A focus on core principles and strict financial discipline allows Gary Rose to cut through a deluge of data each day as he monitors the performance of more than 160 Wendy’s restaurants.
The vice president, CFO and COO of Grand Rapids-based Meritage Hospitality Group Inc. (OTCQX: MHGU) says there’s a secret sauce needed to succeed in the ultra-competitive, tight-margin fast food restaurant industry. Namely, each day Rose and his team look at three key areas of the company: sales, cost of food and cost of labor.
The executives at Meritage Hospitality have achieved much of their success through acquisition. Because of the firm’s size and scale, it can offer aging franchise owners a tempting offer, he said.
“A lot of these guys don’t have strict controls on food and labor costs,” said Rose, a finalist in the 2016 MiBiz CFO of the Year Awards. “In the restaurant industry, those are the big two. We pay attention every day to sales and to food and labor costs.
“The last one is people. People development is the key to our business. If you’re not developing people and you can’t rely on the people running the business, you’re in trouble.”
Rose attributes his financial discipline to his past experience working as an accountant at global consulting firm. He also formerly worked as a corporate controller for a lakeshore-area industrial equipment manufacturing company with multiple private equity owners. During his time there, the company was acquired by at least four different PE firms.
“That teaches you the discipline of financial modeling, attention to detail and the discipline to say ‘yes’ or ‘no’ when things don’t fit,” Rose said.
At Meritage Hospitality, Rose has had to leverage sophisticated processes to position the company to act on growth opportunities. Meritage Hospitality has become one of the country’s top Wendy’s franchisees largely through its acquisition strategy.
Over the last several years, Wendy’s has rolled out new standards for the look and feel of its restaurants. Called “Image Activation,” the renovations or new store build-outs can cost between $500,000 and $1.4 million each, Rose said.
For older owners approaching retirement age, that level of reinvestment can make for a difficult proposition. And that’s where Meritage Hospitality can step in, he said.
“When we acquire, ideally we also want to build new restaurants around those,” Rose said. “If you just go out and pay full price for an acquisition and you don’t have any opportunity to build around it, it can work but they don’t add the kind of momentum we’ve been getting from our acquisitions.”
While the remodels or new store builds are pricey, the company sees it as a necessity, according to Rose, who pointed to two recent renovations in the Grand Rapids area, one in Standale and one on Michigan Street. Since undergoing renovations, sales at the stores have grown in the 40-percent range, he said.
Meritage Hospitality plans another 18 renovations or new store builds in the coming year.
As the company has grown and invested in its portfolio, its level of debt has grown, too. According to Meritage Hospitality’s annual financial statement, the franchisee had $41.2 million in long-term debt, up from about $32.3 million the previous year.
However, Rose said the company’s debt ratios are right in line with industry standards. Meritage Hospitality plans a significant refinancing in the coming months, he added.
While owning and operating Wendy’s quick-service restaurants remains Meritage Hospitality’s core business, the company has also worked to diversify by getting into the business of casual sit-down eateries.
The company operates two such concepts in the Grand Rapids area — Twisted Rooster and Crooked Goose — as well as Freighters in Port Huron. This spring, Meritage Hospitality will open The Wheelhouse in downtown Grand Rapids at the Arena South development. The company also continues to plan two other Grand Rapids restaurants — one in the Belknap neighborhood and another in Wyoming.
Aside from offering higher margins than the fast food side of the business, the sit-down restaurants allow Meritage Hospitality to be part of the growing local food movement.
“The casual dining guys like Chili’s and Applebee’s have done almost no building for the last 10 years,” Rose said. “The guys that are meeting local need and local feel, they’re growing.”
Sidebar: Gary Rose, Meritage Hospitality Group Inc.
- Gross revenue for 2015: $210 million (projecting $230 million in 2016)
- Total employees: Approximately 5,100 and about 60 in the company’s corporate office
- Transformational moment: Working for a manufacturing company with several PE owners allowed Rose to learn the financial discipline needed to succeed in the competitive, low-margin, quick-service restaurant business.
- Mission critical: Paying close attention to sales, the cost of food and the cost of labor.
- Academic degrees: Accounting degree from Cedarville College in Ohio
- Community involvement: N/A
- Company advisers: Mercantile Bank and First Franchise Capital Corp. (financial); Plante and Moran (accounting); Multiple law firms