Thinking small for Del Taco operator, while kids run the show at PizzaRev
Illustration by Jonathan Hankin
Recreational marijuana use has been legal in Colorado since 2012, meaning cannabis dispensaries and grow facilities have been hiring workers for the past six years.
And they pay them considerably more than restaurants can, noted Bloomberg’s Senior Restaurants Analyst Michael Halen in a November report. He cited a study showing that California and Colorado operators are the most likely to see the cannabis industry as a competitor for workers.
Yet Del Taco franchisee Brent Veach, who operates 21 units in the Centennial State, doesn’t seems fazed by his weed rivals. “Look,” he explains, “Denver’s unemployment rate is very low, below 3 percent. It’s difficult to find good people.” For the record, the state’s unemployment rate is 2.8 percent.
Veach mentions a Del Taco unit he recently opened in affluent Castle Rock, Colorado. He said he pays hourly employees more than the current minimum, which jumped to $11.10 an hour from $10.18 in January. He added that GMs and area managers are offered 401(k) plans. “We really work hard on building culture,” he says.
The 53-year-old operator, a graduate of Baylor University, entered the Del Taco system 20 years ago after agreeing to open three units in Phoenix. Prior to that, he’d been an accountant for Coopers & Lybrand (he’s a CPA) and an executive for Motorola. He quit the corporate life to go into business for himself.
His parents and wife are his sole partners. “We’re a family business,” he notes. Chase Bank is his primary lender.
Though growing mostly through acquisitions, Veach buys land when he can and builds from the ground up. Last year he added seven Del Tacos in northern Arizona to the 23 he already franchises in the state, purchasing them from a long-time franchisee who’d called it quits. Veach won’t disclose the multiple of EBITDA or cash flow he paid for them, but says Del Tacos roughly follow the industry average for fast-feeders.
The Lake Forest, California-based franchisor, long considered a regional player in the Southwest, operates about 300 company restaurants and franchises 250 in 14 states.
It has, however, planted roots in the Midwest. Detroit-based Team Schostak, for example, operates five Del Tacos in Michigan “with 12 in the pipeline,” according to the franchisee.
A new unit costs from $859,700 to $2,116,500. Franchisees pay a 5 percent royalty. Del Taco’s franchise disclosure document shows median sales for freestanding company and franchise units open 12 months or longer were $1,256,983 in 2017.
Veach said he’ll open two or three Del Tacos this year, likely in Phoenix. He’s a professed “conservative” regarding development. “I sign small commitments. And I now operate 50 Del Tacos,” he brightly notes.
He does mean small. “The largest deal was four stores. That’s my personal philosophy,” he says.
Revolution in Sacramento
I get why operators don’t like Yelp reviews. Anyone, after all, can air a restaurant’s dirty laundry. It works the other way, too, as PizzaRev franchisee Ray Gallo discovered shortly after opening an outpost in Sacramento.
“Walked in the door and was immediately greeted by the owner Ray,” wrote the reviewer. “He just took over the store and is making some awesome upgrades. I have never been here but I will be back simply because he and his staff were sooooo inviting!”
“Thank god, right? That’s all I know how to do, is engage the customer,” says Gallo, who describes himself as an operations expert when I read the review to him over the phone.
Gallo’s expertise is the result of years working for his father, Ray Sr., a longtime McDonald’s franchisee who sold his six stores and retired in 2017. Ray Jr. later worked for the corporation as a regional trainer.
Gallo, 41, didn’t acquire Ray Sr.’s restaurants and declined the burger giant’s offer to franchise McDonald’s restaurants elsewhere, according to Gallo, who grew up in the area.
Instead, he and his wife, Marlen, 35, purchased three PizzaRevs in greater Sacramento late last year. The units are new, none older than two years. Gallo claims the previous owner didn’t have enough restaurant experience to operate them. He declined to say how much he paid for them.
Gallo isn’t obligated to open more Pizza Revs, but he eventually intends to add units throughout Sacramento County. His fourth, a ground-up in his hometown, Rocklin, should open later this year. He estimates the unit will cost from $750,000 to $800,000. Financing will come from Wells Fargo Bank.
“I’m going to take it one year at a time, making sure they’re operating correctly. At that point, I’m going on to the next phase,” he says.
One of those phases, if all goes right, will land a Pizza Rev in fast-fast-growing northern Nevada. The area already boasts Tesla’s sprawling GigaFactory; Amazon announced last spring it will build a state-of-the-art fulfillment center there and employ 1,000 people. Sparks and Reno are reportedly among the 10 fastest growing cities in the state.
Team Gallo is counting on the real estate expertise of Brian Durkin, a former McDonald’s executive who’s the business insights and site development lead for Cleveland Avenue. The Chicago-based venture capital firm has a majority stake in PizzaRev. It’s helmed, in fact, by former McDonald’s CEO Don Thompson.
In mid-December, meanwhile, the confident-sounding franchisee was formulating an incentive plan for managers.
“They have to hit their labor and food cost goals. There are 10 to 15 guidelines to make sure the stores are running efficiently,” he explains, adding the managers’ average age is just 23. “I have kids running these stores.”
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at email@example.com.