The rise of Guzman y Gomez: the making of a global brand

The rise of Guzman y Gomez: the making of a global brand

Native New Yorker Steven Marks has taken GYG from one store in Newtown to a global operation. (Image: provided).

Steven Marks' early career as a short trader for a US-based hedge fund is at odds with the eternal optimist that defines the CEO and co-founder of rapidly expanding Mexican food chain Guzman y Gomez (GYG).

His vision for feeding the masses has seen the native New Yorker take GYG from a single store start-up in Sydney's inner suburb of Newtown in 2006 to a global operation worth almost a billion dollars.

"Even when I started working on Wall Street, I always knew I wanted to get into food," says Marks.

"My job then would be to find the worst stocks in the best categories and I would short them, but I always figured that people needed to eat."

At the time, Marks was recruited by famed US hedge fund manager Steve Cohen. He was fresh out of University of Pennsylvania with a degree in international relations and economics.

Marks was among a team of five starting out with Cohen in the early '90s, helping him create SAC Capital Advisors, one of the most successful hedge funds ever.

When he moved to Australia 18 years ago with his then Aussie wife, Marks almost immediately discovered his calling.

"I grew up eating Mexican food all the time," says Marks.

"When I got here I tried a lot of Mexican restaurants. They were all really busy and they all sucked. I knew Aussies wanted to love Mexican, but they weren't eating the right things."

The self-confessed obsessive, who was running a wine bar in Sydney before opening his first GYG outlet with childhood friend Robert Hazan, went to great lengths to attract Mexican chefs form America and to find others living in Australia to add authenticity to his venture.

"We wanted GYG to be the biggest and best Mexican in the country which is what is happening now. That's the reason Magellan came on board."

Magellan buys in

Billionaire fund manager Hamish Douglass' Magellan Financial Group (ASX: MFG) late last year acquired an 11 per cent stake in GYG for $95.4 million.

The deal values the fast-food chain at $867 million and gives Marks the clout and a depth of expertise he needs to help expand into the US market.

"Magellan is one of the best food investors in the world," says Marks.

Magellan has $101.3 billion in funds under management with key stakes in Starbucks, McDonald's and Yum Brands, which owns KFC, Pizza Hut and Taco Bell in the US.
Marks had no prior relationship with Douglass before securing Magellan as an investor. The move wasn't even on the company's radar because the GYG board was quietly working towards an IPO in November this year.

"Hamish rang us and wanted to do business," says Marks. "We walked through our restaurants and later negotiated our price."

For Marks, this is no casual investment. It's part of a strategy to leverage Magellan's expertise in the fast-food sector, especially in the US where GYG has ambitious growth plans.

"It's so important that the people who are part of the GYG family believe in the vision," says Marks.

The GYG board comprises co-founder Robert Hazan, the former head of Accent Group, Hilton Brett and three former McDonald's executives, Steve Jermyn and Peter Ritchie, who founded McDonald's Australia. Guy Russo, a former Kmart and McDonald's Australia boss, is chairman. Also on board is Tom Cowan, whose TDM Growth Partners secured a major holding in GYG in 2018.

Revving the 'taco-meter'

The appeal for Magellan goes beyond the strength of the GYG board. Magellan sees its investment as compelling at a financial level. In its latest half-year report, Magellan notes GYG is a "very impressive business" with a 2020 growth rate of 27 per cent on a like-for-like basis.

Australian sales in the first seven months of FY21 were $387 million, and globally annualised sales totalled $410 million.

GYG drive thru stores are currently delivering average turnover of $85,000 a week, a far cry from the opening turnover achieved by its first store 15 years ago. Marks says the Newtown store managed sales of $11,000 in its first week. Last week it turned over $110,000.

"Over 70 per cent of GYG stores are exceeding a 25 per cent return on investment," says Magellan.

GYG has 135 restaurants in Australia, 12 in Singapore, four in Tokyo and one in suburban Chicago which it opened early last year ahead of COVID-19. It currently has 45 drive throughs in Australia and plans to open another five before the end of June and 33 in FY22.

In North America, GYG will grow its base in Chicago this year with four more restaurants, all of them drive throughs. The irony of his plans to expand into the US market is not lost on Marks - a New Yorker who started a Mexican chain in Australia ready to conquer the US.

The reality, says Marks, is that the US market is so big that it "supports mediocrity", giving GYG a prime opportunity to expand with a fresh approach to Mexican fast food. 

"My mindset (when I started) was whatever I was building I wanted it to be the best. We make everything fresh. We never compromise," he says. 

"They may have Mexican food in the US, but they don't have drive-throughs that do breakfast, lunch and dinner. Nobody does that anywhere globally.

"This is going to be the next biggest fast-food brand globally because nobody, without a doubt, can replicate the value that we offer.

"My belief is that if you can create a food brand in Australia, where we have fewer people and where wages are high, you can make it in the US."

Learning the Aussie way

Despite his distinctive American accent, Marks has learnt a great deal about resilience the Aussie way. He often sees American chains struggle to get a foothold in the domestic market because they fail to grasp the challenges.

He also draws inspiration from what Aussies in the US fast-food industry have achieved, notably the late Charlie Bell, who became the first non-American to become CEO and president of McDonald's Corporation.

"Aussies are competitive," says Marks.

"We are so much more efficient and we look at our product differently. We are never complacent, and we become very smart about the way we do business."

In tandem with global expansion, GYG plans to ultimately open between 500 to 600 stores in Australia. McDonald's has just under 1,000 stores domestically, which highlights Marks' ambitious plans for GYG.

The growth is expected to be split evenly between company-owned stores and franchises, partly because Marks says he likes running stores.

"Our vision is for GYG is to be the best fast-food company in the world," he says.

While others may like to refer to GYG as "fast casual", Marks gets straight to the point.

"No, we're not. We're fast food. We're a food company that really believes in food. We have a social and moral obligation to feed people without additives, food colouring and preservatives and that's what we're doing. We are a global game changer."

With that attitude, Marks makes it clear he has left his short-trading days well behind.

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