This may have concluded Logan's saga, but in 2020, Fortress-backed SPB Hospitality acquired the restaurant alongside the rest of CraftWorks Restaurants and Breweries' holdings. While their story is still being written, Logan's Roadhouse is now one of several business turnarounds within the SPB Hospitality portfolio of brands.
Navigating the pandemic posed enormous challenges for any businesses dependent on customers convening–in airplanes, in theaters, in arenas, and, of course, in restaurants. Just as SPB Hospitality was completing its acquisition of CraftWorks' holdings, the government began mandating stay-at-home policies. "We had to quickly figure out how to keep these restaurants open," said SPB Hospitality CEO Josh Kern during an interview. "How are we going to make sure everything is up to code? We had restaurants across 34 states, and every municipality had different measures in place."
Kern's team rapidly deployed the capital Fortress provided to address immediate needs like implementing protective dividers and shifting operations to takeout. "Without a doubt, if Fortress wasn't around, I don't think Logan's would exist," said Kern. The capital allowed SPB to help its brands weather the storm from COVID-19. What the SPB Hospitality team learned during the pandemic continues to help them reshape and reinvigorate the restaurants they support today. Take Krystal Restaurants which found success during the pandemic relying more heavily on drive-through sales. Recently, the company announced a new storefront prototype with a smaller kitchen and floor plan focused on drive-through business.
SPB Hospitality CEO Josh Kern recently joined Fortress Managing Director Morgan McClure for a discussion about SPB’s beginnings, its strategies for preserving jobs and brands through the global pandemic, and its plans going forward.
This interview has been edited for clarity and flow.
Morgan: How did SPB Hospitality help its brands innovate during the pandemic?
Josh: We had to navigate sudden closures, capacity restrictions, and shifts in consumer behavior practically overnight. While some adjustments made during the height of the pandemic were temporary, others have become permanent parts of our business model. Take-out and delivery, for instance, have seen increased emphasis and are now integral to our operations. We also expanded our catering efforts, which remains a focus of ours now that many companies are implementing hybrid workplaces and using free meals to entice people back into the office.
Was a capital infusion at the time important to facilitate these pivots?
We were at a very challenging moment at our start. Between the March timeframe of when CraftWorks filed for Chapter 11 and our acquisition of the company, we were in the early days of the pandemic. We had to quickly figure out how to keep these restaurants open. How are we going to make sure everything is up to code? We had restaurants across 34 states, and every municipality had different measures in place. We had to invest in the dividers between restaurants, close dining rooms, use the drive-through more—particularly, on the Krystal side of the business—and really get out there in terms of enforcing masks.
Without a financial institution behind us, both in terms of the capital and the wherewithal about the required speed to get these things done, I don't know if we could have gotten through that period with all those challenges.
What are some examples of the operational efficiencies SPB Hospitality helped implement for its brands?
Streamlining our efforts and maximizing opportunities are a core focus for us. For example, for all our brands, we have a single point of contact for our supply chain, and this has been critical for keeping costs down, especially as inflation spiked. We sell a ton of french fries. Being able to lean in on buying efficiencies has saved us a tremendous amount of capital. This point also applies to our distribution model. We work with two really big entities across the U.S., and because of our size, we have better standing to negotiate than any of our brands would have as a standalone.
You manage a diverse portfolio of brands. How does this provide SPB Hospitality an advantage?
When you think about J. Alexander's and Stoney River, they're really upscale hospitality. Their training programs are meticulous. Their policies, procedures, look and feel are first-class. The kitchen is scratch made. They utilize taste plates every day, where they're going down the line and tasting sauces. Their business is robust.
We have taken bits and pieces of that finer hospitality and have deployed it across all the other divisions and concepts. When you start to think about some of the training and some of the upscale touch points that we do at J.'s, and you apply some of that to a Krystal training program—you can upskill folks so that a drive-through situation can still delight and surprise our guests. We know that that's a way we can start to differentiate the concepts by having better service and, obviously, better food. We've really utilized the principles from that fine dining end into what we're trying to do across all our concepts.
How has Fortress' support helped SPB Hospitality?
Obviously, you're on the Fortress team, but I've been involved with other private equity partners and been in that space. Fortress' patience and support, from getting and working on the plan to funding it, and then finding those financial opportunities to help us grow, has enabled us to make these brands more successful. Without that support, I don't think Logan's or Old Chicago would be around.
On Krystal, in particular, we're pushing re-franchising and growing the business through franchising. Working with our franchisees, we've been moving corporate entities to franchise entities, and this is something where the Fortress team's expertise in assessing the P&L has been instrumental. Is there an investment? What do we have to entice folks to be interested? Are there some concessions we need to continue to make this a little bit more franchise versus a corporate entity? And that's certainly something that Fortress has been a great partner in helping us identify how and where to grow.
Also, regarding real estate opportunities, I can't tell you the number of doors Fortress has helped open, enabling us to examine and fund some of these opportunities to open new restaurants.
As someone who’s been through other relationships with PE sponsors, I’d say that the management autonomy Fortress has afforded us, coupled with the financial sophistication, the network and resources of a Fortress team that is expert in our industry…that’s been a real game changer for SPB and our brands.