August 19, 2024

The Mexican carry trade

Dear Reader,

'Most people thought black beans were olives,' Steven Marks said of the average Australian's knowledge of Mexican food in the early 2000s.

Over the next 20 years, Marks and fellow New Yorker, Robert Hazan, would change that.

In the process, they'd build a massive fast-food business that is now approaching $1 billion AUD in annual revenue.

Just this year, the business they founded to 'educate the market' on good Mexican food became Australia's most successful initial public offering since 2021, and the third-best for half a decade.
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This week, The Benchmark takes a break from Wall Street to show you how a simple idea changed the Australian fast food landscape and became a stock market darling in the process.

'Selling burritos and delivering on our strategy'

Steven Marks was 23 when he landed what, for most aspiring finance bros, would be the dream gig.

He was one of two graduates to join Steve Cohen's New York equities team.

Forbes estimated Cohen to be about the 30th richest person in the United States 10 years ago. 'The hedge fund king', as he was known, at one point personally raked in about $1 billion a year.

Marks had his feet under the desk for one of Wall Street's heavyweights.

Fast-forward four years, and he was running a London trading desk, living the high life in Chelsea.

But, fast-forward another three years, and Marks was done.

The ultra-intense hedge fund life had taken its toll and lost its appeal.

So, he did what any self-respecting talented young professional does when their personal desires no longer match with their professional circumstances; he booked a one-way ticket to the other side of the planet with very little idea of what he'd do when he got there.

Initially, he wanted to build a hotel. That proved tougher than Marks expected. And while struggling to get this plan off the ground, he found he missed something from his New York days — good Mexican food.

Seeing the gap in the Australian market, Marks went all-in on enlightening his adopted country on the pleasures of authentic Mexican food.

Wall Street cash = main street smash hit

Marks did four key things to get Guzman Y Gomez — named after two friends from his childhood in Brooklyn — up and running in 2006.

1. He invested 'everything' he'd managed to save from his seven years earning mega bucks in the hedge fund world.
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2. He 'poached the best staff from Latin American restaurants and brought in chefs from Mexico'.
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3. He convinced his childhood friend, Robert Hazan, who had a background in fashion and retail (and therefore boots-on-the-ground knowledge of a type of business Marks did not) to become his business partner.
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4. Marks and Hazan set up Guzman Y Gomez restaurants in 'triple A real estate' locations, building a premium fast food brand rather than a ubiquitous, spread-too-thin empire like much of their competition.
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The first store in Newtown, Sydney, spawned openings in Bondi Junction and Kings Cross within 12 months.

Six years later, GYG had 12 locations, expanding to Melbourne.

Another six years later, Australians were flocking to buy premium Mexican takeaway food at 100 spots across the country.

In 2013, Singapore got its first Guzman Y Gomez, and in 2020 the Naperville suburb of Chicago began serving customers.

Today, there are ~200 Guzman Y Gomez locations. The business has broken into Australia's top 10 most popular takeaways, and makes $760 million a year.

Careful investment strategy paves
way for rare ASX IPO success

Marks and Hazan didn't rush to accept money from investors.

Marks' Wall Street experience taught him about being careful who he took money from.

He actually rejected several offers because he didn't feel those looking to invest shared his vision for the business and brand.

Rather, he and Hazan kept hustling, running the business with their own money and its growing revenue.

'So we just had to make it work, even when we were running out of money,' he said.

Finally, though, they struck a deal with the team behind McDonald's Australia. This helped them fuel Guzman Y Gomez's international expansion.

Then, investment firm TDM Growth Partners bought a $44 million stake in 2018, followed by Magellan Financial Group's $87 million investment (Magellan subsequently sold its stake for $140 million — a 60% gain).

Then, this year, what started as a burnt-out ex-hedge funder's reaction to Australia's dire lack of quality Mexican food in the early 2000s hit the Australian Stock Exchange.

Guzman Y Gomzez listed A$335.1 million of new stock (about a sixth of the company) for public trading.

It became the biggest first-day gainer by a large Aussie company since 2021 and the third best performing IPO in five years.

At the time of writing, GYG is up 4.61% since IPO, with a total market cap of A$3 billion — it was A$2.2 billion before it debuted.

Guzman Y Gomzez forecast a second consecutive net loss for 2024, but a profit in 2025.

The company plans to match the current McDonald's Australia store count in the next 20 years.

That's about 1,000 stores.

If you didn't know what good Mexican fast food tasted like already, you're about to.

To really get into the numbers behind GYG, check out this deep dive.

Quote of the week

― Ray Kroc

That's it for The Benchmark this week.

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Until next week!

Invest in knowledge,

Thom
Editor, The Benchmark

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