The Fast Casual Empire in the Making
It might sound like a stereotype to say that Germans approach all projects with the same precision as assembling a BMW, but in the case of VERTS Mediterranean Grill, the comparison rings true.
Founded by German-born Michael Heyne and Dominik Stein, the Austin, Texas–based fast casual was built from the very beginning with a sturdy foundation and the need for speed. The brand might have only turned five this year, but it’s already pushing 40—locations, that is. The founders say the explosive growth so early on was a bit unexpected, but aggressive expansion was always in the blueprint.
What follows is an inside look at that blueprint, which includes plans for dominating an entire foodservice category. While the first five years were spent building the framework, the next five might catapult VERTS to becoming an explosive national brand.
Run like a well-oiled machine
Fresh off a rebrand and culinary upgrade, the VERTS system is ready to ramp up its expansion plans, with the earnest goal of reaching 250 stores by 2020.
“It sounds like a lot, but it’s essentially just continuing the current speed of growth,” says cofounder and CFO Stein. “It’s been surprising, but at the same time, we came here to create a chain. … We really came here to educate the American consumer about this cuisine, and I think we had ambitions from the beginning to create a chain that’s larger than just Austin.”
Indeed, Stein and cofounder and CEO Heyne first began tinkering with their formula years ago when they were attending the McCombs School of Business at the University of Texas, Austin. Just days after graduating, they opened the first two locations under the original name, VertsKebap—kebap as in döner kebap, a Mediterranean dish of grilled meats that is ubiquitous in European countries like Germany. The menu wasn’t just kebap, though; other Middle Eastern specialties like falafel, tzatziki, and hummus were also included.
While researching the fastest-growing concepts that don’t franchise, Heyne says, the business partners quickly learned that it wasn’t complex to understand how even giant corporations worked. The most successful brands were those that worked on the business foundation first and then culinary innovation afterward.
“We really are focusing on having efficient operations in our restaurants and not cutting corners in labor or food quality. The only way to achieve that is operations,” Heyne says. The key was to lay the foundation for a replicable system before optimizing the food, he says. That’s not to say that the food quality was ever lacking at VERTS; it just wasn’t the paramount component at the beginning. “Most of the restaurant concepts do it the other way around. They start with great food, but nobody in the company knows how to organize, and people overestimate themselves in this industry.”
Of course, such systems must be in place for the company to grow. Stein says that for evolving brands like VERTS, the key to creating systems that work is listening carefully to guests and staff. “Those two stakeholders give us the most important input on what we have to work on, [and what we] have to change,” he adds.
The founders originally thought they should be much more involved in the day-to-day operations, but quickly found that micromanaging was counterproductive. Stein says that as long as the right structures are in place, staff can succeed without much hand-holding.
Higher wages are another way Heyne and Stein help staff succeed. VERTS pays at least $10 per hour, whereas the Texas minimum wage is $7.25. Heyne says that decision was an investment in moving the brand forward with strong managers and employees.
Just as Stein and Heyne have no interest in micromanaging their teams, they are also reluctant to be bound by outside influencers. For this reason, the duo did not seek private equity to first establish and then foster VERTS.
“Banks, for example, don’t really understand the right decision to make. So at some point, companies have difficulty growing because there are just too many people involved, and everybody thinks restaurants are easy to organize,” Heyne says. “We self-funded our growth through a private network of investors, and we were able to keep pretty much all the decision power just with [Stein] and myself.”
All of VERTS’ investors—including several international parties—are silent partners, including bankers, lawyers, family business owners, and others. And while Heyne and Stein might keep the decision-making between the two of them, they do tap into the investors’ expertise.
“We’re not asking them how to write our culture guidelines and how to design our brand and food,” Heyne says. “If we have a legal question, we can call 30 lawyers of whatever background and just ask them. That saves a lot of time.”
Bring in the best
It’s a common aphorism in the business world that the best leaders surround themselves with people who are smarter and more experienced in their own area of expertise.
The cofounders of VERTS took that advice to heart. In the past year, the business has ramped up its culinary and marketing teams while also undergoing a rebrand, making menu upgrades, and expanding the company beyond the Lone Star State.
“[For] our brand and our food, we needed two or three years to figure all that out. We are probably a rare case of a restaurant concept that gets better with growth,” Heyne says. “We waited very long and just did it all ourselves.”
One of the early obstacles for VERTS was branding. Because of the company’s small size, it was difficult to reach beyond its home base, so Heyne and Stein focused instead on community-centric marketing. But while preparing to ramp up the entire operation, the cofounders knew it was time to hire a specialist. That’s why, earlier this year, they brought Keith Peterson into the fold as the brand’s first director of marketing. Peterson, who had worked up the corporate ladder for nearly a decade at Red Bull, quickly enhanced the marketing department and also retained a New York–based branding firm to expand its reach.
Marketing wasn’t the only area for which Heyne and Stein brought in the big guns. The two also conducted a search to find a chef who would lead the culinary side of the business.
Chef Jason Donoho was perfectly content with his position at Alamo Drafthouse Cinema, the Texas-based movie theater–restaurant chain, but he also wanted to see what other opportunities were out there. Working through a headhunter, he found a few prospects—but only one really stood out.
“I pretty much declined all the offers, but within five minutes of meeting [Heyne], I knew that this was different,” Donoho says. “I hadn’t even seriously considered leaving my job that I’d been at for four years, and it was a big realization that there was something else out there. I knew I had to go for it.”
What struck him, he adds, wasn’t so much the well-polished plans—those came later—but the vision. A winning combination of VERTS’ track record, broader goals, and company philosophy quickly convinced him that it was where he needed to be.
Donoho started at VERTS in December, when plans to rebrand from VertsKebap were already underway. The name change was only one part of the greater rebrand. In addition to hiring its first-ever culinary director, the company also upgraded its ingredients.
“We revamped everything from the type of salt that we use to the type of olive oil—little things here and there, but really elevating the products to more of a restaurant kitchen standard,” Donoho says. When all was said and done, VERTS upgraded about 100 ingredients, running the gamut from vinegar to cuts of meat. Donoho also added rice bowls—a fast-casual, build-your-own favorite—to the menu and changed some of the sauces.
The menu might be on another level now, but Donoho is quick to point out that much of his work was behind the scenes. In fact, the simple food quality was one of the things that first attracted him to VERTS. “It was something that I would eat even if I didn’t work here. It wasn’t like I came into this big, massive overhaul. It was almost just building upon the great base,” he says.
While the addition of Donoho was certainly a feather in the brand’s cap, VERTS has even more culinary initiatives in the making. That includes a special test kitchen that debuted in late April, a spot where Donoho and his team are experimenting with seasonal items and chef-created entrées that feature a somewhat American twist on Mediterranean fare (think braised pork with tomato, oregano, and white wine; fresh grilled corn; and a Greek salad with local ingredients).
Corner the market
These menu enhancements might seem like a natural evolution, but like everything VERTS does, it was thoroughly planned and envisioned from the beginning. The goal is, and always has been, to corner the Mediterranean market.
“Mediterranean has a big variety of ethnic backgrounds: the eastern Mediterranean area with Turkey and Lebanon, Syria, etc.; there’s the western Mediterranean area with Italy [and] Spain; and there’s also Greece in the center,” Stein says. “Now there are certain areas in America where you will find Greek, and in populated areas, you’ll find Lebanese communities, you’ll find Turkish communities—but again, never this whole, unified approach. That also explains why Mediterranean cuisine was never really brought to the attention of the general American audience.”
Stein also credits a greater awareness of nutrition in the U.S. for the rise in more naturally healthy ethnic foods like Mediterranean, Southeast Asian, and even Hawaiian with dishes like poké. Even if Americans don’t recognize that a gyro, shawarma, and döner kebap are essentially the same dish from different regions of the Mediterranean, he says, they are becoming more familiar with the general cuisine.
Understanding this nuance helped Heyne and Stein recalibrate the brand to be more palatable to the American consumer.
Before opening, the two cofounders traveled around their homeland for menu inspiration and originally planned to push VertsKebap as the quintessential German twist on a Turkish classic. But that approach proved too confusing. Renaming to “VERTS Mediterranean Grill” made the brand more accessible to the average consumer while also suggesting a broader menu beyond the kebap.
“The kebap is known to people in Germany, but in the end, the American consumer will always think of it as a pita [or] as a gyro,” Stein says. “If you look on Yelp, … since the first day they’ve always called our concept ‘Mediterranean’ or ‘Greek.’”
While VERTS’s rapid growth is remarkable, it is not the first brand to target Mediterranean fast casual with the ambition of becoming the dominant player in the category.
“Ever since we saw fast casual starting to really gain momentum maybe four or five years ago, everyone started waiting for this type of concept to emerge. There have been so many players that have tried to become the leading Mediterranean player,” says Elizabeth Friend, consumer foodservice strategy analyst for Euromonitor. “Maybe it’s just been a question of when it comes to the biggest fast-casual trends, they’ve all been about converting an existing ritual that we already have—better burgers, better pizza, better burritos.
“In some sense, it is more difficult to grow these occasions from scratch,” she adds. “There’s not a huge homegrown demand for going out for Mediterranean food. I think there’s some education involved.”
Although Friend, like Stein, sees the recent health boom as key to the success of ethnic fast casuals, she says a fine line exists between healthy branding and being “too healthy” food. As she points out, the most successful brands (like Chipotle) push the wholesomeness and quality of their ingredients, but that doesn’t stop certain menu items from being calorie bombs. These concepts market themselves as healthy, but, Friend says, the dining experience is still indulgent with crave-worthy foods.
Nevertheless, the VERTS team is confident it has the right flavor-health ratio to hit the mark.
“The most amazing thing to me that I wake up every day and am thankful for, is that [even with] all the changes that we’ve made and all the little tweaks and stuff, we’re still feeding thousands of people every day and we’re only going to feed thousands more,” Donoho says. “It’s fresh ingredients made by hand; nothing is processed; there are no chemicals in anything. It’s just a very cool feeling to know that you’re making something healthy for someone.”
Go big or go home
VERTS is, by its own calculations, on track to hit the 250-store mark in the space of five years. With restaurants open in Austin, Dallas, Houston, and San Antonio, the brand could continue to saturate Texas while also branching into neighboring states like New Mexico and Louisiana.
But for Heyne and Stein, it’s time to make a stand. Rather than build its presence in second- and third-tier markets, VERTS is going for the jugular.
“We have a very aggressive growth plan. For some people, it seems too aggressive; for us, it seems logical,” Stein says. “Our goal is to expand to the Northeast this summer. We are doing this very strategically, because we want to prove that our model doesn’t only work in the Midwest and Southern markets like Texas.”
Boston is expected to open this month, and several contracts have already been signed in New York—a veritable lion’s den for emerging concepts.
Euromonitor’s Friend says that, so far, many Mediterranean concepts have concentrated within a region rather than finding national favor. A bold move into a market like New York is risky, but could also reap great rewards.
“If they truly want to make this a national play, opening a high-profile flagship outlet somewhere like New York—if it does really well—can be a really powerful statement. … [But] I would be very hesitant to go somewhere where there are so many independent competitors,” Friend says. “I think it’s a bold move. If anyone is going to succeed nationally, they need to be able to get into markets like that.”
The business acumen driving VERTS could lead to success, even in the Big Apple. Heyne and Stein might have thorough, well-laid plans, but they also know how to pivot. In late spring, they decided to add catering services to the business, with one location in each market integrating that component in its store. Within six weeks, the cofounders and Donoho had figured out everything from menu options to packaging and operations.
VERTS was equally nimble in launching its loyalty program, which also came in late spring.
“We launched those all very quickly, but that changed the restaurant systems. It always creates a little bit of confusion,” Heyne says. “We want to stop these changes afterward and really run the system instead of changing. Also, we need to do that, because we cannot change and grow too much at once.”
It’s impossible to predict the future of any restaurant concept, just as it’s futile to foresee all possible pitfalls. Five-year-old VERTS has fashioned a solid framework ready to support systems, to accelerate into new markets, and to even withstand bumps along the way. In another five years, it could reach or even surpass its 250-store goal.
As with most things, time will reveal the destination. In the meantime, the journey is more than enough for Heyne, Stein, and the rest of the VERTS team.
“I definitely am excited that we are now getting to a size that we can really start realizing all the ideas and dreams that we’ve had,” Heyne says. “Every time you go, we want it to be better than the time before. We definitely will not be that story of they scaled too fast, the brand diluted, the food quality went down, the salaries went down. We want to do it the other way around, and so far, it has worked. We don’t see a reason why it would change anytime soon.”
This story originally appeared in QSR's September 2016 issue with the title "Operation VERTS."