like 1800 or some crazy. that, that whole company, like their whole success is around the Morels. They’re fanatical operators, like fanatical. And all they care about is like, why don’t you have chickens? Like we got to get the burgers right. You know, why don’t you do, why don’t you do this? Like, cause we’re only focused on doing this thing right. It’s like,

Navin Nagrani (1:04:26)
Yes.

Yeah, no.

Dan Rowe (1:04:46)
That’s a perfect textbook example of if you focus on operations, even through the different economic cycles that we’ve had, the 09, like you’re talking about, certainly COVID. And even now, they’re just going gangbusters. And it’s all because of operations. And you knock them for high ticket prices or high check average. And it’s like, they’re sales. I know people. I still see the numbers. They’re ridiculous.

Navin Nagrani (1:05:04)
Yeah.

No, yeah, we have a lot of respect for it. mean, one of our really good industry friends ⁓ is a large Five Guys franchisee. And, you know, we’re very, ⁓ not envious, we’re just very, you know, very proud of what he’s been able to achieve with Five Guys. I’d say it’s sort of the, you know, the analog of a raising cage, right? Just focusing on what you know and being really good at it. I would say constructively, maybe the only thing Five Guys might have done wrong is they might have, ⁓ you know,

selection of franchisees is important, right? And getting the right people on the bus, opening the right locations. There’s always a balance of opening new units and sort of making sure you make each unit sort of, you know, with the right franchisee and operator. But yeah, Five Guys is, yeah, it’s a great brand. You know, we have a lot of respect for it.

Dan Rowe (1:06:01)
And then, and then here, October of 2025, is there anything about October that makes you guys think that someone couldn’t still be successful in this business? Like go find some underperforming somethings, go focus back on operations. There’s something weird about the economy, ⁓ labor. Is there any reason like just be a little bit motivational, I think, and explain to people like now’s as good a time as any.

AL BHAKTA – CMG Companies (1:06:28)
Yeah, you know, we spoke to, we had the pleasure of speaking with Greg Flynn, ⁓ you know, earlier this year in Australia. He’s a large Yum franchisee as well. And we had, it was a Yum conference in Australia. And anyway, so speaking to him, I mean, he’s, you know, we asked him a similar question. He’s been doing this a little bit longer than us, but not much longer than us. He’s obviously a lot larger than us, but.

Navin Nagrani (1:06:28)
Yeah, I mean.

AL BHAKTA – CMG Companies (1:06:58)
Like he said, everything he’s done and built has been through sort of cashflow and operations. And, you know, it’s, it is finding the right brand and sort of pitching your lag, you know, wheels are lagging to the, to that brand. I think we’re always counter cyclical. We’re also, we look at this stuff is like when other people are, are jumping out, you probably want to look at jumping in, you know, we got into KFC in 08, 09, 10. ⁓

when everybody was sort of bailing, Sonic sort of pre-inspire, ⁓ and it wasn’t pre-pandemic, it wasn’t looked upon as ⁓ truly a national brand, people kept calling it a tier two brand. Little Caesars, if you talk about Little Caesars as a pizza brand, it’s really not talked about as much as, it’s really not talked about.

Just cut off. Hello. Oh, sorry. Yeah, it’s really not talked about as much as the other three large pizza brands are. And because it’s family owned and they go out for a different consumer. we just, we like those types of brands. I would say, you know, I give you sort of that long, long answer there is that really we like opportunities where people are looking the other way. Right. And so I think, I think if you look at the

Dan Rowe (1:07:55)
That’s all right. You’re good.

AL BHAKTA – CMG Companies (1:08:23)
the QSR world right now, there’s a lot of opportunities. Obviously, you know, everybody wants to do Taco Bell and Wingstop and Duncan and, you know, Five Guys, et cetera, but they may not have the opportunities, but maybe some of the legacy brands that are, you know, are struggling right now, where franchisees are hurting or they don’t have the money to put into CapEx or their new remodels or a turnaround strategy that the brand’s going through.

You know, those are great opportunities, I think, for new entrants to come in and prove themselves and say, hey, I can operate this. I can operate better. So I would look at those types of brands. And there’s a lot of them out there right now that where the consumer’s hurting and by result, those brands are hurting. I think ultimately, I feel like it’s a great time to sort of get in and outside of QSR and sort of the

that world, I mean, there’s lots of opportunities in franchising. I mean, if you look at sort of the home services businesses that are franchised right now, I there’s tons of opportunity for consolidation and ⁓ there’s just a lot of opportunity in automotive. There’s a lot of opportunity in other consumer facing service models that are franchised that there’s, know, that again, the franchise playbook is all it is, is a playbook.

And if you can sort of operate within a playbook, it’s certainly a lot of opportunity out there.

Navin Nagrani (1:09:51)
Yeah,

I would just take the other end of the spectrum there. mean, if you’re talking about larger, sort of well-capitalized groups, you know, there’s probably an opportunity set that exists. But if you’re sort of, you know, scrappy, you’re sort of don’t have a lot of financial capital, or you’re sort of at a point where maybe you’re an executive and you’re looking to sort of take the leap, it may be difficult to get into a brand like Taco Bell or whatever. You know, I would say maybe just as a plug to you, Dan, I mean, you’ve

been around the block, you’ve collected your 200 bucks, you’ve sort of gone through a couple of different iterations where you’ve gone from the laboratory to the factory of all guys, five guys, ⁓ that if I was looking at a brand that you were representing, like think it was like Brooklyn Dumplings or something, you’ve got several others, I would probably weigh in more, I wouldn’t say probably, I would weigh in more.

to something that you are working on because you’re actually putting your own brand and reputation, which is established on something and you’re not necessarily doing it for just financial means. Like you’ll still be able to pay your water bill. You’ll still be able to, you know, go golfing or whatever, you know, you like to do. So you’re, you’re actually at a point where you’re, you’re, you know, putting a lot of your human capital and what you’ve compounded over the years onto something. And so even though it might be a nascent brand, I would

I would study it and I would pay attention because there’s a good chance that you know what you’re doing and it would be a good opportunity because the opportunity and sort of the market is wide open. Even today as top franchisee, if we wanted to open up more Taco Bells, there’s a ⁓ small part of the country that potentially we could if we’re lucky. But when you’re working with a new brand that’s exciting, there’s some energy and there’s some massive opportunity there.

Dan Rowe (1:11:43)
The good part about a Taco Bell, I mean, I love, I grew up in Orange County, so that was like my kitchen. ⁓ I love Taco Bell, but the good part about Taco Bell is it’s well known. It’s a huge chain, tons of examples of success. The bad part is you’re not going to go do a conversion, right? You’re not going to convert some other drive through cheaply to a Taco Bell. It’s not going to be inexpensive to build a Taco Bell. If you bought a good one, now turnaround’s different, but if you go buy a good Taco Bell out there,

The multiples are really high because the lack of risk is priced into that deal. Right. And so it takes a lot. mean, I’ve heard of 10 multiples, right? 10 X multiples. And it’s just like, that’s, that’s a lot, but because you guys have so much access to capital, you can do those. If it makes sense, if you’re buying some things a little, ⁓ expensive, but you also have other room to grow or whatever it works in the big scheme of things.

Navin Nagrani (1:12:18)
It’s like buying a bond.

Dan Rowe (1:12:41)
for me, for the early stage, the emerging brands, for me to attract a guy that has, you know, 25 guys or whatever, 20 Taco Bells to a new brand, the numbers better be very different, very, very different. Like it has to be worth the risk or the worth of the, it has to be worth the pain in the ass factor of saying they don’t have it figured out. They don’t have stores coast to coast, right? So.

I mean, we do. the only, the last two food brands that I’ve added at France smart, both had 40%, 35 to 42%, but around 40 % corporate for Walibaba. So think about that. Like when’s the last time you heard of a restaurant concept of those numbers and then some of our non-food twice is good. Right. So it’s like some of these ridiculous non-food franchise brands are super.

Navin Nagrani (1:13:32)
Thanks for

calling us, Dan, by the way. Thanks for calling us on those.

Dan Rowe (1:13:35)
Well, we will, I’ll trade you from the ninth seed in your company. So just

as we wrap up, like what are some of the mistakes? Like what are some of the things that didn’t go well or some battle scars that you have that you kind of take with you in your decision making for new brands? Did you guys ever chase any shiny objects like ghost kitchens or any of those other funny things?

AL BHAKTA – CMG Companies (1:13:57)
We did, we got her into the frozen yogurt game. We backed ⁓ a brand here in Dallas that called, well, that’s not, I’m not even gonna bring up names, but yeah, Froyo, we got it in that. I mean, like we’ve done other franchise or brands or brands that we probably shouldn’t have done. yeah, I think, look, we’ve made a lot of mistakes. So this is not the case.

Navin Nagrani (1:14:10)
The bottling plan.

lot of mistakes.

AL BHAKTA – CMG Companies (1:14:24)
⁓ I think we wouldn’t be where we’re at without those mistakes of pretty expensive sort of lessons along the way. ⁓ you know, I think what I would say is use the resources. think Navin made a great point about, and not that this, this, ⁓ podcast is about France, Mart or us, but it’s like, you, there’s people like you’ve done. You vet these brands before you get them. So there’s, there’s a level of.

expertise that people should lean on when you get it. My thing about going into sort of tier one brands that are sort of struggling now and not really taco, that’s not the case with Taco Bell or Wingstop, et cetera. Like there’s quite a bit of tier one brands that are struggling. At least there is still a large behemoth brand sort of behind you to back you up when you go into a struggling market to turn stores around. So I’ve always been

you know, sort of like that. I’m a risk taker for sure. But there’s maybe something to fall back on because there is a brand. So, you know, a lot of mistakes we’ve made, I think, was thinking we could do something that someone else couldn’t do in some of those smaller brands and things like that. I think it’s very hard, right? But you’ve seen success stories in the larger brands. so you’re like, you know what, even though this brand is struggling,

these five operators in this brand actually are doing well, that you can sort of replicate. But to say, can buy this brand or I can get into a two unit concept and completely do things differently and do it my way, I think that comes with a lot more risk and I would avoid that. And look, I think acquisitions is a great way to build wealth. ⁓

Dan Rowe (1:15:54)
Mm-hmm.

AL BHAKTA – CMG Companies (1:16:15)
versus building De Novo in the beginning. And it’s just what it is. And as a franchisee, I’m sure franchisors don’t want to hear that, but like, hey, I need to have some stable amount of cashflow, then I can take some money and then reinvest that to build new stores. So there is that, as a new franchisee looking at acquisition opportunities, I think is always a safer bet. We’ve made mistakes by building De Novo.

in emerging brands and it’s a tough proposition. It’s like Davin said, we’re not very good at finding the next five guys or the next wing stop. I wish we were, but we’re just not that good.

Navin Nagrani (1:16:59)
Yeah, then, one thing I would say that would be helpful, I think, for the audience, both aspiring franchisees or established ones, you know, there’s a certain amount of credibility that you get when you’re a larger player. So we can afford to, you know, hire, you know, a more expensive lawyer or whatever. But over time, you really get to know who’s good at what they do, whether they work at a small shop or a big shop. And that goes across

the spectrum of all the constituents that work on a deal. So the investment bankers, the attorneys, the lenders, ⁓ the accounting groups. And so if you’re looking to get into a system and let’s say you’re going to become a franchisee of Five Guys or KFC and you’re making your discovery calls, one of the questions you should ask is like, who do you use for your accounting and who do you use for your legal? Because that person probably

Dan Rowe (1:17:48)
Yeah.

Navin Nagrani (1:17:52)
knows what they’re doing, they know the business and like, you don’t have to sort of guess on picking someone, you know, maybe your existing family lawyer, business attorney. So there are real rock stars in the business that we are fortunate to be where we are because of them. You know, some bankers that have bet on us, some attorneys that have been just, you know, unbelievable counsel, some accounting groups, you know, so try to find the…

people in the industry that have been there, done that, and know what they’re doing. And there’s an incredible amount of value that you get just by having the right team in place, not only as partners or as employees and associates, but also just the people that work on deals with us. That’s super important. A lot of people just miss that.

Dan Rowe (1:18:37)
Don’t you find it easy? Like if I were buying 10 underperforming KFCs or something like that, I find all the other franchisees super open and super willing to talk to me. I mean, the best source, if I was going to go buy underperforming KFCs or something, I’d go after the best five franchisees and say, tell me what to do. Tell me how to do it. I’ve never found those people not willing to share.

yet I know so many franchisees that don’t even know their fellow franchisees in the same market.

Navin Nagrani (1:19:09)
Yeah, that’s 100 % true.

AL BHAKTA – CMG Companies (1:19:11)
Franchisees just by nature are entrepreneurs, they’re very collegial, they’re competitive. So they want to know what the best way to do something is. And they think they can do it better, which is that’s a cool part of when you mentioned sort of racking and stacking sales and profitability or whatever the metric is. We love that stuff as franchisees. And I think the good ones do. They want to be held accountable. They want to be best in class. And they want to help.

the brand by talking to smaller franchisees or a new entrant franchisee that’s looking to get in because they don’t want bad franchisees in the system, number one. Number two, they want to help the ones that want to be helped because it’s just going to help the overall brand. I think ultimately you’re right. I mean, it’s a great industry. We love it. We built a ⁓ life.

Dan Rowe (1:19:55)
Better for them.

AL BHAKTA – CMG Companies (1:20:03)
around it and we’re fortunate to be able to do it in a great country that allows franchising the way it does, right? So it’s a great, great place to start if you’re getting into business for yourself.

Dan Rowe (1:20:17)
Well, you guys have been awesome. So there’s a lot to be proud of, like the company you’re building and all the people that you’re taking along with you and that you’re improving like so many different people’s lives. Like this really is a business you could get wealthy, helping people get wealthy, right? And improving the lives of other people. So you guys are doing great things and I really appreciate this and I appreciate you guys sharing your story and some of your advice. any parting thoughts? How do people find you by the way? What’s your website?

Navin Nagrani (1:20:46)
Yeah, it’s cmg.team. ⁓ So that’s our website and you know, we’re on LinkedIn. We’ll be at the Restaurant Finance and Development Conference next month. ⁓ But yeah, we’re usually accessible. Actually, Al has a soft spot. You know, a lot of the great people that we’ve met and that we’ve worked with came from just randomly.

⁓ Sniping Al on LinkedIn not to just sort of make it an open target, but you know, he does have a soft spot for entrepreneurs and people that you know, are trying to also The hustle moves. Yeah. Yeah, we we we on occasion do that ourselves You know, but but you know, we we’re relatively easy to access

AL BHAKTA – CMG Companies (1:21:29)
No AI bots, LinkedIn auto messages or emails, but actually thoughtfully crafted messaging. Sometimes it’s a spot because you never know who’s reading it on the other side.

Dan Rowe (1:21:29)
Alright.

Navin Nagrani (1:21:32)
Yeah, please do.

Dan Rowe (1:21:33)
No.

Well, you guys are awesome. Thank you guys very much. And ⁓ I will see you guys in Vegas.

Navin Nagrani (1:21:47)
Yeah.

Yeah, for sure, Dan. And thanks, man. We’ve had a lot of admiration and respect for you over the years. We’re not sure why you actually reached out to us, but we’re grateful for the chance. Yeah, man. But thank you for the chance to speak with you, and appreciate what you’re doing for the industry.

Dan Rowe (1:21:58)
It’s obvious. It’s obvious you guys are.

Thank you guys, take care, see you soon. All right, let’s stay till Jenny says we’re good.