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Prevailing from the Mexican stand-off

Tuesday, 8 February 2011 | By Oliver Milman

Guzman Y GomezSteven Marks’ enthusiasm for Guzman Y Gomez, the Mexican restaurant chain he started up, is palpable. He speaks about the business with the excitement of someone explaining their ‘eureka’ moment for the first time.

 

Marks’ verve is evidenced by the first Guzman Y Gomez (named after two childhood friends, commonly abbreviated to GYG) outlet he opened, in the Sydney district of Newtown in 2006.

 

The desire for authenticity saw a Mexican chef flown in to oversee the food, with Latin staff and Mexican-sourced ingredients aimed at appealing to Australian tastebuds that, Marks felt, had been missing out on a genuine Mexican gastronomy.

 

However, Marks had to correct several missteps before the business became cashflow positive, six months ago.

 

Consumers just didn’t get the concept to begin with. Despite this, he insists in typically upbeat fashion that the initial “pain” of starting up was crucial to GYG’s success.

 

“I would never give up the pain of those first three years, ever,” he states. “It was invaluable. It was painful, yes, but I didn’t give up my job for something that was easier.”

 

“Getting that consistency and the cashflow was much harder than I imagined. You need deep pockets and you need to spend wisely. Most businesses set up a couple of stores and then struggle. We did it the other way around – we struggled initially and then we fine-tuned the business.”

 

Quitting the rat race

 

The job Marks refers to was as a hedge fund manager in London and New York. Caught up in the ultimate rat race, New Yorker Marks decided to turn to entrepreneurship in the unlikely setting of Sydney.

 

“I was tired of betting on other people’s companies and the culture of greed got to me,” he recalls. “I thought ‘I’m out of here’.”

 

“My best friend was moving to Sydney in 2002 and I was burnt out, so I thought I’d head to Bondi for a break, as I’d seen pictures of the beach. I didn’t ever end up going back.”

 

Marks wasn’t a stranger to entrepreneurship – he ran businesses as diverse as snow ploughing to t-shirt retailing with his twin brother while at university – and he attempted to turn several brainwaves into viable enterprises.

 

His initial ideas to build a beachside hotel in Sydney and went as far as raising money for the concept before realising that “people here just don’t spend their leisure time like that – there’s a different vibe here” and abandoning the idea.

 

The second concept managed to get off the ground, with Marks and his best friend, Robert Hazan, selling Australian fashion labels to the US. However, Marks says he “freaked out” at how the market was faring and sold up.

 

The winning idea

 

The idea that had legs was devised after Marks experienced an unpleasant meal at a Sydney Mexican restaurant.

 

“It was horrible. Absolute shit,” he contends, rather bluntly. “Where I grew up, there were a lot of Latins and there was a lot of great Mexican food.”

 

“In the States, there’s something called ‘fast casual’, which is burritos of restaurant quality served quickly. In Australia, you had traditional fast food and the restaurants, and the restaurants are very expensive. There’s nothing in-between.”

 

“I knew that Aussies wanted it. All they had was Old El Paso, which was the biggest seller in supermarkets and was clearly inferior. We knew we could sell the food at a $10 price point.”

 

Starting up

 

Convinced that he could set up a “high volume low labour” alternative that would resonate with Australian diners, Marks and Hazan ploughed their own money into the venture – a total of $5 million was invested in premises, stock and systems.

 

Design guru Tony Ibbotson created the colourful GYG branding, which included a logo featuring the faces of the eponymous duo.

 

Marks went to great lengths to offer a new kind of Mexican dining experience. He settled on Newtown – “it was a bit like East Village (in New York), it had a great mix of gay people and yuppies” – for the first GYG location and spent 18 months prior to launch in 2006 getting the offering right.

 

The restaurant was pitched widely – people aged 18- to 45-years old, with a 60/40 split in favour of women.

 

“Most of the staff were Latin and we brought over a Mexican chef,” he explains. “We originally dealt with mom and pop stores for supplies and then went directly to suppliers in Mexico. We did a lot of food tastings.

 

"We wanted people to see how the salsa and guacamole was made and make the kitchen into a theatre.”

 

“So many restaurants, such as Thai restaurants, dumb down their food for Australian palettes. We wanted to create something more authentic.

 

"We also wanted to create a contemporary Mexican, urban, young vibe. The brand isn’t about tequila, sombreros and donkeys.”

Customer confusion

 

Perhaps inevitably, given his enthusiasm to introduce something new to the Sydney culinary landscape, there were teething problems.

 

“We overestimated the knowledge that people would have for the food,” Marks admits. “People would walk in and see the burrito and ask why rice was in it. They were used to the kind of Mexican food they’d had up until then.”

 

The initial consumer confusion, coupled with inefficient business operations, caused GYG to lose money in its first two years. Marks, who strikes you as a source of perpetual hyperactive energy, set about making changes – some small and some more significant.

 

“We gave away thousands of free burritos to customers and journalists,” he says. “We figured we had to get the product in people’s hands so that they understood it. We were very proactive in making other businesses aware of us too.”

 

“We did small things to increase our lunchtime business by 100%, such as use charismatic Latin girls with fliers and started to let people choose their filling and salsa. We spent hundreds of thousands of dollars on our menu boards and positioned them so that people could see them properly."

 

"We had to make it simple. We added hard shell tortillas because everyone asked for them but everything was still fresh to order and the customer experience improved.”

 

Marks also urged customers to send him a ‘postcard from Mexico’ – feedback forms that could be left at each outlet. He claims to still read every single piece of customer feedback, good or bad.


Getting operations into shape

 

Crucially, Marks brought on an operations manager to help get the business into shape.

 

“I was afraid that the outlets would be understaffed so we ended up overstaffed – there were sometimes more people in the kitchen than in the restaurant,” he explains. “There was a lot of work in making sure our operations were tight.

 

“We spent a lot of time getting the right, talented people on board. I need to see that excitement too though – if they don’t love what they do, I don’t work with them. If I do work with them, they become like an extension of the family.”

 

Expanding the brand

 

Marks decided to expand the family to six stores across Sydney, with the Queensland rights sold to two entrepreneurial brothers, who opened the first Brisbane outlet opening in December last year. Revenue now tops $10 million, with more than 140 people employed.

 

Franchising the business was a wrench for Marks – “I felt that I needed to go to franchisee therapy because it was my baby that I was letting go,” he says – but it was necessary to help the business meet its expansion goals.

 

There will be 10 new GYG stores in the next year, with the brand set to be launched in Melbourne.

 

“I have to make sure that I like franchisees, that they are ethical,” says Marks. “I want to celebrate my success with people I like. I need to make sure that they can money too, of course.”

 

Marks says that GYG’s franchise operations are “pretty advanced”, with detailed inventory systems and even e-learning so that potential franchisees can be taught how to roll a burrito over the internet.

 

Future vision

 

Marks’ vision is to get the restaurants to average $2 million revenue and have 80 stores across Australia within the next four years. Having gone through the pain of starting up, Marks is now ready for the pleasure.

 

“If you do it just for the money, you won’t get anywhere – you have to love it,” he says. “Cashflow will be tight regardless of what you do and you always need to raise more money than you think. You need a detailed idea and you need to surround yourself with smart people.”

 

“Ultimately though, I can walk into my restaurant and no one can tell me what to do. I can walk into GYG and know it is exactly how I wanted it to be. That’s an awesome feeling. It’s a feeling I always wanted."

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