Steve took GYG to the US and failed. It cost $115 million, but he’s not done yet

Fast-talking Guzman y Gomez co-founder and burrito purveyor Steve Marks loves to write. He’s been penning a lot of notes lately about the issue that made headlines late last week: the sudden capitulation of his $2 billion company’s ill-fated attempt to take over the United States, the world’s largest fast food market, and his own country.

Some called this arrogance; others called it arrogance. Perhaps no one has devoted more thought and words to this subject than Marx himself.

“I have pages and pages,” he says. “I write non-stop. I have books and books that I’ve been writing for years. I think about this 24/7.”

He asked himself the same questions over and over: Was Chicago the right city to launch the US venture; Was the real estate strategy correct; Was it supposed to be released with different products? Marks acknowledged that it was his fault that the Mexican-inspired restaurant chain was overambitious and took a six-year gamble on the $643 billion worldwide market that is now failing. In this tag he says, “I am quite critical of myself.”

When pressed it will browse the details. If he could do it over again, which city would he choose? What should have been on the menu instead? “I don’t want to share this because some of this will come alive,” he says. “I have to hold this in my arms.”

Marx does not see the US exit as a failure. Despite early hiccups and missteps, he says he eventually came to the right conclusion, but got there too late. It would cost too much and take too long to break even. Over the years, the US expansion initiative had led to a massive cash burn across the wider business; otherwise this was firing on all cylinders.

“Stepping back now gives us the opportunity to take another step forward in the coming years,” says the former Wall Street hedge fund manager. “If it’s the right situation, the right model, [if] The time is right for GYG, you never know.

“The US is a market where I know we will be successful one day. That’s really it.”

Built on the dream of making fast food fresh and healthy, the first Guzman y Gomez store opened in Newtown in Sydney’s inner west in 2006. It would be another 14 years before Guzman y Gomez opened its first U.S. store in Naperville, Chicago, just in time for COVID quarantines. At this point it had already gained a modest foothold in Singapore (2013) and Japan (2015).

The catalyst for the US launch came after Guzman y Gomez opened its first drive-thru in Queensland in 2015, meeting brisk demand for breakfast, lunch and dinner, sparking hope that the dual-channel kitchen layout could handle high volumes of American drive-thru traffic. “We’re as fast as McDonald’s, but we serve real food,” says Marks.

Marks saw the potential to reinvent fast food in the country that invented it, and surrounded himself with a team of Australian industry luminaries to help him do it. Its board includes Guy Russo, a longtime retail executive at McDonald’s who is credited with turning around Kmart, and Ian Rowden, a former marketing director at burger chain Wendy’s. Steve Jermyn, a former senior executive at McDonald’s, served on the board for 15 years before retiring in 2024. In late 2018, Guzman y Gomez’s largest investor, TDM Growth Partners, injected $44 million to fund US expansion.

“We believed there was no such thing in America,” says Marks, echoing widespread criticism of the absurdity of trying to sell Mexican food to the world’s largest Mexican diaspora. “I’m not talking about mom-and-pop taquerías.” In Marks’ mind, Guzman y Gomez sits somewhere between the good value and speed of Taco Bell and the freshness of the health-conscious Chipotle—but better.

The up-and-coming Australian chain had positioned itself as the David against the two Goliaths of Americanized Mexican fast food. “We believed and still believe today: “No one in the U.S. offers the quality of food we have with the guest experience that GYG offers,” says Marks.

When Guzman y Gomez was listed on the Australian stock exchange, its market capitalization of $3 billion (higher than KFC operator Collins Foods and pizza chain Domino’s) was boosted by its international potential and grand ambition to become “the best and biggest restaurant company in the world”.

But to justify the investment, each U.S. restaurant had to hit a $3 million annual sales target. According to the company’s prospectus, in fiscal 2023 the three stores had a combined turnover of just $4 million; This is less than half of the targeted revenue.

The Australian company also had to deal with the duties of Taco Bell and Chipotle, the world’s largest Mexican chains, with more than 9000 and 4100 stores respectively. With virtually no brand recognition, Guzman y Gomez struggled to find high-quality real estate for his restaurants and struggled with construction costs, which are much more expensive in the US than in Australia.

Discontent among the upper echelons of the US leadership team has resulted in a handful of resignations and bitter legal disputes. Former employee and consultant Greg Creed and his team filed a lawsuit accusing Guzman y Gomez’s leadership team of racism and age discrimination, and claimed staff were told “we don’t give.” [promotional] T-shirts for fat people, according to documents filed in California courts reported by Australian Financial Review. The lawsuit states that Marks was included in a performance management plan, which Guzman y Gomez denies. The problem was eventually resolved, but this set the company back.

Meanwhile, U.S. stores continued to lose money. In February, Marks moved to Chicago as a last resort to turn things around. He explained that green shoots appeared on a list. “In February we [were] “I’m where I want to be,” he says. Time was running out. “Although we’re making progress, [because of] mistakes I made there [was] “It’s a lot to handle in terms of revenue.”

Boardroom conversation and legal bombshell

After a three-month stay in Chicago, Marks returned to Sydney in mid-May to visit his young family. He would have returned to Chicago if not for an important meeting with the board on Thursday evening, where Marks, the board and the leadership team looked at the numbers.

The company had “translated” a certain amount of money to be invested in US expansion, and that money had been spent. Guzman y Gomez declined to give a figure for the total investment amount, but publicly available figures show the company spent at least $115 million on the aborted six-year experiment.

“It’s very sad for me because you have teams and you love your people in the United States and they to believe,” says Marx. “It’s a job, you know.”

“It wasn’t the right decision for me to ask for more money knowing it would take longer,” he says. “We tried. I learned a lot. I made a lot of mistakes. I’m going back home.”

A company statement titled “Update to US strategy” We hit the ASX at 8:23am on Friday. An hour later, Marks held a quick meeting with Hilton Brett co-CEO and chief financial officer Erik du Plessis, investors and market analysts to answer questions about the flip. Immediately afterwards, shareholders were relieved. The general idea was good salvation; The share price closed nearly 20 percent higher on Friday following the announcement of U.S. departure.

Before the dust settled over the weekend, the company suffered a sucker hit with a legal grenade: a class-action complaint filed by Haseeb Legal, the sole operator in Illinois, filing complaints against credit bureaus, debt collectors, and no-win, no-fee companies for customers. The court filing, which included the names of the two plaintiffs, claimed that hundreds of employees learned that they were unemployed through a post on the company’s internal staffing platform, and that this post was deleted within 11 minutes, but was automatically emailed to workers.

“After careful consideration, we have made the difficult decision to exit the U.S. market. This means we will be closing all of our restaurants starting today,” corporate operations and culinary chief Scott Bayne said on staff communications platform WorkVivo Thursday evening Chicago time. Under US federal law, employees must be given at least 60 days’ written notice before being terminated.

Complaint that requires the approval of the judge in order to become a class action, It threatens to be an embarrassing and messy final act of a public backflip. The alleged mistreatment of workers further upsets Marks, who has long prided himself on treating his staff well.

“This is No. 1 for our people, and to me that’s what hurts the most,” Marks says of the class-action complaint. “[The US is] “It is a very controversial market.”

Guzman y Gomez disputes many aspects of the complaint, including the allegation that staff learned of the exit through a leaked internal post. In this statement, the company said that all employees were paid throughout their tenure, that salaried personnel were given at least three months’ salary, and that leave and health benefits were paid.

“We did not cut corners on the exit. Everyone in the team was paid their full salaries, with all rights respected,” says Marks. Instead of ceasing operations over time, all stores were closed immediately in order to avoid compromising food quality. “We are confident in how we handled this situation and will defend that position.”

There is still plenty to keep Marx busy and fill the pages of his notebook. Australia, which is the driving force, is moving towards the target of 1000 restaurants (about the same number of McDonald’s restaurants in Australia). Singapore and Japan, which have 24 and five stores each, operate under a master franchise model that does not burden Guzman y Gomez’s balance sheet with commercial leases and financial risks. Marks and his team noted that this capital-light model was the right model for future international expansions.

Asia has become the next battlefield. Chipotle will launch in South Korea and Singapore, where Guzman y Gomez will go after the same health-conscious customers it follows without the brand reputation that Chipotle has. Marx is ready for the fight. “I am extremely confident that Chipotle will enter other markets where GYG is present and we will outperform that,” he told investors last Friday.

Guzman y Gomez’s mission has not changed. “We truly believe this is a global business,” says Marks. “I see the quality of the food and I know what the quality of our food is. It’s superior and I want families to eat it. That’s what motivates us.”