Jay Gould has spent much of his career copying the successes of others. His first venture, Cultures, a healthy lunch spot, was inspired by a restaurant in Manhattan. Similarly, he and his brother transplanted New York Fries from the Big Apple to Canada in the early ’80s. But South Street Burger Co. is all Gould. He spent a year developing the concept before opening the first store in 2005. While most quick-serve restaurants see growth in the breakfast market, Gould is pouring pints to attract the dinner crowd. When the smoke clears from these premium burger wars, Gould plans to be one of the guys left standing—with a pint in one hand and a burger in the other.
You founded New York Fries in 1984, but it took you 20 years before you expanded into burgers, in 2005, with South St. Burger. Now you’re trying out a new concept—the South Street Burger Bar—serving craft beers alongside the burgers at a select number of restaurants. Why experiment when you could simply focus on growing the South Street brand?
Consumer tastes have gone decidedly upmarket. People these days are better educated about the food they eat. They want to see natural ingredients. They want to see better quality food and, if they can afford it, that’s where they are going. The benchmark for the QSR [quick-service restaurant] business is consistency, where you can go to one place and expect the same thing you got at the last one. If that falls apart, then suddenly McDonald’s is out of business. But I think that also allows for a little bending of the rules with things like South Street Burger Bar. In this business, I think customers actually expect you to build locations that aren’t carbon copies of the last one—they just want to know they are going to get the same reliable food quality when they get here.
Burgers and beer obviously go well together, but was there another reason you joined the two?
You can only do so much at lunch. A big part of the QSR business is going after the breakfast market. That’s a very competitive spot right now and one where I don’t think we have the horsepower to penetrate. We don’t have the marketing budget. We’re not in the right locations, and I don’t think our coffee program is good enough. Instead, we’re taking what we have and tweaking it for the evening business, which is a huge opportunity for us. Lunch is a lock; dinner isn’t. South Street Burger Bar is designed to attract the dinner crowd and [downtown Toronto] is the ideal place to try it, where you have a lot of young professionals, a lot of new condos, a lot of new office buildings and not a lot of either bars or burger joints, surprisingly. We also have plans to do one in Ottawa beside the Lansdowne Park redevelopment area. They will be site-specific.
New York Fries was built on a franchise model, but South Street restaurants have been primarily corporate owned. If anything, South Street is run more like Cultures, the sandwich and salad shop you co-founded with your brother when you were just 22. How did your experience with Cultures and New York Fries influence the development of South Street?
I think we’ve made more mistakes with South Street than we ever did with New York Fries. When we started New York Fries, we had three sizes of fries and three sizes of pop, and that was pretty much it. It was tough to screw that up. Our business at Cultures was quite a bit more complicated. When I started it in the late 1970s, there weren’t even containers to help me portion a salad or much less even serve it, unlike today, where there are a million containers for burgers, fries, pizza—you name it. So we had to develop a lot of that stuff and get the moulds made ourselves, to say nothing of the fact that a good chunk of our menu was perishable and didn’t last that long. So we learned the business the hard way.
Can you think of a mistake you made with South Street that you didn’t make with New York Fries?
Real estate. It’s tough, and we’ve made some mistakes. We have got a few stores that I wouldn’t do again. We underestimated the need for other strong retailers to be right beside us as part of the draw. When we started South Street, we thought we would break away from the tyranny of the Cadillac Fairviews and the Ivanhoé Cambridges. But in this business, if you get on the wrong side of Yonge Street or the traffic light and half the traffic can’t turn in or can’t park, or if it’s just shitty outside, it can make or break you. Just facing the wrong way can cost you an extra $250,000 in sales. That’s pretty daunting.
What surprised you the most when you first launched South Street?
We thought we would be busier. The first store was in Phase 2 of a big-box plaza. Our second store, in contrast, is still our busiest by far, and we thank our lucky stars that that wasn’t our first store. Had we hit the ground running, we might have signed up five more locations in a hurry, which could have led to more real estate mistakes.
South Street is approaching a decade in business, yet you’ve kept growth slow with only 30 or so restaurants, most of them in Ontario. Why?
There are a number of things. Anyone who has ever worked their own barbecue has been opening up premium burger shops these days. I don’t need to be the biggest chain in the country, but I’d like to be here when the smoke finally clears. If the first 10 stores were total home runs, then we would have more stores than we do today, that’s a given. But it’s learning the business and growing at a pace that we can afford to. Making sure that when we do sell franchises, we get the right franchisees. A bad franchisee can cost you five good ones, because it’s a huge disruption in the system and to our own business. So yeah, we could grow faster, but 30 isn’t a bad number.
It seems you’re beginning to court franchisees more actively now. What’s changed?
We didn’t franchise the first store until we had built 14 of them. South Street stores are quite a bit more complicated than New York Fries, and we didn’t really want franchisees telling us how to do the business. Not that we don’t want advice from franchisees, but fundamentally we want to know what we are doing and get it right. New York Fries is also half the price. Anyone who has owned a house anywhere in Toronto for more than a year has the collateral to go and borrow money to buy a franchise. That’s not the case with South Street. These are $600,000 to $750,000 to build. That takes a different kind of investor. You are talking about a fairly sophisticated investor, and that’s a little harder to do.
You say you’re still learning the business. Can you think of something you recently learned?
We’ve added gluten-free buns. When we first started, we weren’t antibiotic- and hormone-free. And we’ve changed the sizes of our patties from 3 oz. and 5.33 oz. to 4 oz. and 6 oz. We found that the 3 oz., while still expensive, was really just a big slider. And yet the larger burger was not only more expensive, but probably more than some of us want at lunch. Before we changed the patties, 15% of our customers were buying the 3 oz. burger. Today, about 60% buy the 4 oz. By making the change, we actually brought the average price of a meal down by a buck and a half, which might better suit your Monday to Friday lunch crowd. It’s been a huge success, and it’s only been in play for about six months.
When you think about it, there isn’t a huge difference between the prices points at McDonald’s and South Street. Is that a deliberate strategy?
We need to protect value. There is a big difference between $10 and $15 for lunch. We would be $10 at the very low end, probably closer to $12 on average, but the difference between that and $15 is a big leap. Heck, if I could charge $15 all day long and not have it erode customer count, I’d do it, but we are trying to build a strong business. There are a few smaller entities out there that have stopped expanding and closed stores. We have staying power. We can make a couple of real estate mistakes and carry on. We also have New York Fries as our halo brand. We want to be that premium, sort of the Häagen-Dazs or Starbucks of the burger space in terms of reliability. And that includes price and value. Even with the beer here, the largest glass you see up there is $5.25—it’s $8 or $9 everywhere else. And these are funky beers. They’re not Coors Light and Labatt 50.
You’ve made several menu changes. Are you happy with it now?
We’ve had a lot of discussion around our onion rings, which have changed at least twice since we started. I shouldn’t say this, but I’m still not really happy with them. Some people in our office think they are great; my problem with them is I don’t think they are consistently good.
Does this burger look undercooked to you?
They know I like it rare, and they might have pulled them both off a little early. People these days are used to brown meat, and you go into most burger places and they’ll tell you it’s law that you can’t cook it medium-rare, which is bullshit. The deal is you have to cook the centre to 160 degrees [Fahrenheit]. At 160 degrees, it kills any kind of bad news that could be harboured in the meat. We struggle here to get that fine line to ensure we are not killing the damn thing. Getting that fine line is difficult. Don’t let anyone tell you they can’t give you a medium-rare burger. Most people your age or younger, when they see a pink burger, think, Oh my god, you are trying to kill me.
I was surprised to see you pay cash for your order.
My brother and I started Cultures in the ’70s, and from day one we always paid for our food, and I’ve kept that philosophy. People here work hard for what they do, and I always thought it was wrong to show up and take it for free. The other side of that is I like to keep proper accounting of what’s going on. You just never take it for granted.
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