Financial Adviser: 5 Business Lessons Everyone Can Learn from 'Baby Back Ribs King' Leo Prieto III, CEO of Racks
The Racks brand has a rich history in the restaurant industry, dating back to its founding by luxury car distributor Wellington Soong in the early 1990s.
Soong saw an opportunity to bring American-style country kitchen cuisine to the Philippines, and quickly turned it into one of the most popular restaurants in the country.
With its signature dishes and unique atmosphere, Racks stood out from other restaurant brands. At its peak, Racks had 40 outlets, but as the years passed, business declined, leading to the closure of many of its outlets.
In 2006, despite its decline, Racks still had a loyal following. It was this following that caught the attention of Leo Prieto Jr., who came from a family of restaurant owners that previously owned Shakey's Pizza before it was sold in 1998, as well as Dunkin’ Donut outlets.
Prieto acquired the Racks brand and its only outlet in El Pueblo Ortigas. He then asked his son, Leo "Chukri" Prieto III, who had previously been with the family business, to take over the management of Racks and turn the business around.
Under the leadership of Prieto III, Racks was revitalized and given a new lease on life. The menu was updated to meet the changing tastes of customers. With a renewed focus on quality and customer satisfaction, Racks quickly regained its popularity.
Today, Racks has 20 outlets across the country and is still going strong. Prieto III’s expertise and experience in the restaurant industry has allowed him to not only revive the Racks brand, but also to bring in new and exciting concepts to the Philippine market.
In 2014, Prieto III also brought the master franchise of Tenya Tempura Tendon from Japan, a popular restaurant chain in Japan known for its delicious tempura and tendon dishes. Tenya Tempura has 11 outlets to date, demonstrating the brand's commitment to growth and expansion.
Racks has come a long way since its early days, and the future looks bright for this iconic brand. With a renewed focus on quality and customer satisfaction, it’s poised to continue its growth and expansion.
How did Prieto III manage to revive Racks and restore its former success? What strategies and actions did Prieto III implement to turn around Racks, and how effective were they?
Here are the five business lessons every entrepreneur can learn from Leo “Chukri” Prieto III, CEO of RACKS restaurant:
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1| Know how to identify potential in undervalued brands
Investors are always looking for the next big thing, but sometimes, the best opportunities lie in companies that are undervalued and overlooked. These undervalued brands can be diamonds in the rough, waiting to be discovered and unlocked.
Investing in undervalued brands can provide a margin of safety for investors. Because these brands are often overlooked, they can be purchased at a discount, providing a cushion against downside risk.
Undervalued brands may have a loyal following, a strong brand identity, or untapped markets that can be leveraged to drive growth. By identifying these opportunities and implementing a sound strategy, investors can unlock the value in these brands and generate significant returns.
In the early 2000s, Racks was a struggling brand with just one outlet in El Pueblo Ortigas, but Leo Prieto III’s father saw its potential and acquired it in 2006.
The success of Racks is a prime example of the potential that lies in these undervalued brands, and investors should always be on the lookout for these hidden gems.
“You know, as a group, because we're always shopping for brands like what's the next big thing? What's cool? What's something that we can turn around and make bigger? Or you do something like that? When we were shopping around, we saw Racks,” Prieto says.
“I remember Racks, even myself as a kid, I remember eating the ribs, the sauce, masarap, I remember the stores. Lahat puti di ba? Everything was white, clean and the good ribs, simple ribs like that.
“We ate in the store a couple of times prior to making an approach, and we said, ‘Wow, the food's still good here? What happened?’ and stuff like that.
“As we were entering negotiations, we asked our friends and family, ‘We're thinking of getting this brand. What do you guys think? Have you heard of this brand?’ Pretty much everybody said the same thing. ‘Wow, Racks. I remember Racks to always be good. It had the best ribs, the best sauce, and whatever happened to them. Bakit wala na sila? They used to have many stores?’ So that was the common comment.
“We thought we had something here and we said, ‘You know, this is something we can revive.’ This is the brand that we can revive.”
2| Know how to transform a struggling business into a profitable one
A successful turnaround strategy involves a combination of factors, including financial restructuring, operational improvements, marketing strategies, and leadership changes.
It also requires a deep understanding of the market and the industry, as well as the ability to identify and address the root causes of the business's struggles, especially during economic downturns or in competitive markets where businesses need to adapt to changes quickly.
Prieto made the necessary changes after taking over Racks and implemented effective strategies that enabled the brand to recover and thrive in the long run. This also helped Racks to build a stronger brand reputation and customer loyalty.
“When we took over the brand, we obviously wanted to turn it around. The outlet that was left was El Pueblo. It came together with the recipes, the brand name, the assets, you know how it goes, and then we said ‘OK, let's look at the menu.’
“Let's see what we can do here. So we got the menu. It was like this thick, ang kapal, so we were like, ‘Take this out, take this out, and then we were left with basically the ribs, the sauce, the side dishes and the fried chicken.”
“So those are the only things that are still up to this day, unchanged from when we got the brand. I was heavy into R&D in Shakey's and doing stuff for the other brands, so I said ‘Okay, let's create a menu. We developed menus and recipes from scratch little by little.
“We had to do some design tweaks like, keeping the whole restaurant white meant it was (difficult) to clean, so medyo mahirap ang all white so we said, ‘You know, make a little green here, a little earthy colors here, some wood here and there.’
“We wanted to do some design tweaks that would help make the place more cozy, more relaxed atmosphere while still regaining the casual American feel.
“Apart from developing a whole menu from scratch, we had to look for the best people possible to bring this brand forward. It was like a mission for us every time we hired somebody, like managers, and people at the back of house, administration, like that. We need somebody to take this brand to the moon.
“We need the best managers, we need the best marketing, we need the best all of that. We didn't skimp on those things, and, moving forward getting from one start to the next, we had to market heavily.
“Our aim was to expand pretty rapidly so over the next three to four years, we were opening about three to four stores every year. We had a dozen in the next five years.”
3| Know how to maintain brand integrity and align with company strategy for long-term success
Maintaining the integrity of a brand's values and keeping them integrated with the overall company strategy is crucial for long-term success.
A strong brand identity helps to establish trust and loyalty with customers, while also differentiating the company from competitors. When a company's branding and values are aligned with its strategy, it can help to create a clear and consistent message for customers, employees, and stakeholders.
Prieto kept Racks’ brand values intact by maintaining his focus on serving quality baby back ribs at an affordable price. This has been a key element of their brand identity and has helped to establish their reputation as a go-to destination for BBQ lovers.
By staying true to their brand values and integrating it into their overall strategy, Racks has been able to build a strong brand identity that resonates with their target market. This has been a key factor in their success and has helped to differentiate themselves from their competitors.
“You know what RACKS stand for? ‘Real American Country Kitchen Style.’ Up to this day we try to follow that theme when it comes to building and designing the store, creating menus, and products.
“We have introduced hundreds of menu items, I can’t count it anymore, but the most important thing is we made sure to keep the originals and to keep the quality of the originals, so the ribs, the fried chicken, and the sauce, everybody was dying for that back then. They would say, ‘Oh, I missed this.’
“But, over time, we developed great products. We have a really good signature clam chowder soup. We have this thing called the onion brick. It's like a big loaf of onions, like onion rings, but it's huge, and, again, our fried chicken is so good. We have lots of stuff.
“Everybody remembers Racks. They remember eating there so well, so we didn't want to change that and by not changing the logo that gave the customer a connection to the past.
“It's the same logo, so it must have the same recipes. It must also be delicious. That's the connection we wanted to have for that. It will give that nostalgia to the customer.
“Yeah, even up to now I have people saying, ‘The last time I ate in Racks was in the ‘90s and that's a long time ago. We have a lot of new stuff in store for those people that still dream about the nostalgia of the brand
“We do promote heavily our functions. We do a lot of birthday parties, baptism. If you want something that is a little bit more premium with a lot more meats, steak, fried chicken, or something to really feed your guests, and you want to get them really full, that’s when they choose Racks. That's the position we want to be in, while still offering value for money. I mean, you got to offer the ribs this big and it's still very affordable these days.
“That’s really the ethos and the strategy of our whole group. We like to provide quality at an affordable price, so value for money is the pinnacle of our company. We try to make it as affordable as possible.”
4| Know how to minimize risks by choosing the right location and target market
Managing risk is a crucial aspect of running a successful restaurant business. Without proper risk management strategies in place, restaurant owners may be vulnerable to unexpected financial losses that could put their business in jeopardy.
Prieto minimized risks by identifying the restaurant’s target market demographics and controlling rent costs in several ways. First, they conducted thorough market research to identify the demographics of the areas where they planned to open new locations.
This allowed them to target areas with a high potential for success and tailor their menu and marketing efforts to appeal to the local community.
He was also careful to control rent costs by negotiating favorable lease terms and actively seeking out locations that were affordable and strategically located. By doing so, they were able to minimize their fixed costs and reduce the financial burden on each individual location.
“I'm not a fortune teller,” he says. “You can never guess 100 percent what's going to happen in a certain location so what we really do is we put a lot of feasibility studies; a lot of due diligence goes on before making a decision.
“We test everything: foot traffic, we have people sit in the location the whole day and just count people walking by, weekdays, weekends, and as corny as it sounds, there's a lot of science that goes on behind the scenes in a restaurant, which, for me personally, it makes it fun. I love doing this stuff.
“There's a lot of due diligence. You get to look at foot traffic, obviously you got to negotiate rents with your landlord. I mean, if the rent is too high, and the foot traffic does not coincide with the level of rent that they're charging, you need to push back a little with your landlords and stuff like that, just so you can say, ‘Look, this is the place I'm opening. I don't think I can do more than X amount or less than this X. Sana naman your rent can reach this level If you want us really to be there.’
“There are locations where they ask us to be there as a brand locator and there are also locations where we can be there. ‘Uy, can we be there?’ We also ask. It's a give and take.
“We also look at competition like, ‘Sino pinaka-mahal dyan? Who's the most expensive on our floor? Who's the cheapest in our floor? Where does everybody go? Are people eating more of the cheap stuff, so that will give you an idea of the demographic that goes there. There's a lot of science that goes on.”
5| Know how to honor and value the wisdom of elders
Family members who have been involved in the business for a long time often have valuable insights and knowledge that can help the business thrive. It is important to recognize and respect their contributions and listen to their input.
As a family-owned business, Prieto values the experience and wisdom of his family members, particularly his father, who have been involved in running the business for generations.
By honoring and respecting their insights and contributions, Prieto has been able to maintain Racks’ core values and traditions while also adapting to changing market trends and customer needs.
“Before the Racks brand came along, I was already working under my father and other members of the family, so I was learning from them. At that time I had just been fresh out of college so I was like, you know, I didn't want to speak out so much because, by that time, my dad already had 30 years of experience, so it was like, ‘Who's this guy to tell us?’
“So, I humbly accepted and allowed whatever to happen and learned that way. Over the years, little by little, I was advising on things, I was giving ideas and I was left to run a few things and had a few projects here and there. I guess the transition was slow but sure; from knowing nothing to knowing something, until we got Racks and they said, ‘Okay, you can run that thing.’
“And the relationship is a little diplomatic. Our family is not so, ‘I love you, I love you so much.’ They are more of, ‘Did you do the work? Yes, I did.’ Or, ‘Did you do the work? What the hell is taking you so long? Hurry up!’ It’s very diplomatic. Like if I was late on stuff, I would get my ass chewed out, and if I was on time and I did a good job, I would be rewarded.
“I've heard of family horror stories from other companies and family businesses. I'm thankful to say that I had a good experience working with family.
“I would say, just try to be humble. I thinks that’s the lesson I learned. Be humble. I mean, you have to know exactly where you came from, and you know you have to respect the people above you. There's a reason why they're on top, and there's also a reason why you're starting at the bottom there.
“You're at this level because you know the people up there one way or another. They know more than you and unfortunately you got to have a small head. Walang laki ulo diyan, because its going to bite you back.
“I learned early in the business that those people up there, they are there for a reason. You’ve got to respect your leaders. Respect the people with experience because you're going to learn some stuff from them. Eventually there will come a time where you're going to teach them new things.
“Like this the dawn of social media happened when we started Racks. Facebook, social media, and digital marketing, all of that, I had the same learning cycle as the guy that has been doing it for 30 years, so we're both learning digital marketing at the same pace.
“I felt that I know something that you don't because I learned the same year as you digital marketing that only came out about 2005 or something like that.
“I know as much as you, so maybe hear me out; ‘What do you guys think about this?’ Of course, you got your ideas shut down, but then you get some that are accepted, so it's really just about being humble and respecting those with experience.
“Experience goes a long way in the restaurant business. I felt that I was blessed enough to learn from all these guys, especially my dad.”
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected]financialadviser.ph or follow him on Twitter @henryong888
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