Building the Modern Portfolio Company: Paul Brown, CEO of Inspire Brands

I am very much.

Well, if you'll indulge me, I'll go back a bit. In 1994, my first consulting engagement at BCG was with Northwest Airlines, asking how the internet would impact the airline industry. Then I did similar work for Holiday Inn. I saw technology transform those industries. When I became CEO of Arby's, I saw the same impact starting in the restaurant industry. The restaurant industry is the largest yet to see fundamental transformation—a $600 billion industry in the US, $2 trillion worldwide, but only four companies have sales over $15 billion. So we saw an opportunity to drive consolidation. I co-founded Inspire with Neil Aronson to create a platform for shared technology investments. We bought Buffalo Wild Wings, and the strategy has unfolded as we hoped.

Yeah, so the model is similar to the hotel industry. We look for core capabilities where sharing benefits from scale—digital platform, data analytics, personalization, supply chain, operations infrastructure, and innovation. We share these in a tightly matrixed structure, allowing brand presidents to leverage these investments. We build these capabilities to extend to each brand we own and future acquisitions. That's the difference in our strategy. Covid validated this thesis in many ways.

Well, a couple of things. The events of 2020 validated our thesis. First, digital adoption was supercharged. Companies that invested in digital had an advantage. Second, having multiple brands and day parts allowed us to share learnings. For example, when Buffalo Wild Wings shut down, we used learnings from Arby's and Sonic to pivot to takeout and delivery, going from 14% to 40% digital overnight. Other companies saw challenges with their single-brand model. So when Dunkin' became available, it made sense for us to buy them, and their board decided to sell.

I would put it in two buckets: consumer-facing technology and operational efficiency. On the consumer side, the device becomes the point of interface, allowing a direct channel for communication and relationship building. Before, the relationship started and ended at the door. Now we can market and personalize directly, reducing reliance on traditional marketing like TV. On the operations side, we use AI for demand forecasting, which leads to more efficient labor scheduling and supply chain planning. This takes cost out and improves service. We assumed this would happen, but it's become more evident over the past few years.

We have a set process we refine each time. It starts with being very clear about who our target customer is and who it is not. We do research on psychographics and create personas. Then we define our purpose, brand promise, and brand values, which are unique for each brand. This becomes the true north guiding everything from menu to marketing to operations. Even successful brands like Dunkin' (70 years), Sonic (60 years), and Arby's (50 years) can lose their sense of identity over time, so we go through this process. For example, the new Jimmy John's advertising and Sonic's new campaign came from this process. We are at the first stages with Dunkin'.

We've thought very hard about that. When buying successful companies, they come with their own rich cultures. Our objective is to keep that richness but supplement it with an additive culture at Inspire. We defined our purpose and core behaviors: Mavericks, Allies, Visionaries, Achievers, and Good Citizens. These cut across all brands. Each brand has its own values that guide front-line team members. Getting culture right in a highly acquisitive environment is very important.

It starts with communicating and talking about it all the time. You have to be repetitive. We talk about our values at every meeting. We bring them to life through exercises where leadership teams discuss what they mean to them. We give awards for demonstrating the behaviors. We incorporate them in reviews and feedback sessions. The real test is whether they guide decisions, even hard ones.

I have tried to limit sources. I spend time on the Wall Street Journal and The Economist. I turned off the TV because it's noisy. I rely on my team to filter. I use the lens of whether it impacts my team members, franchisees, or customers. If it does, what can we do about it? The worst thing a CEO can do is send people in many directions. I try to focus on activities that have real impact.

Well, I had a lot of jobs. I wouldn't say plan to be a CEO from the start. I followed what interested me, learned about myself, what I was good at, and used that to guide the next step. I always made sure each step moved me forward in learning and responsibility. I was fortunate that every career opportunity, including education, equipped me for what I've done in the past eight years. I couldn't have planned this career.

10 years ago certainly not 25 or 30 years ago. And so that's what I encourage people to do is not be, you know, be patient, be planful, but don't try to chart it out so rigidly particularly at an early age, because there's a lot about you that you don't know yet and there's a lot about the world that you don't know yet. And by the way, the world is going to change dramatically between point A and point B, and you're going to change dramatically between point A and point B. So really think about it in bite-sized, finite chunks along the way.

Oh, I'm afraid I don't. You've asked a lot of good questions. I guess, am I having fun? I am loving every minute of what we are doing. I work with some of the best people in the industry, period, and certainly the best people I've ever worked with in my career. We're excited about doing things that haven't really been done in the restaurant industry before. It's an incredibly dynamic time in business in general. So if someone is intellectually curious and is looking to drive real results, there's no better time to be in business. I look forward to every single day, and I think that's one of the best things anyone can say about their career and their job.

Yes, so I think I understand. Are we looking for automating certain operational processes? Clearly we're looking to automate and transfer people from the interaction being face to face, human to human, versus using this device and others as a way for that initial point of interface. Consumers tend to like that; it's very consumer friendly and also very efficient for us. The restaurant industry is very labor intensive. Labor represents about 30% of the cost in a restaurant company. Each restaurant is a mini manufacturing plant in many ways. We have 32,000 of them around the world. Is there an opportunity to be more efficient and use automation? Absolutely yes. We've done some of that, but not in the way a lot of people think. People go straight to robotics in restaurants, and that may at some point happen, but if you think about the challenges of implementing robotics in 32,000 different locations, that is very challenging and expensive. There are other ways: new equipment innovation, new oven technology, fire technology. Things that help make the job more efficient and improve quality. We've been rolling that out. Supply chain is actually the biggest area of opportunity for automation. We are using robotics up in the supply chain. We are doing some interesting things with SUV technology that allows amazing things culinary-wise in the supply chain, allowing higher quality product in the restaurant with less preparation. That has huge implications on quality and type of product. A lot of the product at Arby's, whether it be the brisket, the smoked turkey, would not have been possible several years ago without fundamental technology transformation in the supply chain. That's where we're spending a lot of our time and energy, backed by analytics to be more efficient through the supply chain and distributors. That's where the biggest operational benefit of automation will be at least in the near term. There will always be a news item about a totally automated restaurant with robots, and we can experiment with that, but at scale, I think it's a long way away.

A lot. For example, every brand we buy comes with its own point-of-sale system. Some are cloud-based, some are resident-based, some state-of-the-art, some 20 years old. That foundational technology has to connect if anything is going to be done differently in the restaurant. We've had to think about this in a very extensible way. If we built the personalization platform or digital platforms depending on having exactly the same technology in every restaurant, that's an impossibility. We might get there with the brands we have, but the second we buy another one, it's not. So we build extensibility in the technology platform, a layer above the restaurants that can interface with various POS systems and restaurant technology platforms to deliver a unified customer experience, even though the underlying platform may not be unified. We are a long way from finishing that journey, but we are making great progress. Then you have traditional challenges of a highly acquisitive company around ERP systems, HR systems. That's the heavy lifting every company goes through with integration. What's unique about us is building a middle layer, a digital platform, a data platform that will interface with disparate systems, many of which we may not know until we buy the next company.

I really try to get out and go to restaurants as much as I can. However, I'm very clear that I am not the operations expert. My job is not to go into one of our 32,000 restaurants and come up with a better way. I go in, talk and observe. My main objective is to get to know the team members, understand why they're working for us, what corporate can do to support them, what they hear from customers. Also just recognize and spend time thanking them. Especially over the past 13 months, it has been difficult to work in restaurants. I've transitioned most of my time in restaurants to just saying thank you and asking what I can do to help. I also look at different formats, competitors, what others are doing, particularly in building design and technology innovation, so I can take that back and help our teams do something differently.

The answer is absolutely yes, it depends on how core it is to the business model of that brand. Jimmy John's is a great example. Jimmy John's does its own delivery with its own captive drivers. We have no intention of taking that model and putting it on any other brand, but it's core to Jimmy John's. We have to keep investing in the unique aspects. The trick is to distill it down to as many commonalities as possible across the business model. For example, Buffalo Wild Wings is a sit-down model with servers. But if you look at the core elements, especially with people using their own devices to order and pay, it's very similar to Sonic, where you use the app to order ahead and pay. The server brings the food out, but from a technology standpoint, it's very similar. So innovation becomes similar. The challenge is migrating brands onto a common platform, which doesn't happen all at once. During that time, a brand not yet migrated may need something that, if built now, will be throwaway. That doesn't mean we don't build it, but it affects the time horizon of the benefit. So it's more about when we do it versus whether we do it, and making sure we look for commonalities at the core.

Well, thank you. I'll comment on that. We talk a lot about that. For anyone who does not work in a restaurant at Inspire, we have one reason to exist: to help those who are serving in the restaurant, whether our own team members or franchisees. That's the business. We don't make a dime outside our restaurants. Any company that is that type of company, and there are many in Atlanta that are very good at making that core to their culture, recognizes that. So there is no headquarters. Headquarters implies hierarchy. Culturally we do everything we can to make sure everyone knows that. COVID has made that a bit harder because there are employees who can work virtually, but there are 600,000 team members who have to leave their house and go to work physically every day. We cannot ever lose sight of that.

The trends are actually more accentuated outside the United States, particularly the utilization of digital channels and customer expectations. But the platforms are different because we franchise with many different business partners outside the US. It's difficult to use the same technology we develop in the US outside the US. In many cases, we'll learn first outside the US and take the learnings, but not the core technology platform. It's a difficult balance: a common platform gives efficiencies but can slow you down. There are regional differences, and we need to move more quickly and nimbly outside the US. We're still trying to find the balancing act.

You are raising a massive issue and opportunity for this industry. The restaurant industry is arguably the most advertising-dependent industry out there. We can put an ad out today and tell you tomorrow whether it's working. The cause and effect is immediate. Once we turn off marketing, sales go down. The dynamic is interesting. Not only are eyeballs going down on traditional TV, but advertiser eyeballs are going down even faster because many who watch TV are on subscription models without ads. The supply of advertiser eyeballs is going down, demand is going up, so cost is increasing dramatically. So what are we doing? We created a new group called Demand Generation, bringing together every part of the business that drives demand: traditional media, programmatic digital, direct digital channels, loyalty program. We have a function called Audience Planning. Each brand works on who they are trying to reach and what to tell them, then we determine which channels to use at an individual level. We've gotten to the point where if Paul Brown interfaces with us directly on our app, we don't need to send him messages through Facebook. We can migrate our dollars as the individual migrates channels. It's not just moving from linear TV to digital, but doing it in a sophisticated way backed by personalization analytics. That's where we're going and making great progress.

The first thing is to get to know them as much as possible. Go in with a mindset that this is a successful business with a good culture; otherwise it wouldn't have been successful. Respect that rather than playing the acquirer who says 'you will do things our way.' We haven't always gotten it right; we were more that way with Buffalo Wild Wings than I would have liked in hindsight, but we corrected. It's about going in with the mindset that these are talented, successful people running successful businesses and looking for opportunities to supplement that. The balancing act is that we have to be one company, and 'One Inspire' is important. We also try to bring people from acquired companies into key roles in our shared services. For example, several people from Dunkin' Brands have taken senior positions in our shared services group, bringing great learnings. We have a playbook on integration, but we modify and improve it with every acquisition because we get better by buying great companies and taking their best practices.

A lot of it goes to the direct channels to customers and how they interface with restaurant companies. This device changes the utility of how people work and interface with brands. It's not just about ordering, but making the whole experience more convenient. For example, we are piloting technology in an Atlanta Dunkin' where if you order on the app, we know when you pull into the lot and fire the order. If you come inside, the order is waiting; if you go to the drive-thru, the menu board says 'Welcome Paul, your order is ready, pull up.' That's a fundamental transformation. Then you can think about personalization, one-to-one pricing, which this industry has never been able to do. Pricing has always been the same for everyone on a menu board, but you can do targeted discounting. It changes everything. We are just at the early stages.

Ultimately organic growth is the most important thing. If we cannot prove we help a brand grow organically through revenue topline or building more restaurants, then we don't have a business case to buy more. Our purpose is to ignite and nourish flavorful experiences. If we aren't nourishing them, helping them grow faster, we have no right to buy. The platform we're building, the center of excellence around culinary and food innovation, demand generation – all targeted to drive better organic growth, whether four-wall economics or building new restaurants. Organic growth is 75% or more of our focus. Inorganic growth is a byproduct of being successful at organic.

There are a couple. One is ghost kitchens. It's a real estate arbitrage where restaurant concepts can share a building and operate almost purely for delivery. It changes the relationship from a physical incarnation of the brand to just an interface. Is it disruptive? It can be positively disruptive. For example, we don't have a Sonic in Manhattan in its current format, but could we do a Sonic ghost kitchen in Manhattan? Maybe. It changes the model. Also, the economic viability of delivery is still in question. Whether or not it proves economically viable, the impact between now and then is significant. A business that has been traditionally physical and real estate oriented may not have to be as much in the future. That's probably positively disruptive for a company like ours. We're building our own ghost kitchen called Alliance Kitchen, opening in Atlanta in July, with all five of our brands (pre-Dunkin' and Baskin) in that concept near Georgia Tech.