Strengths – The Ingredients That Make Grupo Madero Special
A Relentless Focus on Quality Drives Our Unique Business Model
We believe in serving the best food and delivering the best experience to our guests during each visit to our restaurants. We never compromise on quality and strive to deliver each meal as if Chef Junior cooked it himself.
We own the supply chain for our restaurants because we are committed to delivering superior food quality. Our meat is all-natural, virtually all of our lettuce and tomatoes are purchased from organic farms in Brazil, and we do not add preservatives to the food we serve. We have a close relationship with an unaffiliated farm that is called “Madero Farm” as we purchase virtually all of their production, which is 100% organic. Due to our close relationship, the Madero Farm is an important partner that we consider to be a part of our overall platform. In addition, we mix our own burger meat to match the proprietary blend Chef Junior created, smoke our own bacon and sausage to ensure perfect flavor, bake our own bread daily to ensure freshness, and craft our mayonnaise using a 100-year-old family recipe. Our ingredients are carefully transported to all of our restaurants through an extensive, owned distribution network, including a fleet of 50 trucks with refrigerated, frozen and dry capabilities.
The Grupo Madero Experience
We believe that high-quality food is best enjoyed in an attractive, modern dining environment, and we dedicate substantial resources to ensure a healthy and safe experience. Offering a superior restaurant experience is a tenet of our mission and extends to the look and feel of all our restaurants. Our restaurants are designed and built by our in-house design, architecture and engineering teams, who ensure a consistent atmosphere in each new restaurant. Our restaurant team members receive extensive on-the-job training – beginning with formal introductory onboarding at our headquarters in Curitiba and continuing with 21 to 120 days of immersive instruction, depending on their role. Food preparation and customer experience for all of our restaurants are monitored by a centralized quality assurance team with live video feeds, with approximately 14 cameras in each restaurant.
Moreover, members of our central team, together with our 50 field inspectors, visit each restaurant at least every other week to help ensure that our standards of quality for food, cleanliness and guest experience are always upheld. We believe that fulfilling our promise of offering the best food produced with the highest-quality ingredients in a safe and attractive environment across all of our restaurants enables us to deliver a consistent experience for both our sit-down and takeout/delivery guests, drive loyalty and grow our sales.
In March 2020, we adopted additional safety measures designed to ensure our employees’ and guests’ health, including:
– Increasing cleaning protocols across the full vertical supply chain and restaurants;
– Requiring masks and gloves for all restaurant and Central Kitchen staff;
– Increasing distance between guests and removing tables in close proximity, in compliance with social distancing measures;
– Implementing contactless pickup at free-standing restaurants, even if they do not have a drive-thru; and
– Implementing temperature screening for Central Kitchen staff prior to commencing their work shift.
Our Vertically Integrated Platform Allows Us to Maintain Quality at Scale
We have built a unique, vertically integrated platform that promotes consistency and high quality at our restaurants while allowing us to better manage our costs. Brazil’s underdeveloped infrastructure and supply chain limits the ability of many restaurant companies to scale rapidly. As a result, we have invested in our own supply chain and do not need to rely on third-party service providers, positioning us to outpace the growth of our local competitors.
Our Central Kitchen was opened in June 2015 and has grown to over 32,000 square meters built on approximately 80,000 square meters of land, including approximately 9,000 square meters of storage space for all of our restaurants’ supplies as of September 30, 2021. The facility produced virtually all of the food consumed in our restaurants and provided the majority of the supplies needed in our restaurants. Today we are capable of producing approximately 8.6 million buns and 18.5 million hamburgers per month. Our manufacturing processes ensure consistency in the quality of the food served in our restaurants by offering visibility from farm to fork. From January 2018 to September 30, 2021, over R$323.9 million were invested to grow capacity and reduce costs at our Central Kitchen, which now carries excess capacity that we believe is sufficient to supply our growing network of restaurants until 2026.
We estimate that the installed capacity of our main production lines is prepared to support twice our current number of restaurants, i.e. 500 restaurants, a number we are expected to reach as of 2026. Some production lines, such as for hamburger patties, can support our estimated number of restaurants through an even longer period.
To connect our Central Kitchen to our growing restaurant base, we established a best-in-class network of shared services that supports our brands, including inventory control, marketing, store design and construction, and back-office functions. Our centralized logistics platform allows us to constantly monitor the location of our fleet and detect potential issues immediately. Our inventory control database efficiently tracks our stock and allows us to order food supplies, prevent supply outages and avoid unnecessary storage costs. Leaving these back-office activities to our team at the corporate level allows our restaurant managers and employees to focus entirely on optimizing the experience for our guests.
Our Investments in Technology Will Help Drive Future Growth and Profitability
We believe that we have built a strong technology infrastructure, which has enhanced our ability to deliver consistent quality and profitable growth. Our end-to-end technology stack touches every aspect of our business – enhancing food production in our Central Kitchen facility, optimizing our distribution network capabilities and curating a seamless guest experience in our restaurants.
Kiosks installed at our Madero Container and Jeronimo restaurants and tablets at Madero Steak House decrease delays at the point-of-sale and increase efficiency. Video cameras monitor food preparation at all of our restaurants, enabling oversight from the centralized quality assurance team and thereby minimizing waste and improving guest satisfaction. Our back-of-house employees follow a proprietary, step-by-step set of instructions when cooking that appear on-screen once a guest places an order. With this guest-facing and back-of-house technology in place, we believe we have laid the foundation to deliver consistent quality at scale and drive continued growth.
Additionally, as guests increasingly seek to minimize contact at restaurants, we believe we are well-positioned with tablet, kiosk and mobile ordering platforms and continued emphasis on drive-thru and delivery. We believe these initiatives will continue to drive efficiency within our restaurants and instill confidence in our guests and employees that we are deeply committed to their health and safety.
Robust Unit Economics Drive Strong Corporate Margins
Our commitment to both quality and cost controls has driven our strong AUVs, EBITDA and EBITDA Margins across each of our concepts, which together have resulted in our strong total revenue and Adjusted EBITDA growth in 2019.
In 2019, the last pre-pandemic year, Madero Steak House restaurants generated an AUV of R$11.0 million, with a construction cost of approximately R$7.1 million, while Madero Container restaurants generated an AUV of R$4.6 million, with a construction cost of approximately R$4.0 million. Our Jeronimo brand also boasts attractive unit economics while being at an earlier stage of development than our Madero concepts. In 2019, our Jeronimo restaurants generated an AUV of R$5.3 million, with a construction cost of approximately R$4.3 million. On a consolidated basis, we had an Adjusted EBITDA Margin in 2019 of 30.6%. In comparison, similar companies with fast-casual services like Shake Shack and Chipotle reported adjusted EBITDA margins of 13.8% and 12.7% in 2019, respectively, illustrating our operational strength with a higher margin.
Beginning in March 2020, Because of the regulations put in place at the beginning of the pandemic across the country, many of our restaurants are operating with very limited hours and capacity. Because of the regulations put in place at the beginning of the pandemic across the country, many of our restaurants are operating with very limited hours and capacity, with some having remained completely closed during certain months of 2020 and early 2021. Many of these regulations affected mall operating hours. Our Madero Steakhouse concept is primarily mall-based and has been impacted more significantly than Madero Container and Jeronimo. We believe we were able to partially offset the significant drop in restaurant traffic by expanding takeaway and delivery options at all of our restaurants.
Given the significant awareness for our brands in Brazil, our new restaurants generally experience strong AUVs in their first year, followed by a modest decline in their second year post-opening. As a result, our new restaurants typically reach a mature level of sales and operating income by year three with more normalized levels of growth thereafter. Nevertheless, our significant volumes and strong concept-level margins generate attractive returns on invested capital, or ROIC. In addition, with an average restaurant age of just three years, substantially all of our restaurants are in good physical condition; there is little investment required at the restaurant level in the coming years to maintain the modern look and feel of our restaurants and to continue to deliver strong financial results.
We Are Deeply Committed to Environmental and Social Responsibility
Central to our goal of serving the burger that makes the world a better place is our commitment to environmental and social responsibility. Our Central Kitchen allows us to exercise an outsized level of control over our restaurant network and to minimize its environmental impact. For example, virtually all our tomatoes and lettuce are purchased from organic farms, including the “Madero Farm,” we do not add preservatives to our food, and our automated production lines are designed not only to ensure quality and precision in food standards but also to minimize any potential waste. Our Central Kitchen is also equipped with an effluent treatment station, which treats the water that we use before returning it to the ground. Consistent with our commitment to social responsibility, we have also recently organized events for hospitals, charities and public schools. We have reinforced these efforts during the COVID-19 pandemic by donating meals to healthcare professionals and frontline workers.
Our focus on sustainability also extends to our restaurants. Our latest vintages of restaurants built since the end of 2018 are Leadership in Energy and Environmental Design, or LEED, certified, and we had the most LEED-certified restaurants in all of Latin America in 2019, according to information provided by LEED. We have also earned the U.S. Green Building Council seal, attesting to the efficiency and environmental integrity of each building. Based on our guidelines and sustainable practices, we are able to control water and electricity consumption across our restaurants. We believe that our authentic and long-standing commitment to responsible and sustainable practices throughout the business better positions us to build loyalty and trust with all of our constituents.
In December 2020, we launched the first Ecoparada Madero on Rodovia Castello Branco, in the state of São Paulo, one of Brazil’s busiest highways. Ecoparada Madero is a gastronomic complex with a completely different environment, bringing an innovative concept to the roads of Brazil. Its facilities are ecologically sustainable, with solar energy generation plates, rainwater collection system, car-charging for charging electric cars, in addition to processes for separating organic waste later transformed into fertilizer for use in our organic farm and plants from our restaurants.
Strong Company Culture with Passionate Management Team
Our strategic vision and Company culture have been developed and fostered by our senior management team under the stewardship of Chef Junior. Our Company is built on an employee- and community-centric culture. At Grupo Madero, happy employees working to deliver the highest-quality food are one of the primary drivers of our strong growth. We believe that employees make Grupo Madero the company that it is. The Grupo Madero culture is unique relative to our competitors because our sense of community is reinforced daily: Chef Junior provides his personal phone number on the packaging of the employee meals so that employees can reach him to share unfiltered feedback. We provide benefits to our employees so that they can be successful, happy and healthy, and we believe it is immensely important to support the communities in which we operate.
Our experienced leadership team promptly responded to the beginning of the COVID-19 pandemic in Brazil. We took various actions to reduce corporate expenses, including cutting our CEO and CFO pay by 70%. We temporarily laid off approximately 2,000 employees and paused construction of new restaurants, but we remained focused on staying engaged with employees who were affected by this crisis through our Tamo Junto program. See “Business—Employees.”
Our leadership team has extensive industry experience, spanning food, beverage and commodities. Our leadership structure is several layers deep, ensuring continuity in the execution of our strategy by training a pipeline of leaders who are familiar with our strategy and strengths. Our founder, Chef Junior, owns a significant portion of the company’s equity, and our senior leadership team also owns equity and is aligned to continue to drive Grupo Madero’s long-term success.
Our Stock Option Plan
We currently have a stock option plan in place with the objective of aligning interests between Grupo Madero shareholders and our executives and managers. Up to 2.20% of our shares, as of August 31, 2021, were distributed to select employees, including to certain management-level employees.