Leveraging a more efficient unit prototype this Mongolian barbeque chain takes a steady approach to growing its business.
Founded in Dallas in the late 1990s by Jeff Sinelli, Genghis Grill has, to borrow the company's favorite play on words, "Khanquered" the Mongolian barbecue niche. Since Sinelli sold his then six-unit enterprise in 2004 to a group of young, fresh-out-of-college franchisees, the company has grown to become a leader in its segment, with 62 stores operating as of March and another 40 slated to open by the end of the year. By 2015, 300 U.S. units are expected with systemwide sales approaching $500 million.
The company's rise is remarkable on a number of fronts, not the least of which is the guys who have made it happen. Now operating under the corporate umbrella of The Chalak Group (chalak has a double meaning of "wise or intelligent" and "overflow" in Hindi), four former college roommates followed the same path that many new franchisees travel: They enjoyed a meal, fell in love with a concept and bought in. That was in 1999 and they were still in college, each working toward degrees that had nothing to do with foodservice.
"Of the four of us, I was the only one who'd been to a Mongolian barbecue restaurant before. When a Genghis Grill opened about a mile from our apartment, I took the other three there to try it. They all loved it," says Nik Bhakta, chief operating officer. "When we left, we filled out a comment card telling them to call us if they ever decided to franchise."
Two years later they got that call. Genghis Grill was beginning to franchise and its owner wondered if they were still interested. They were. After securing a bank loan and tapping friends and family with promises of eventual repayment the foursome became franchisees in October 2002. Not long after that, the chain's owner, who now had three franchised units and three company-owned stores, sought to sell a corporate store in Dallas, which the group purchased, as well.
Besides Nik Bhakta, the partners include his cousin Al Bhakta, chief executive officer; Chet Bhakta (no relation), chief financial officer; and Ron Parikh, chief marketing officer. "We just sat down and figured out who would be best at what. We were fortunate that we had diverse skill sets and it was pretty clear who should assume what role," Bhakta says of the division of labor.
Job 1: Bring Unit Costs Down
The partners bought a concept they believed in because of the quality of the food and the excitement of the Mongolian barbecue experience, but with it came a high cost structure that was putting a big drag on profitability. Having a couple of years of unit ownership and operations under their belts, they made bringing costs down across the board their top priority. Under its former owner Genghis Grill had unit opening costs of nearly $1 million, The Chalak Group worked quickly to bring that down to its current turnkey package cost of $450,000 to $500,000.
"We looked at everything from A to Z to find ways to cut back and improve the return on investment so that we could open more of these stores a lot quicker," Bhakta says. "We evaluated, researched and cleaned up costs on everything from construction to equipment to furnishings — anything that we could save on while maintaining the same quality of food and experience. One example on the construction side: The previous owner had specified tile that ran $7 to $8 a square foot, but we found a tile that looks good and does the same job for $1.25 a sq. ft. We knew what we wanted, we knew the end product had to be absolutely untouched from what we had coming in and then we just worked backwards from that. We could either have kept things as they were or change things to work better and more profitably at a different price point. We chose to do the latter."
While bringing costs down, the group also focused hard on operations and on simplifying systems for duplication. The original Genghis Grill prototype was, for the most part, maintained. But as the group gained greater operational savvy and a better understanding of the restaurants' throughput, it expanded its footprint. Original units on average measured 3,000 sq. ft., while newer units are closer to 4,000 sq. ft., facilitating larger volumes, higher sales and better ROI, according to Bhakta.
Location, of course, has much to do with each of those metrics and the company has made improvements in that regard, as well. "We're trying to do a better job with real estate, which over the past two years had taken a big hit," he says. "We're taking advantage of that and getting the best sites possible because it's a down market. It's beginning to tighten a bit now, but the past couple of years have seen a lot of good sites become available with favorable terms."
The majority of Genghis Grill units are in strip mall or "power center" end-cap locations, which continues to be the company's ideal site. Its model calls for a population base of roughly 75,000 with household incomes of between $50,000 and $70,000 within a three-mile ring of each restaurant. Being near Target or similar big-box style retailers is also a good fit, according to Bhakta, because such anchor stores draw a demographic that's value-conscious but looking for healthy, affordable dining options that are an upgrade from fast food.
"We're definitely focused on value and we appeal to everyone, from blue-collar guys who like a lot of protein, to women looking for lighter options, to vegetarians and gluten-free diners, to kids who love to pick out what they like and watch the grill master cook their food," he says. "We offer a good portion size for $10 or $11 and much of our concept is based on healthful eating. So those buzzwords — Asian, healthy and value-priced — we trust will really work in our favor going forward."
Healthy, in fact, is a big marketing focus for the chain this year. In February, a major promotion called Health Kwest kicked off. A three-month long contest reminiscent of TV's Biggest Loser reality show series, it has 54 stores that each have "adopted" a "Kahntestant" — a consumer/customer with a history of weight problems and diet failures. Partnering with local doctors and medical centers in each market, the chain helps to introduce contestants to a new diet and exercise routine. On the diet side, participants dine every day at Genghis Grill, for free, choosing from the chain's healthier meal options. They blog about their experiences and progress along the way via Facebook and Twitter, and, ultimately, vie for a $10,000 prize.
"The first month was great. We got results from the doctors and are really excited. One gentleman had lost about 35 or 40 pounds since signing on as a contestant. It's working really well for them and we feel it's going to boost us further into the healthy dining category," Bhakta says.
Star of the Show: The Circular Grill
Most Genghis Grill locations include outdoor seating and a small six- to eight-seat bar. Interiors feature high-energy dining rooms with vibrant, rich colors, large poster boards explaining how Mongolian grilling came about and brass Mongolian-style gongs, which are sounded for birthday celebrations and as a thank you whenever grill masters are tipped.
Any interior dividers are kept low and open, the better to provide unobstructed views of the main attraction: a seven-foot circular grill. Custom-made for the chain, the grills reach temperatures of 400 to 700 degrees F and are where 95 percent of all meals at the restaurants are cooked. Each unit has one grill that's manned by up to four grill masters who collectively can stir fry up to 20 individual "bowls" simultaneously. Above each grill, two side-by-side 5' x 10' vent hoods operate to keep the dining room air fresh.
The chain's service model is hybrid fast casual. Guests are seated by a host and then greeted by a server who takes their drink orders and, if they're first-time diners, explains how the stir-fry bar concept works. Guests can choose the "One Bowl" option or, for an up-charge of $2 at lunch or $3 at dinner, the "All You Khan Eat" option.
They then head to the food bar to build their bowls, choosing from among 14 different proteins, 12 spices, 32 types of vegetables and 14 signature sauces before handing the bowl over to a grill master for stir-frying. They can choose white, brown or fried rice, held in warmers near the grill, or tortillas, udon noodles or spiral pasta as their starch. Once all decisions have been made and their food hits the grill, guests can either stay to watch it cook or have it delivered to their table by a runner, usually within about five minutes. The chain aims to be able to get customers in and out in an average of 45 to 50 minutes.
Each unit's food bar is equipped with three adjacent refrigerated drop-in units; one each for proteins, vegetables and sauces. The bars measure from 18 feet to 24 feet in length.
Given its front-of-the-house display cooking format, back-of-the-house kitchen operations at Genghis Grills are relatively bare bones. Comprising roughly 15 percent to 20 percent of total unit square footage, they're set up primarily as vegetable prep stations. "We keep it as tight as possible in the back," Bhakta says. "A lot of our items are sourced the way we want them and we try to eliminate the back-end prep as much as possible. The biggest prep we do is cutting fresh vegetables."
A typical kitchen will also have two large rice cookers, ample shelving, a dish station, walk-in cooler, 2,000-lb. ice machine and 1,000-lb. ice storage bin, and bag-in-the-box beverage dispensing station. There are no freezers, as all ingredients are brought in fresh with deliveries three times a week.
While the food bar, grill and starch holding station comprise the front-of-the-house equipment set-up, Bhakta says the chain is beginning to tinker with menu expansion. "The beauty of our concept is its simplicity and the fact that everything is customizable. The guests basically do their own menu development — they choose not only what they want, but also how much. We just supply the high-quality ingredients and the cooks. Until now, we've kept the menu offering consistent," he says, "but we recently hired an R&D chef to help us broaden our horizons and see what we can come up with. Right now we're experimenting with some appetizers using high-powered induction wok cooking as well as some soups merchandised in kettles. They're in test in a couple of corporate stores, so we'll see where that goes."
Two-Pronged Growth
Though The Chalak Group got its entry into Genghis Grill as franchisees, the partners have adopted a slow, measured approach to growth through franchising. Taking the first couple of years after assuming ownership to right the ship, bring costs down and focus on corporate store operations, it wasn't until 2006 that the "new" Genghis Grill sold its first franchise. A couple more followed in 2007, along with additional new company-owned stores. By 2008, the emerging chain began to gain traction, but, unlike many chains geared up for aggressive growth, franchising was and is still just part of the equation.
"There was a learning curve, absolutely," Bhakta admits. "Once we had figured out how to operate the stores we knew that having someone else do it the same way would be a challenge. Franchising was something new and different, dealing with our concept but someone else's money. Getting through to our own managers as we opened corporate stores was tough enough, but it was even tougher looking at a franchise system. It took a while to deal with that and to establish systems that could be easily plugged in and duplicated."
That basic challenge inherent in franchising is what has kept the chain squarely focused on expanding with a mix of corporate-owned and franchised stores. Currently, the split is nearly 50/50 and that's a ratio Bhakta says the group is comfortable with and will maintain going forward.
"We look at our growth model in a different light than many chains do," he says. "We feel the corporate stores are profitable so we're not going to stop developing them. And for franchisees to sign up they really have to have faith in what we're doing. We're very diligent on who we pick and want to partner with the right folks. They have to be well capitalized and share our mindset when it comes to growth, customer service and delivering a quality product."
With more than 30 stores operating in Texas today, Genghis Grill has set its sites on developing markets throughout the Southeast and Midwest, with slow expansion taking place west of Texas, in Arizona, New Mexico and Nevada, as well. The only markets not currently under development are West Coast and East Coast states.
"Ideally, we look for franchisees who are established multi-unit, multi-concept operators," Bhakta says. "We want people who know the real estate in their markets, who already have their feet wet there and who want to add another concept that they want to grow within it."
The Chalak Group also looks to grow with strong supplier partners. On the equipment side, Nashville-based Mobile Fixtures has become Genghis Grill's go-to company.
"They've gone above and beyond first to get our business — we were previously with another vendor — and then to make sure they can provide what we need as we grow," Bhakta says. "Our business with them started with smallwares but now includes the full equipment package. When you're an emerging chain there are a lot of people out there trying to get your business. But every time someone comes in with a competitive bid Mobile Fixtures, who we honored as our vendor of the year last year, has beat them. They realize our growth potential and they're buying better because of that. They know how many stores we have coming up, how many units we'll need, how many ice machines, etc., so they're doing a better job with the manufacturers on our behalf. It's a relationship that's turned out to be great for all of us." FE&S
Facts of Note:
- Founded: 1999, current ownership since 2004
- Headquarters: Dallas
- Menu signature: Mongolian barbecue/build-your-own stir-fry
- Service model: Interactive, fast casual hybrid
- Services: Dine-in, takeout, catering, outdoor seating
- Annual Sales: $93 million
- Current units: 62 (33 company owned, 29 franchised)
- Key expansion markets: Southeast, Midwest
- Hours of operation: 11-10 Mon.-Thurs; 11-11 Fri. & Sat.
- Average covers per day: 350
- Average checks: Lunch $10.50 - $11; Dinner $11.50-$12
- Staff per average lunch shift: 1 host, 4 grill masters, 1 food bar attendant, 1 dishwasher, 4-11servers depending on day/volume
- Average unit size: 120 seats, 3,500 – 4,000 square feet
- Total unit cost: $450,000 – $500,000
- Kitchen space: 15% to 20% of total
- Total equipment investment/unit: $125,000
Key Players:
- Chief Executive Officer: Al Bhakta
- Chief Financial Officer: Chet Bhakta
- Chief Operations Officer: Nik Bhakta
- Chief Marketing Officer: Ron Parikh
- Vice President of Operations: Tony Stevens
- Franchise Liaison: Luis Sotelo
- Food Distributor: Sysco Corp.
- Smallwares & Equipment: Mobile Fixtures, Nashville; Dorothy Mushenski
- Architect: Tom Morgan, Civitarese/Morgan + Architecture, Dallas
- Designer: Paige Parker, Spectrum Global Solutions, Dallas
