Founders of the GEN Korean BBQ restaurant chain, which got its start in Tustin, believe their customers want to cook their own food.
At their all-you-can-eat restaurants, customers serve themselves a heaping amount of raw meats, poultry, seafood and mixed vegetables that they themselves cook at a grill in the middle of their table.
The founders say the younger generation, who are about 80% of its clientele, understand this mentality. They have set up 43 locations to target mostly younger communities, particularly near universities.
“The younger generation know of us in newer markets,” Co-Chief Executive David Kim told the Business Journal.
“We’re also building an ecosystem where we will be branching out to different Korean products that we currently sell now and what we supply to our restaurants that [will be] sold to channels like the internet and supermarkets, hopefully like Costco.”
While this type of cooking is popular among small mom and pop Korean restaurants, Kim along with Jae Chang have been able to build it into a franchise model.
After posting sales of $181 million in 2023, three analysts following the publicly traded company are forecasting sales will climb 13% this year to $204 million and accelerate 21% to $246.2 million in 2025.
GEN’s goal is to have a total of 75 to 80 company-owned locations by the end of 2026 without franchises or acquisitions. The ultimate objective is to operate 250 total spots in the U.S.
The company hasn’t yet found many connoisseurs on Wall Street, where it went public last year at $12 a share and fell as low as $5.61 last March. Last week, it reported third quarter revenue that missed analysts’ consensus, causing the shares to drop 19% to $8.27 and a $264 million market cap (Nasdaq: GENK).
“Our third quarter results reflect GEN’s commitment to maintaining robust operational performance as we prepared our organization for a slate of new openings to close out the year,” Kim said in a Nov. 12 statement.
“As we approach the end of 2024, our focus remains on executing our growth strategy while providing unparalleled customer value.”
3 Decades of Franchise Experience
The founders both have extensive careers in the franchise industry.
Chang has been the owner, operator and manager of multiple restaurant concepts since 1999, including the Shabuya, Sumo, Octopus, H2O Sushi and California Gogi brands.
Kim has been the CEO at fast casual Mexican chains La Salsa Inc. and Baja Fresh Enterprises.
He was also managing member of CinnaWorks LLC, a national owner of Cinnabon franchises, and from 1994 to 2016, he was the managing member of Sweet Candy LLC, owner of the retail candy concept Sweet Factory. Kim’s also owned several franchises including Denny’s, Carl’s Jr. and Pick Up Stix.
Chang opened the first GEN Korean BBQ restaurant in Tustin in 2011. He then approached Kim to become a partner to help systemize the concept and add more restaurants.
“I come from that background, so I knew how to do it,” Kim told the Business Journal. “We met to put systems [in place] so that we could grow.”
The partners say they were the first ones to combine the traditional cook-it-yourself, all-you-can-eat dining experience — which they specifically say is “not a buffet” — with a full-service setting and build it into a chain.
“We really hit a chord,” Kim said of seeing Chang’s first test of the GEN restaurant model succeed.
He noted that GEN’s growth was also driven by the start of Korean cuisine’s popularity in the U.S.
“It was revolutionary to the industry. So, with that success, we’re able to duplicate and continue to grow this,” he said.
GEN plans to build future stores in South Korea, Mexico and Canada as well.
Looking beyond its current focus on physical expansion, GEN aims to expand its revenue beyond indoor dining.
One of the newer services GEN has added to its local venues is the GEN Grill program, which reverses the cook-it-yourself experience to where guests can book GEN chefs, like hibachi chefs, to serve Korean BBQ at events.
The company also began selling restaurant gift cards at 76 Costco stores.
Going Public with Philosophy of Value
The company on Nov. 12 reported third quarter revenue climbed 7.8% to $49.1 million, missing the average $49.8 million of three analysts.
Its restaurant operating expenses as a percentage of revenue rose to 85.4%, up 80 basis points from the same period a year ago. It also reported its cash and equivalents have fallen to $22 million as of Sept. 30 from $29 million in the second quarter.
Meeting expectations on Wall Street has been a learning experience, Kim said.
“We’re adjusting to being held to a new standard,” Kim said. “Three months go by fast.”
Kim noted that the company “went public with virtually no debt and no private investors.” As of Sept. 30, the company had no long-term debt, except for $4.4 million related to a government loan.
The co-CEOs want to share the benefits of being a publicly traded company with its 4,000 employees, many of whom have received shares.
“The main reason why we went public is we have a lot of management that started with us. We’re talking about from dishwasher up. We wanted to create an environment where their hard work could be associated with an outside world that can value their hard work.”
When it comes to customers, Kim said he wants to be a place where people happily choose to spend their hard-earned money.
“If you take a snapshot of today, consumers are pressured with finances. Their income hasn’t grown as much as inflation,” he said. “Our philosophy of value hasn’t changed.”
For example, GEN’s food costs came out to $35 million for the six months of 2024, up from $29 million for the same period in 2023.
“While the broader environment is experiencing a pullback in consumer spending related to persistent inflationary pressures, we continue to see outperformance at the new locations we’ve opened,” Kim said in a statement.
“Going forward, we expect our proven model to generate, at least on average, a cash-on-cash return of 40% in a payback period of approximately two to 2 ½ years, driven by an average of $4 million to $5 million in annual unit volume and restaurant level adjusted EBITDA margin of 18% to 20%,” Kim told analysts in July.
Kim added that the company’s “entire footprint is generating profitability levels in-line or exceeding our internal targets.”
Second-quarter results pushed GEN to raise its guidance for restaurant openings in 2024.
The company is aiming for 10 to 11 new locations to open, ending the year with a brick-and-mortar footprint of around 50.
Last week, the company confirmed it’s still on track to open 10 to 11 locations this year with 17 additional leases in the works for the next year.
