Why this restaurant brands CEO is diversifying to food trucks

Just weeks before the COVID-19 pandemic hit America, Former Hilton Executive Jim Holthouser became Focus Brands new CEO. Jim Holthouser joins Yahoo Finance’s On The Move panel to discuss how Focus Brands is faring during the coronavirus crisis.

Video Transcript

JULIE HYMAN: You're watching "On The Move" on Yahoo Finance. I'm Julie Hyman. Well, we have been talking about what has been happening with the food industry, the restaurant industry. And we're joined now by the CEO of Focus Brands, Jim Holthouser. He's joining us from Atlanta, Georgia. This is the company behind brands like Auntie Anne's, Cinnabon, Carvel, Jamba Juice, as well as Moe's Southwestern Grill. Jim, thank you for joining us.

And I guess we could say a little bit, you went from the frying pan into the fire, because you joined the company just a couple of weeks before this pandemic really began and took hold in the United States. But you came from the hospitality industry. So that was not one that was unscathed either. Give us the view of where things stand with your locations. And these are franchise locations, correct? So-- but where do they stand in terms of what's open, what's not? And what the picture looks like in the coming weeks.

JIM HOLTHOUSER: Yeah, you know, the-- probably like every other business, this pandemic came at us so quickly. To me, it was just like flipping on a switch or something. It just seemed like it happened overnight. You know, and initially, we had no idea basically how deep the damage would be.

Two months into this, I'm pleased to tell you that the malls are coming back, albeit slowly. We have brands like Schlotzsky's, for example, that-- you know, that have a lot of drive-thru locations. And quite frankly, their-- their sales are about 90% of what they were pre-pandemic. So it really varies across the board based on the kind of product that we have in the portfolio.

ADAM SHAPIRO: Jim, hey, it's Adam Shapiro. A lot of us, when we were teenagers had experience or you know our first work experience might have been at a restaurant. And I'm curious, the protections you take for your employees, are you also seeing those teenage employees coming to you in this pandemic trying to find work?

JIM HOLTHOUSER: Yeah, really, yes, yes. I mean, that's an important part of our employee workforce. And you know, but-- but again, our employees, they-- they come from all kinds of different demographics. We are having to go through a big retraining as we open and reopen restaurant dining rooms. So it's-- again, you've got to be able to counsel your customers. You've got to be able to give them really good direction about social distancing, changes in the menu, et cetera.

The cleaning procedures are a little bit different these days. I mean, you know, cleanliness is kind of one of the hallmarks of both hotels and restaurants. It's kind of table stakes stuff, right? But-- but in this environment, you've got to show your customers that you're going well and beyond and above what-- what you've always done.

MELODY HAHM: And Jim, you talk about how a lot of your brands are the cornerstone of the mall experience. I would go to the mall to have a Cinnabon, right? I would go to the mall looking forward to that Auntie Anne's pretzel. But the concept of the mall has evolved a lot over the last couple of years. And I imagine, especially with a lot of these retail bankruptcies and a lot of the demise of some of the kind of the tenant players in traditional malls, that malls will not get the same amount of foot traffic we had already seen decelerating pre-pandemic. What are some innovative ways that you're trying to think about the new location for a lot of your brands?

JIM HOLTHOUSER: You know, we've been trying to diversify away from all for a couple of years. So this-- we didn't need the pandemic to teach us that, right? But before-- before I answer your question directly, let me also say that, you know, all malls aren't created equal. They're typically categorized, right, based upon their revenue per square foot and this and that, right? So they'll typically be put in A, B, C, D buckets.

You know, the nice thing about our portfolio is the vast majority of them are in A and B mall locations. So this is where the foot traffic is still relatively strong. Now, to your point. I mean, does it come back in full force? We just don't know yet, right?

So-- so-- so the second part of that is that we've been trying to diversify away from, you know, just such a big heavy reliance on mall locations. So we've begun to go into university areas, which also, I guess that's also a bit questionable right in terms of how long those kinds of markets will recover. But I think very innovatively, the brand has also been going into food trucks. So again, a very different idea. Basically you have a franchise on wheels that-- that really is not tied to any kind of one specific location, right? It can actually go to where customers are. So again, a lot of outdoor events, sporting events, you name it.

So we've got about 30 of those in the Auntie Anne's portfolio. So I would say we're learning as we go. We just opened our first Jamba-- Jamba truck-- food truck. So again, I think this gives us a little bit more optionality and again, helps us to diversify a bit away from the traditional mall.

- Jim, also when you talk about diversification, I mean, you guys already have a pretty diverse stable of brands, although many of them are mall specific. You talked to an industry publication recently where you talked a little bit about potential consolidation, further consolidation. So I'm curious at this time-- I mean, there are going to be local restaurants and restaurant chains that are going to be distressed. Is that something-- are you guys looking to make any acquisitions?

JIM HOLTHOUSER: Yes, I mean-- I will say, we're always looking at our different options to add to the portfolio with quality brands, right? And I'll tell you what. One thing that got me excited about coming into the restaurant business was-- was just-- was-- was really the potential for consolidation and in growing the company, very-- you know, two or three times its current size.

So if you look at-- if you look at brands today in this space, it is-- it's very fragmented, right? You've got lots and lots, I mean hundreds of small regional players. And one of the things I learned in the hotel business is that-- is that you need scale to be able to afford, you know, the loyalty programs that, inevitably, customers will want, you know, the apps and the websites with sophisticated commercial capabilities and the data and the analytics and the email capabilities. It goes on and on and on.

Scale gives you greater control over your supply chain and the cost of your operations. So there are literally hundreds of these chains out there without that kind of scale. And they are going to need homes. Probably coming out of this pandemic, many of them will be distressed. So I do think there is going to be a lot of opportunity for future consolidation and the ability, really, to pick up good quality brands, maybe at discount prices over where they might have been six months ago.

DAN HOWLEY: Jim, Auntie Anne's they have some options available in retail grocery stores. Do you see the company as a whole offering more grocery store options? And if so, how do you see that kind of going as far as consumer uptake?

JIM HOLTHOUSER: Yeah, and I'll tell you, that's what we call in our business licensing, right? It's basically where we can take the products or our-- some of the products of our stores, right, and you introduce-- introduce through channels like, for example, you know, grocery stores, right? So you can you can buy Auntie Anne's, you know, infused coffee. You can buy Auntie Anne's pretzel kits, et cetera, right, in other places other than traditional stores, right?

And those have actually done quite well in this-- in this environment, right? Because again, one of things we look at is the total food budget of American households. And what percentage of that will go to grocery stores versus what percentage that will go to restaurants, right? And over time into the pandemic, right, restaurants have been winning a greater and greater share of that food wallet, right?

During the pandemic, right, it's reversed itself, right? More of the dollars were actually going to grocery stores. So with Auntie Anne's and some Moe's products as example, Cinnabon products on the shelf, we've actually-- you know, that's actually been a nice growth story for the company, right? Customer-- because we've-- these products are basically where customers are spending their dollars today.

JULIE HYMAN: Jim, some really interesting stuff. Thank you so much for joining us. Jim Holthouser is the CEO of Focus Brands. Hope to see you again, Jim.