Gen Korean BBQ CEO David Kim isn’t promising that the U.S. will face a recession, but he has heard many conversations around the idea of it. When his management team has discussions on what the brand should look like in 10-plus years, these types of “rain day” situations need to be accounted for.
The conclusion they all arrive at is Gen Korean BBQ’s value is unmatched in its segment and that any economic downturn would prove that even more.
“Consumers will not stop eating, they’ll just trade down,” Kim said during the chain’s Q2 earnings call. “And when they trade down, there is no concept that we believe that can provide the guest experience, especially on the amount of protein that we give, at the price we offer.”
Gen Korean BBQ, which went public in late June, uses a self-service model in which items are displayed family-style and guests use an embedded grill at the center of the table to cook their own food. Customers can order unlimited quantities for a fixed price, ranging from $17.95 to $20.99 for lunch and $25.95 to $29.95 for dinner as of March 31. Because of this model, the brand doesn’t require as much staffing in the back of house, and those saved resources are transferred into a bigger dining room presence.
Kim estimated that competitor prices are $3 to $7 higher per person on average. The executive noted that in terms of value, he doesn’t see anyone competing with the brand head-to-head. Gen Korean BBQ has moderately raised prices by under 2 percent in recent years, according to the CEO.
“We’re still very committed to our long-term vision of what our brand is. Consumers, when they are feeling the pain, they remember those hard times and there’s a lot of that out there now,” Kim said. “There is pressure of commodities or everybody else raising prices. … I think because of that continuous long vision that we have in finding new areas of technology, new areas of product changes, new areas of getting better labor costs and food costs, that without raising prices substantially, we can continuously grow our customer base and not alienate them.”
The company has maintained momentum since going public two months ago. Gen Korean BBQ earned roughly $46.2 million in net proceeds from its IPO, a portion of which will be used to fund new unit growth.
The brand had 34 restaurants as of June 30 in California, Arizona, Nevada, Hawaii, Texas, Florida, and New York. After opening no stores in 2020 and 2021, three came on board last year in Texas, Las Vegas, and New York. Six to seven locations should open in 2023.
So far this year, there have been three Q2 debuts in Cerritos, California; Chandler, Arizona; and Fort Lauderdale, Florida. Another three to four units are scheduled to open in Q4. Looking ahead, Gen Korean BBQ has leases signed in Florida, Hawaii, Texas, and Washington; four of those are under construction currently (three in Texas and one in Hawaii). Another two are soon to start construction in Florida and Washington. The chain is negotiating more leases for units in Colorado, Massachusetts, New Jersey, Oklahoma, Oregon, Utah, and Washington, D.C.
Eight to 10 new locations are projected annually in the years ahead. Leadership believes there’s enough whitespace for 250 U.S. locations.
“We’ve been excited about the six new restaurants (2022 and 2023) that we’ve opened,” Tomas Croal said. ” … All of the restaurants that we’ve opened are doing nicely just as we projected. We feel really good about the places that we are. Our starts have been strong.”
Same-store sales rose 1.4 percent versus the year-ago period. Revenue was $46.5 million, up from $42.2 million in Q2 2022. In the 12 months ending March 31, Gen Korean BBQ had a $6 million AUV.
Cost of goods sold decreased 160 basis points to 31.8 percent because of favorable year-over-year commodity pricing and ongoing negotiations with vendors. Labor expenses increased 200 basis points to 30.8 percent due to rises in minimum wage in certain markets, short-term spikes in staffing costs in newly opened restaurants as training ramps up, and increases in manager training in preparation for new store development. Occupancy costs rose 40 basis points in relation to six new restaurant openings since Q2 2022, including higher rents on the strip in Las Vegas and New York.
Gen Korean BBQ’s restaurant-level adjusted EBITDA margin was 20.4 percent in the second quarter, down slightly from 21.5 percent last year.
“We’re excited about our future,” Croal said. “We have a strong brand with great unit economics and quick payback periods. We have substantial growth still ahead of us. We have always been profitable for the history of our company, excluding the impact of the pandemic year.”
In Q3, Gen Korean expects revenues between $45.5 million and $47.5 million and an adjusted restaurant-level EBITDA margin of 18.5 percent to 19.5 percent.