International Investors Fish For ROI In Emerging U.S. Poke Restaurants

By Dayna Fields

The race for global dominance among Hawaiian-inspired poke[1] bowl restaurants is heating up as major players emerge and attract interest from both buyers and sellers, industry executives say.

Los Angeles-based Mainland Poke turned down several LA-based buyout approaches over the past year, said CEO Ari Kahan, citing poor real estate choices and high rents. Texas-based Poke Poke was approached by two different Chicago-based and one New Jersey-based businesses, said CEO Jason McVearry, noting it passed due to similar reasons.

Who is ready to buy, however, are institutional funds and some of the world’s largest restaurant companies[2].

In June, Pokeworks received an investment from Toridoll Holdings Corporation, according to a press release from the Japan-based restaurant operator. On 26 June, Nihon Keizai Shimbun pegged Toridoll’s investment at 2 billion Japanese yen ($18 million) for a 40% stake. CFO Wen Wei told Mergermarket that it had several other offers from private equity firms and strategic corporates on the table.

Pokeworks currently has 20 locations, but the Toridoll investment will allow it to reach around 400 units worldwide by 2021 and accelerate expansion into Asia, said CMO Kevin Hsu. It is launching in Mexico City this year and will heavily target Dubai, Singapore and Malaysia in 2019.

“Having a public Japanese company that focuses on raw fish is an extremely beneficial partner for us,” he said.

John Potter, PricewaterhouseCoopers’ deals leader for consumer markets, said many supply chains are owned by Asian companies and, therefore, “a lot of investment into U.S. restaurants and food is coming from Asian investors.”

Poke restaurants offer several enticing traits for investors, said Potter, starting with its simple prep and low overhead, which equate to higher EBTIDA margins. It also appeals to a younger, health-conscious consumer[3]—a pattern that Potter is seeing across the overall US food sector. And even with premium prices (bowls cost anywhere from $11 to $17), demand is strong within this young segment, which means there is plenty of runway for growth.

The result is a race to scale quickly. “The ability to grow and maintain presence is key in this space,” said Potter.

Strategic suitors that could help accelerate that growth might be YUM Brands, said Pokeworks CMO Kevin Hsu. McDonald’s and Chipotle are two more logical suitors, said Yoon Ju, CEO of LA-based Poke Bar.

High EBITDA margins and same-store sales growth could mean premium exit multiples for successful poke companies. “If you have same-store sales growth in double digits, you’ll quickly see yourself in high teen multiples,” said Potter, pegging valuations of successful poke companies between 16x and 19x EBITDA.

Poke Bar is still privately owned and could be the next poke company to land a large investment, Ju acknowledged. The company aims to grow from 65 units to 300 stores worldwide by 2020. It is in 12 US states, and this year it debuted stores in Thailand, Korea, Japan and Singapore via “master franchise groups” that purchased the rights to develop in their region.

“I’m focusing on US, but there are a lot of inquiries coming in from abroad,” said Ju, noting the Asian market is moving faster, partly because raw fish already is part of its culture. “My job is to take a share of the market first, so I need global brands to help me expand globally.”

Meanwhile, private equity firms are looking at smaller restaurant concepts, according to National Restaurant News, noting small operations on average sell for 13.x EBITDA. Several major poke shop players are currently generating between $20 million to $50 million in revenue and growing fast.

Russell Yam, CEO of New York-based four-store mini chain Poke Spot, told Mergermarket it recently turned down a private equity investment of $1 million for 25% equity.

In terms of competition, the nascent poke space is facing off with other up-and-coming healthy fast-casual concepts, such as sweetgreen and Lemonade, said Seth Cohen, CEO of LA-based Sweetfin Poke. “It’s everyone going after this $10-15 lunch and dinner crowd, with a chef-driven, healthy, fast-casual experience,” he said. Earlier this summer, Sweetfin opened its ninth store in LA and plans to open three to four new stores per year in California for the next three years. Increasing volume within one region means you get a price break from your food supplier, he noted.

While cities like Los Angeles, New York and Chicago are seeing signs of poke saturation[4], the craze is spreading into other markets.

“This is the early stage of our industry right now, there are still a lot of people who have never tried poke,” said Ju, who believes poke represents the next generation of legacy fast-food restaurants.

Dayna Fields is a senior consumer reporter for Mergermarket in Los Angeles, covering food and beverage, retail and beauty.

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