April 6, 2020

Building a Restaurant Empire in a Recession: Tender Greens' Erik Oberholtzer

Building a Restaurant Empire in a Recession: Tender Greens' Erik Oberholtzer

In 2006, two chefs and a foodie set out to change the way people eat for the better. Their guiding light was the 10 year plan created by founder Erik Oberholtzer. That plan took the restaurant chain from one location to 30 and carried Tender Greens through the crash of 2008, illuminating opportunities in a difficult time. Today, Erik shares how his plan helped the company weather the recession and offers a path forward for restaurants in a post coronavirus world.

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SHOW NOTES

  • Opened their second restaurant in the midst of the recession.
  • The recession created opportunities in the real estate market that they capitalized on.
  • They innovated in product offering by bringing in whole animals at a lower cost and shopping the daily specials at farmer’s markets.
  • Doubled down on vision and intentions
  • This became a recruiting tool for out of work chefs
  • Roadblocks and tension points are opportunities
  • This was all based on TYP, a Ten-Year Plan
  • Taking the long view
  • 30 restaurants over 10 years across California
  • Anyone who participates gets to take part in the wealth creation at the end of 10 years.
  • Danny Meyer invested
  • The magic of long-term thinking is that the plan never changes no matter what happens.
  • When you’re going from LA to New York, the route might change but the destination does not.
  • Foundational Changes that need to happen in the industry
  • The restaurant market is overbuilt
  • High development costs
  • Disruption via third party delivery
  • The pause button has been hit and we all need to think about how things need to change
  • Innovation through a subscription model
  • Opportunities exist within the delivery space
  • The hidden gift in the pandemic is that we get the opportunity to reevaluate our lives and make new choices
  • Time is now abundant. What are we going to do with that time?
  • Deeper connections
  • New priorities
  • Evaluate what we miss most about community
  • Tactical Advice to get open and stay open
  • Conversion to a community kitchen
  • Conversion into a bodega
  • How can I be of service to my immediate community?
  • Start with team
  • Then Those in Need
  • Biggest mistake made
  • I didn’t pay attention to 3rd party delivery
  • Been a disruptive element in consumer behavior
  • What is the worst part of quarantine?
  • Missing my community
  • Best part of quarantine
  • Time and simplicity
  • Words of encouragement
  • We’re resilient industry
  • People have to eat and restaurants are central to the community
  • We’re going to come back stronger than ever
Transcript

Erik Oberholtzer:
Moments like this are what we all fear. This risk that music stops because you put your life's work, and your energy, and your blood, sweat, and tears and everything on the line.

Josh Kopel:
Welcome to FullComp, the show offering insight into the future of the hospitality industry, featuring restaurant tours, thought leaders and innovators, served up on the house.

Josh Kopel:
Back in 2008, things seemed so bleak. So many of us didn't have a plan, but Tender Greens founder Eric Oberholtzer did. In fact, he had a 10-year plan that took Tender Greens from three locations to 30. Here he takes us back to the early days when the bright lights of Hollywood grew dim.

Erik Oberholtzer:
We were born in 2006. We opened in June of 2006. I don't know if you remember those days. They were pretty heady days, like what we were in two months ago. We were unique to the market and opened with lines down the block and a lot of excitement. We opened our second restaurant in San Diego in Liberty Station marketplace, which was an old Naval training facility, and it was this amazing campus with a vision for the future. In the middle of build-out, the lights went out in the economy. We went ahead and opened the restaurant, and there were some dark days and challenging days where you're fighting for survival every day. We had some other leases signed in West Hollywood and Hollywood, that were opportunities that came up because of the financial shifts.

Erik Oberholtzer:
It created opportunities in the real estate market. As you remember, by 2008, everything started to slow down. We opened on the corner of Sunset and Vine. Starbucks was supposed to go in on the hard corner and they pulled out. There was another concept that was supposed to go in, pulled out. The folks out of New York who are going to take over our space, I think it was Zinc or something like that, pulled out. Everybody was pulling out of their real estate deals, and we were doing well. We executed and opened up. By the time we opened in Hollywood, Borders Books across the street had filed for bankruptcy and went dark. Wells Fargo on the other corner moved, so that building went dark.

Erik Oberholtzer:
There were a number of others who had just started to empty out and the lights in Hollywood literally seemed to be dimming. Yet in all of that, we offered something that wasn't in the market and people were starting to trade down from the more expensive restaurants, those that stayed open. We were able to take advantage of it. In San Diego, where we were hit probably hardest by the economy, we found opportunity in that to innovate and do things that others weren't doing. At least in our market, we started bringing in whole animals. We started walking every morning up the hill in Point Loma to harvest produce for the daily special. Literally our sous chefs would get up there and essentially use this little micro farm, Point Loma Farms as our garden. We got it at unique prices and the freshest in the country. It was all organic, and we developed this reputation for truly cooking by hand and working with all of the small artisans in the area.

Erik Oberholtzer:
While everybody else was struggling to survive or had already tapped out, we were doubling down on our mission and our intentions and really did take the long view on this. We were willing to lose money, but double down on our commitment to ingredients and leverage our chef talent. It became, in San Diego and in LA, a great recruiting tool because there were all these chefs who are available suddenly and they started to join our team. Then there were others who came available, who either were pivoting from whatever industry they were in or they had lost their jobs. These moments are painful and for some, it doesn't feel like a good pivot. For those of us who look at roadblocks and tension points as sources of inspiration and opportunities to innovate, I think we're gonna come out of this stronger than ever. We certainly did.

Josh Kopel:
One of the things that you mentioned specifically was taking the long view. I know that one of the foundational elements of your business philosophy is having a 10-year plan. Can you talk about that?

Erik Oberholtzer:
Yeah. TYP Restaurant Group was the name of our corporate identity. Tender Greens was the brand. TYP stands for ten-year plan. It was a commitment between me, Matt, and David, my two cofounders, to really look at this in the long form. We thought, at the time, a decade was a good gauge, that was a good marathon. Then to our investors, to our farmers, to everybody who joined the journey, that we were on this journey of 10-year plan. What that looked like very specifically was, 30 restaurants over 10 years across California with the idea that, at the end of that rainbow, if we were successful, everybody who participated would participate in wealth creation. Ultimately, everybody did.

Erik Oberholtzer:
In 2015, at year nine, we had a big partial exit event led by Danny Meyer of Union Square Hospitality Group and Josh Goldin of ACG. Those who took this very long patient outlook on growing what we believe is a multigenerational brand that really stands for something, that there was some wealth creation, but there was, more importantly, career development for people, and people became better as a result of having been part of this. We think we also contributed something positive to the restaurant space.

Josh Kopel:
In 2006, you came up with the 10-year plan and in 2008, everything took a nosedive. Did you guys pivot? Did you adjust? Or like you said, did you just double down and say, we're not worried about profitability, what we're worried about is sustainability?

Erik Oberholtzer:
Yeah, that's exactly right. TYP, the magic of really long-term thinking is that, that long-term plan never changes, really, in the same way that, let's say, if you drive from Los Angeles to New York City, you're going to New York City. That's the end goal. You're going to get to New York. What happened in 2008 was, we hit really nasty traffic. We got off the freeway and took the side streets, and you pivot in the moment, to get around the mess that is now your reality. In that, you might learn some things along the way. You might have an opportunity to stop off at a taqueria that you would have passed by, had you stayed on the freeway.

Erik Oberholtzer:
I think these roadblocks are also opportunities. You just have to stay clear and use them to your advantage. While everybody's getting frustrated in traffic, we took the roads less traveled, took some risk, didn't panic, and believed that the fundamentals of our business were strong. And it proved to be true.

Josh Kopel:
And following along with that idea that, through crisis there's opportunity, we look around and almost every restaurant in America has shut down right now. As an industry, we have the opportunity to rethink absolutely everything. Are there foundational changes that you would like to see in terms of the razor-thin margins we work on, gratuity and the overall concept of gratuity relative to the distribution? Anything like that?

Erik Oberholtzer:
I think these situations, one, serve to correct what was already, I think, an overbuilt space. I don't mean that negatively towards anybody, but the industry is a little bit overbuilt. Then we were already under threat from third-party delivery and some of these other changing tides in our industry—living wage, which has caused a lot of pressure, high development costs, all of that. I think everybody was already at the edge. I think this is going to end up knocking quite a few people out out of the game permanently.

Erik Oberholtzer:
Then others are going to innovate. I do think we have to, as an industry, take this time to reflect and say, "All right, whether we like it or not, the pause button was just hit." We all have time to clear our heads and think about how the model needs to change. I, personally, was already looking at more of this subscription format to solve for the unpredictability of daily volumes, the challenges of labor, the challenges of production costs, everything. We have to find ways to still deliver an elevated experience in the four walls if that's what we're wanting to do, but in such a way that it truly is, I think, theater. In the last downturn, there were some restaurants that moved to that, whether it was selling tickets. Going back to to the way we were doing business before this whole thing happened, is probably not sustainable, though the world was changing already, and now it's changed, I think dramatically.

Erik Oberholtzer:
And we're not sure what that all means, but I think this is an invitation to try some things. Whether it's continuing down the channel of delivery, but in a way that we can all make money and also deliver products at the quality levels that we expect in packaging that's not toxic to the environment. I think there'll be a lot of interesting things that happen there. For those of us who still believe that a restaurant has an important role to play in neighborhoods and society as I do, we may have to rethink what that looks like.

Josh Kopel:
A theme that keeps coming up in my own mind again and again and again—and I'm sure you can appreciate this—when you go from 80 to 100-hour work weeks to unemployment, which is the situation for so many of us, the idea of work-life balance pops into my head again and again and again. Right? Because now I'm spending more time with my family, my wife, and my child. Then I'm also speaking to my parents and my brother a lot more than I ever had before. I'm rekindling friendships that I never had time to before, and the business is closed. Right? It remains to be seen based on how long this goes, whether we'll be able to reopen or not. It's just a real concern for a lot of us. And so I'm beginning to re-evaluate and re-value the allocations of time in my own life. I'm wondering if you've had that same realization either through this or through the liquidity moment at Tender Greens. What are your thoughts on that?

Erik Oberholtzer:
Yeah. Again, let's say, my heart goes out to everybody who's in a very painful place. I think we're all experiencing different versions of that, some worse than others. That said, I think there's a hidden gift in this. I've heard people say, this is the Divine's way of forcing us to go to a room and really think about what we're doing and what our priorities are. And I think that's true. We're finding joy in raising little chickens and visiting them everyday. We are planting at the farm and also in an urban farm space. We're cooking together everyday. I'm getting to little nice to-dos that have been on my list for years and time was always the competing agent in that. Well, now time is abundant, so what are we going to do with that time?

Erik Oberholtzer:
I think, whether it's these new group meetups that families are using or friends are using so we can stay connected virtually or really getting centered on all those things that we were waiting to get to when we had time and never getting to that point, to the 80 to 100-hour work week example, there's no excuse. There's a lot of stuff to do right now. And then, on top of that, I think deeper connections, and a rejiggering of priorities and getting centered on what matters truly in life. I think it also really get us all familiar with what we're missing most about community. When that comes back, when we're able to gather, when we're able to share and celebrate and work again, I think we're going to have an understanding of what we miss most, and we're going to get to it.

Josh Kopel:
There are thousands of restaurateurs listening in this moment. Let's pretend you're a restaurateur with only one restaurant, and it's currently shut down, and you've got a limited amount of cash in the bank, which is the position for so many of us. What would your short-term plan be to get open and to stay open?

Erik Oberholtzer:
Well, I think it depends where you are, but what I really admire with some of the independent restaurants is converting the restaurant into a community kitchen for those who are most impacted by this. Mozza in LA, Mission Taqueria here in Philly have have basically said, "Okay. All of these restaurant workers who are now out of work and still have families, so bills, we're going to offer at least good food for them." It's going to put the team at least in some form of service and work. Those who maybe are on salary or whatever, it's going to continue the supply chain. Farmers still have an outlet. And i,n the short-term, you're showing up as restaurants do of service. It's a pivot and it might cost some money in the short term, but I think it pays multiple dividends in the long run. Others have converted into to bodegas, and they've essentially turned their restaurants into to little shops, which I think, depending on the needs of the neighborhood, is a service because everybody's at home.

Erik Oberholtzer:
So if I can get restaurant-quality provisions without having to go to a supermarket, I think that's a benefit to the community. I think what I would look at is, how can I be of service to my immediate community? Starting with my team, then starting with those who I think need it the most, and I am, as a business, uniquely qualified to help out. Then, make sure that my farmers, my artisans are still active.

Josh Kopel:
I say this all the time, every year I look back on the man I was, and I think about the things that I thought, things that I believed, personally, professionally and I always laugh and say, "What a fool I was?" Because the learning curve, especially in this industry, is so steep—so many hard lessons learned. When was the last moment you felt foolish, and what was the lesson you learned?

Erik Oberholtzer:
I was not paying enough attention frankly, and don't know that any of us were to third-party delivery. I remember when it came up, it came up first in West Hollywood for us. Postmates started coming up on our radar and at that time, they were just calling indirectly, paying with an American Express card. Those volumes kept going up and up and up and up. First, we thought it was a weird scam. Then we started to hear a little bit about it. On their website, I saw that our menu was posted—incorrectly—along with a lot of others. We reached out to them and said, "Who are you and what are you doing?" Then we realized, at the time, they were providing this service that we weren't able to solve for, which was delivery.

Erik Oberholtzer:
Obviously, there was demand because it was just like hockey sticking. And we're like, "Okay. Well, it's free. People seem to like it. Let's go for it." And we just didn't realize what sort of a beast it was going to be. Fortunately, we've been better protected from the margins than most in the industry because of our volumes and our early embrace of this. But it's been a very disruptive shift in consumer behavior for all of us, and that's not news to anybody in the restaurant industry. We've all been trying to navigate it, but it's happened to us versus with us.

Josh Kopel:
How much weight do you think it'll gain while on quarantine?

Erik Oberholtzer:
I'm pretty stable. I actually hope to get in better shape. It's part of the benefit of time. Before this call, I was upstairs doing yoga and pilates with my girlfriend. We call it comedic yoga because she leads it with this sort of Saturday Night Live-esque version. We get a good session in, but it's funny.

Josh Kopel:
That's great. What is the worst part of quarantine?

Erik Oberholtzer:
The worst part of quarantine is, you start to miss meeting up with people. I think the restrictions on gathering is what I would say bothers me the most.

Josh Kopel:
Which is the best part of quarantine?

Erik Oberholtzer:
Time and simplicity. It's simplified life in an odd way and has also prompted us to get really centered on the simple things in life, whether it's comedic yoga together, whether it's cooking together, whether it's planting seeds for the spring planting, checking on the chickens as they grow. It's the simple pleasures of life.

Josh Kopel:
Well said. You have an entire industry listening to you right now. Is there anything you would like to say to them directly?

Erik Oberholtzer:
These are difficult, difficult times. We are probably the most resilient industry, and we're going to find our way home. What I'd say is that, at the end of the day, everybody has to eat, and we're here to feed them. People have to gather eventually. We're a social species, and a big part of that is gathering in our restaurants, in our hotels and our venues. We're going to suffer a little bit, but I think we have a history of bonding together and taking care of our own, and we're going to do that, use this time to get healthy and get centered. We're going to come back stronger than ever. Everything's going to be fine.

Josh Kopel:
Where can people find you on social?

Erik Oberholtzer:
@ErikOberholtzer or go to @cohere_co.

Josh Kopel:
That's Erik Oberholtzer, founder of Tender Greens with 30 locations in the US and growing. If you want to tell us your story, hear previous episodes, check out our video content or read our weekly blog, go to joshkopel.com. That's J-O-S-H K-O-P-E-L.com. Thank you so much for listening to the show. You can subscribe wherever you get your podcasts. While you're there, please leave us a review. A special thanks to Yelp for helping us spread the word to the whole hospitality community. I'm Josh Kopel. You've been listening to Full Comp.