Week 3 ~ Tokenized Restaurants (Case Study: La Sandwicherie)
Build brand loyalty strong enough to cover franchise expansions.
Overview
A main feature of digital securities is democratizing the access to a variety of asset classes. This notion can burrow beyond simply an investment opportunity. Rather, it can be the bedrock to form a new standard of brand loyalty and producer-consumer relations. As we’ve previously explored through a professional sporting arena, security tokens can be structured to strengthen the connections with and the power of consumers. The end goal being a more dedicated and reliable customer base to build on.
Let’s examine the possibilities of brand loyalty through a case study using a franchise that’s been picking up steam in South Florida — La Sandwicherie.
“To this day I still remember my first ‘turkey and brie on baguette’ sandwich, during my freshman year of high school. It has been a decade since then and I have remained a loyal customer. I believe the brand has been able to grow, both in terms of customers and the amount of store locations, because it offers delicious food at all hours of the night, while still providing a warm and unique feeling to the customer whether it is their first or one-hundredth time there.”
— Jonathan Wolloch, 2L at University of Miami School of Law
Value Adds:
La Sandwicherie (Token Issuer)
- Seamless method for minority share owners to transfer ownership to other interested parties, especially those who are no longer committed to the vision of La Sandwicherie. This goes hand in hand with democratizing ownership — gives those who really yearn to be involved the access to actually be involved, and remove those who are indifferent.
- Source of funding for continued expansion in Miami suburbs and hot surroundings (Fort Lauderdale, Palm Beach, across the Everglades to Tampa, Fort Meyers, Naples) (See fastest growing areas: here and here)
- Customers who invest in security tokens will be even more active in promoting La Sandwicherie to their networks, as they now have a direct involvement and desire for seeing the shop’s success — the network effects can be overwhelmingly delightful
Investors (Token Holders)
- A medium for capitalizing on social trends in the 4th fastest-growing large city in America, without being involved in day-to-day management
- Fully align their interests with La Sandwicherie and benefit directly through the brand’s growth
- Rights to future investment like traditional shareholders (i.e. early rights to invest in future locations and expansions)
- Perks including digital punch cards synced with tokens, exclusive events for token holders like meetups and taste tests, new product launches, and other loyalty rewards
In the case of Jonathan, a Miami native who has watched the restaurant grow before his own eyes, access to La Sandwicherie tokens may provide him with that next level sense of loyalty to the business. Additionally, it’s very likely there are countless other customers with whom Jonathan’s words resonate…
The efficacy of going with a token raise over traditional bank financing comes down to the concrete benefits to the La Sandwicherie owners. The savings need to be worthwhile.
While the startup expenses of new restaurants range from 6-figures to low 7-figures depending on the location, brick-and-mortar store size, and restaurant type, we can assume a new La Sandwicherie location will run at least $300,000 in start-up costs.
Sans previous relationships and deals with lenders, interest on loans can range from low-teens to upwards of 30%. Like any formula, the final number is variable dependent — meaning La Sandwicherie’s token structure may need some creativity to be worthwhile.
Brainstorming a few scenarios for token structures resulted in the following:
Fixed-Rate Distributions
A fixed-rate token structure allows both token issuer and token holder to predictably know what will be paid and received over time. This is helpful for La Sandwicherie to calculate and project interest expenses, and is useful for investors seeking reliable distributions. The tokens can be structured with an expiration date similar to a fixed-income asset, or in perpetuity like preferred stock. La Sandwicherie may even retain the option of retiring the tokens at a premium to compensate token holders against prepayment risk. Ideally this will be a rate that is 1) more cost-effective than typical bank financing APR’s for La Sandwicherie, and 2) enticing enough for token holders.
Traditional Equity
Tokens in this structure designate ownership in the new restaurant location and may come with or without voting rights for major operating decisions. These can be structured to receive dividends immediately upon operations or defer dividends for a minimum period of time (ex. 24 months) to maintain as much capital on hand for the early stages. This structure is likely to appeal to La Sandwicherie if the owners feel the equity token holders can play an active role in growing the brand and its market share, as the total returns to the owners need to exceed the loss in ownership through the token sale. On a similar note, this structure is ideal for token holders that seek an active role and treat themselves like VCs — La Sandwicherie is now a portfolio company and the interests are fully aligned.
Real Estate Tokens
Real estate tokens present a unique vertical within this topic. This structure would be geared towards investors who are more interested in the location’s appreciating potential without banking on La Sandwicherie’s success. A token structure of this sorts would be pegged to the land/property, rather than the operations of the store. While a real estate token in this scenario is more (perhaps even only) plausible if La Sandwicherie owns the property, it’s worth mentioning as a possibility in the capital stack.
Know the owners of La Sandwicherie or have another restaurant come to mind? Reach out to them and see if a security token offering could be beneficial. The 60-second pitch is bulleted above, with plenty of room for expansion (double entendre).
More coming next Wednesday 2/3/21!
Disclaimer: This is not financial advice and should not be interpreted as such. Please do your own research on investments and financial decisions before partaking in any ideas or ventures depicted in this publication.
