Gerstner grows his national burger empire

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Kyle Gerstner, 36, is a native of Wichita, the birthplace of Freddy’s Frozen Custard & Steakburgers. And when Gerstner first moved to Colorado in 2011, he brought that taste of home with him. Gerstner is the owner of nine Freddy’s franchises, including four in Colorado Springs (a fifth is currently under construction) as well as three in Southern California. He is also about to open his third Florida location in Jacksonville.

Gerstner spoke with the Business Journal this week about the local food scene, doing business in different states and building his burger empire.

What brought you to Colorado?

Freddy’s honestly. … I was the neighborhood kid who mowed yards from the time I was 8 through college. I sold that business and had another business idea at the height of the market crash. I sunk every dollar I had into it over three years and lost it all. It was a personal and professional concierge business. We did ancillary items for whomever. We had contracts with hospitals, Fortune 500 companies — different businesses and individuals. We had a valet parking company attached to it and did a lot of events. Through that I met my current business partner. We were playing golf one day and he said, ‘Hey, if this doesn’t do what you want it to, what else would you want to do?’ I said Freddy’s. He said, ‘You’re the one who’s moving. Where do you want to live?’ I’d been to Colorado growing up. I loved the mountains, loved skiing, loved the outdoors. I figured, why not? It would be a great market.

I opened the first location in Monument on Jan. 18, 2012.

Was your first location successful?

When it first opened, we expected half the volume that we ended up with. Based on average opening volume and hearing from other stores around the country — that location was the 55th store to open nationwide, so the data we were getting was relatively small. We didn’t understand how big we could open. I think, at the time, it was like the third-largest opening for a Freddy’s in an opening week.

Why Freddy’s?

My story is different from a lot of people. I’m actually related to the family. Freddy Simon is actually a great-uncle of mine. The other neat thing is, when I started landscaping as a kid, my very first client was the president of Freddy’s. Freddy Simon is the namesake but his sons, one who was my first client, started Freddy’s as an homage to him.

Through that job, I got to know everyone else in the family. I got to know the partners of the original Freddy’s location. But I also love the product … and it’s from Wichita. It’s a hometown thing. They were just starting to franchise when we looked into it and figured, why not?

It’s still very much a family-friendly atmosphere, 311 units later.

Where was your first location outside Colorado?

Bakersfield, Calif. Monument did better than we expected and we wanted to find the next growth market for us. We basically bought the territory from the north end of L.A. to Fresno. We spent months looking for the best location. Bakersfield has Midwest sensibilities. It’s 800,000 people and not quite the hustle and bustle of L.A. It’s very oil- and ag-heavy which speaks to Midwestern values. It was perfect.

Any challenges so far?

The biggest challenge thus far was opening in California. I literally came into the restaurant industry with no restaurant experience. I came into having to be a developer — meaning having to understand real estate, development schedules, designing, managing vendors and construction — I was doing that while trying to open our store at Garden of the Gods and I-25 in December of [2012] while trying to finish construction in California. I was trying to balance all that while understanding regulations and restrictions in California.

How do regulations differ here from California?

One thing I love about Colorado Springs is it’s very open and honest. From an economic standpoint, the city is very business-friendly. Utilities are a little high, but not terrible. California — I have nightmare stories about California. One challenge we had was dealing with the [California Department of Food and Agriculture], basically their dairy division of the health department. They came in and saw how we produce our custard. They said, ‘Per regulation, this is a production facility and we need you to create a hermetically sealed room around your custard machine because you’re a production plant at this point and we’ll have to shut you down until further notice.’

This was 60 days after we opened. Excuse me?

We were still able to operate, but it took two years to get the statute rewritten.

The biggest challenge we face here is it took us 7½ months to get a permit to build our new store [on South Academy Boulevard]. At [the Stetson Hills location] it took six weeks. There were constant revisions, constant scrutiny. But codes have changed and they’re stricter on some aspects. Development schedules are crazy right now. Everybody is building. You can get cheap money. Development is going up and up.

Anything else about this market?

The labor market here. Nationally and even in Denver the labor market is very tight. It has been for about 24 months. I know the Denver [Freddy’s franchise] group has been struggling for two years to hire enough staff. We’ve been fortunate here up until about two months ago. With unemployment as low as it is and with minimum wage increasing, we’re trying to manage the numbers as we need to but it’s been increasingly difficult to find good people. Everyone who wants a job has a job. … Minimum wage is a big aspect. When we first started we were at $7.64. Now we’re $10.20.

That’s a huge hindrance. We’re also very labor-intensive. For a 16-year-old, this is your first job and you’ll be put over a 400-degree grill and you’ll cook burgers for everyone. That’s what we need you to do. We’ll pay you minimum wage, maybe a little more, but they can go to Walmart and stock shelves for $12.

So, do you want to sweat and work hard at Freddy’s or do you want to go to Walmart for $1 more an hour?

Speaking of California, are you concerned about In-N-Out Burger?

I think I can speak about this intelligently because we do compete against them in California. Everyone is excited about In-N-Out. I believe In-N-Out has a cult following. But my Uber driver on the way over here is from south Texas. He loves Whataburger. It’s what you know and California is known for In-N-Out.

Here they’re going to be the big hit for a little bit. I just came from a franchise conference meeting and sat across from a south Texas franchisee. He said, ‘When they open, prepare yourself because your sales will increase [because of overflow].’

They’ll be busy. We can’t deny that. But our goal will be to retain the guests who come over here because they don’t want to stand in line for 30 minutes. As for saturation, it comes down to hospitality for guests. As long as we’re a preferred place for the guests, that’s the goal. There will always be opportunity to go somewhere else. I will say the food industry here has gotten more saturated. … but as long as you give the guest exactly what they want, with a smile and in a timely manner, they should return.

Have tariffs impacted you?

In our development phases, we’re feeling it. Lumber prices are up; steel prices are up. I know [construction costs at] our buildout on South Academy are certainly up because of the tariffs. There’s a direct correlation. As for products, not yet. Freddy’s hedges a lot of its product purchases so it can sustain better margins.

Any advice to other young professionals?

First and foremost you have to have patience. Patience is critical, especially when you’re younger. Everyone wants instant success. They see Instagram and YouTube and this guy who blew up overnight. Young people say they want that now. They meet me for the first time and say, ‘Wow you have nine restaurants. That’s amazing.’

What they don’t know is it’s been a labor of love for the past seven years. It’s been a struggle every day.

The next big one is words of wisdom I got from the founder of Freddy’s when we first started, which is, ‘We’re Freddy’s. We don’t make excuses, we make it right.’ My words of wisdom: Don’t make excuses. Nobody likes hearing excuses. Just do the right thing the first time. That’s the best way always. 

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