Recipe for Success: Investing in Restaurants and Beyond

NCK Capital Managing Partner Michael Kornman on investment trends and areas of growth

Michael Kornman, a member of ACG Dallas/Fort Worth, has founded and run companies in a wide range of industries, including restaurants. Today he is a managing partner with Dallas-based private equity firm NCK Capital, whose diverse portfolio includes a restaurant concept, QuickFire Restaurants, which serves smaller metropolitan areas.

Kornman talked with MMG about his operational expertise, NCK’s strategy, and where he sees investment opportunities. Below is an edited and condensed version of the conversation.

MMG: Can you talk about your firm, NCK Capital, and how you got involved in private equity investing?

Michael Kornman: I’m a little different from most in private equity in that I started out as an entrepreneur and built a number of businesses from scratch in a few different industries—consumer finance, aviation, the restaurant company (QuickFire). I have a really deep operations background, and that’s served me well in lower middle-market private equity.

My brother, Grant Kornman, who is my business partner, started his career in private equity and also did some early-stage venture investing. We decided that investing in lower middle-market companies was really complementary to our skill set and our approach to business.

We started out in the restaurant business. That was kind of our first venture out of school when we were young. We had traditionally built businesses from the ground up. A few years back we decided we were going to pursue a buy-and-build strategy, and NCK is the manifestation of that.

MMG: What niche is QuickFire Restaurants—a business you founded that is now an NCK portfolio company—filling in the food service industry?

MK: We have really focused on secondary and tertiary markets—smaller markets where the real estate costs are lower, and the cost of entry and cost of doing business are a little bit lower. We’re in places like Waco, Texas, and Lubbock, Texas. There are other markets, too: Some of them are university towns like College Station, Texas, or Tuscaloosa, Alabama. Those are what we would consider to be the kind of smaller markets that are interesting.

What we found interesting is these markets really don’t perform that differently from larger metropolitan areas. We still believe that to be the case. We go to these secondary and tertiary markets with concepts that are energetic and that we feel would still be successful in a larger metro area.

We also have really strong beverage programs at these concepts. These days you have to drive margin as much as possible, so we put a great deal of emphasis on our late-night business and our beverage programs.

“We like things that have a really strong niche and a bit of a cult following.”

MMG: When you’re evaluating a restaurant or food business as an investor, what characteristics do you look for?

MK: Brand loyalty, for the most part. When you’re talking about restaurants, there’s so much competition. We like things that have a really strong niche and a bit of a cult following. That can be through the guest experience or it can be the product’s uniqueness or quality. On the food manufacturing side, obviously distribution is extremely important.

MMG: What are some of the trends you’re seeing within the food service sector that you expect to endure?

MK: I think that the trend of smaller footprint restaurants will continue. You have to get more sales per square foot out of your physical establishment.

I also think there are going to be more creative employee retention methods. If you look at what Danny Meyer has done in New York City with his Union Square Hospitality Group, he’s eliminated tipping and raised menu prices to kind of level the pay scale between the front of the house and back of the house. Just to retain talented people he had to do some innovative things, and I think that’s going to be trend in the restaurant business. I think that labor costs will continue to rise and a big part of that is managing retention. I think there’s going to be some real innovation in that area in the next few years.

MMG: NCK invests in a range of industries; outside of the restaurant space, where are you seeing opportunities for significant growth?

MK: We really like food safety, and we think that’s going to be an explosive sector. Also, specialty food manufacturing—there are just all sorts of opportunities there.

We recently invested in an education business (Ogle School). While for-profit education has been kind of out of favor over the last few years, we’re very bullish on it and think there are going to be some great opportunities in that sector. It’s a very diverse industry. The trade school subsector is very interesting, and we really like its value proposition. It provides a great educational value for the price. //


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