Tender Greens charts next stage of growth

Ask restaurant operators in Southern California which emerging brands they’re watching, and they are likely to mention Tender Greens.

Tender Greens, a fast-casual — or “fine-fast” — concept offering chef-driven, farm-to-table fare at reasonable prices, was founded in 2006 by chefs Erik Oberholtzer and Matt Lyman, plus David Dressler, a former hotel and restaurant food-and-beverage director.

The 13-unit, Los Angeles-based chain is ramping up growth, with five more units to open in the coming months. By 2016, the company aims to hit 30 locations.

In addition, Tender Greens is becoming a business incubator of sorts, investing in artisanal producers looking to develop unique products, such as house-made salami, craft beer and cheese.

The company is also growing its Sustainable Life Project, a program that targets young adults who are transitioning out of foster care. Tender Greens offers participants work skills and experience in addition to helping them cultivate a healthful lifestyle and an understanding of the farm-to-fork journey.

Oberholtzer recently discussed the company’s next stage of growth with Nation’s Restaurant News.

You’ve had some interest from private equity investors. Have you taken that step?

We’ve had people calling us. But David, Matt and I decided private equity just isn’t for us at this stage. We’ve been fortunate enough to draw from our cash flows and some debt, and we haven’t had to take on any additional capital from any private equity or institutions, which gives us the freedom to run our business the way we like without the pressure.

If we had (taken a private equity investment), we could grow faster. But the answer to that always is that our systems and our talent have to stay ahead of our growth. There’s a lot of risk when brands grow too quickly and make mistakes. It’s hard to reel that back in once you’ve hit the go button.

Where will the next five units be located?

Burbank [Calif.] by the end of May, or in early June, UC-Irvine in June, and Studio City in July. We’ll also open in downtown L.A. in July, and we’re looking at San Francisco in August.

We have the team in place, the systems in place. We’re really training and put our heads down to execute now. That’s another reason we’ve stopped taking meetings or calls from private equity or people who would like to partner or franchise: It’s a distraction.

So you’re continuing to focus on California?

California is a big market. Our brand equity is here and our farm network is here, and that’s important to us. Another thing we’ve learned is that some brands make the mistake in growing too quickly in terms of number of stores, but also in distance. It’s more expensive, more of a time suck, more dilutive of talent, if you’re opening more markets. The more we have to spend time away from our lives, the more disruptive that becomes.

There’s really no reason to leave California now. We look at the In-N-Out Burger model: It’s better to build something really special in California. Then, as it makes sense, we’re interested in later moving to the Pacific Northwest, or maybe some desert areas, and Texas.

How will you continue working with your network of farms as you grow?

We’re looking at developing some indoor growing systems that would enable us to build an indoor farm to get the type of ingredients we’d need at all locations.

Are you considering a commissary system?

No. Everything is made at store level. One of the differentiators for us is we have a talented culinary team in every restaurant that allows us to be innovative at the local store level. We can be very flexible and can react to any change in seasonal conditions, weather or food.

We’ve got 12 restaurants with 12 menus, none of which are the same. That creates some variety for the customer who comes in three or four times per week.

How has the brand evolved as you’ve grown?

The core mission and values and principals haven’t changed at all. What has changed is that we’ve had to take the verbal history and intuitive understanding of what we are and how we do things, and systematize it. We have built a home office infrastructure to support teams, like bringing on real human resources professionals and a finance department that serves as a help desk for chefs. We brought public relations in-house.

That infrastructure has allowed us to prepare for the next level, so we grow as a more sophisticated company rather than a restaurant startup, but without losing the startup energy, vibe and mojo.

One of your chefs, Pete Balistreri, has developed a line of salumi that is getting great press. What else is the company investing in?

Pete Balistreri is our regional chef in San Diego, and we’ve partnered with him in that business. It’s really beginning to take off. From our perspective, it’s a great retention and recruiting model. It’s great for Pete and it’s a signal for other chefs who have great ideas.

There’s also Eric Hulme, a home brewer we sent to do a master brewing course at UC Davis. He’s done two collaborative brews on a more commercial scale, and it’s getting great coverage and reviews from bloggers. As he perfects his recipe and gets something that’s unique and consistent, we might look to partner with him on a label.

We’re also incubating artisanal cheese makers right now. There’s not one who is standing out just yet, but we’ve got a lot of guys working on it.

Managing commodity costs, wage pressures

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How is the drought in California impacting your farmers and supply?

Because of the way we operate, we’re able to remain flexible. It’s impacting a lot of the nut trees in the Central Valley, so the price of almonds is going up. It’s always something.

The bigger issue is the minimum wage increase. That’s impacting a lot of our farmers and processors, and the anxiety around that will drive up costs. Right now I would say that’s a bigger threat than the drought.

As an employer, how do you feel about the push for higher wages?

We’ve always paid well above minimum wage, so our costs will go up too, as we’ll stay ahead of the curve. At some point there will be pressure to pass some of those costs on to the customer. We’re not going to cut quality or compromise as a brand in any way, so as the cost of business goes up, eventually the customer will have to shoulder some of that. I’ve always been very liberal, but some of these policies make it tough.

Our average check is still about $11, but we just made a decision to increase our prices to $11.50 starting June 2. That’s directly related to pressure on product costs, which seems to be primarily related to minimum wage and labor, although the drought is a contributor.

Brands like Mendocino Farms charge $14 for sandwiches. Do you think there is room for higher fast-casual pricing?

I think $14 is dangerous territory for me, and we’re not comfortable charging that. We do have a lot of customers that add on, and our transaction average is $18 to $20. The ingredients we’re using and techniques we’re applying is everything we did (when we were working) in fine dining. The only difference between us and expensive restaurants is we put more product on the plate. So the value is still there.

I think as the public becomes more sophisticated — because they’re shopping at Whole Foods, or watching Food Network, or shopping at the farmer’s market — their expectations are higher. They don’t want to cook and they don’t have time to go out to a sit-down restaurant. Brands like Mendocino Farms, Lemonade and Tender Greens and others are a great option because we speak to their lifestyle. We have people eating at our restaurant every day, sometimes twice a day. We have the Lululemon rush at night, when everybody comes out of Equinox fitness centers into Tender Greens. It’s no secret we align ourselves with brands like that because we share a lifestyle.

So I think there’s some room to increase prices as costs go up, but we’re very, very protective of the value component. It’s really important that we stay affordable from a daily perspective.

How are sales?

On average, stores are doing about $4 million, or averaging $3 million at the lower end, to $6.2 million at the busiest store. Our square footage is typically about 3,200 square feet.

Year over year, same-store sales in our younger stores are in double digits, and in more mature stores we’re seeing 3-percent growth. Everything is up. The economy is back, at least in our neighborhoods, and there’s a lot of construction, both office and residential. Businesses are back in business, ordering lunch. People are spending again.

Are you still working with foster kids directly?

It used to be I was doing everything, but I don’t have that time anymore. We hired a full-time programming coordinator who works with chefs, the kids and the organizations we partner with. Now we’ve been able to scale it and we have programs in Los Angeles, San Francisco and San Diego.

It’s also paying dividends in that we now have generations of graduates and we can track their success. A lot of them are working with us, have gone through promotions and are living independently.

More importantly, it serves as a model for other business leaders and entrepreneurs to form their own program. These kids just need an opportunity and an adult to mentor them and give them some skills. Kids can now talk to our graduates and see there’s a path forward for them.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout