It might not be entirely accurate to call Cooper’s Hawk Winery & Restaurants a restaurant chain—not in the traditional sense.
And that’s why the company was able to secure an eye-popping valuation in its sale agreement with Ares Management.
The private equity firm is paying more than $700 million for Cooper's Hawk, though one source said the price is closer to $800 million. That would give it a valuation multiple between 23 and 26 times the company's 2018 earnings before interest, taxes, depreciation and amortization (EBITDA), said to be $31 million.
That’s a lot for a chain expected to finish the year with just 41 locations in a handful of states.
It’s likely the biggest deal of its kind for a small chain since 38-unit Portillo’s fetched $1 billion from Berkshire Partners in 2014.
Private equity firms typically shy away from such over-the-top multiples, but they will whip out the checkbook for brands that rethink the restaurant business. Cooper’s Hawk fits that definition, operating more as a hub for wine aficionados than it does a restaurant chain.
Like Portillo’s, Cooper’s Hawk is another Chicago-area chain that boasts high unit-volume restaurants with a loyal base of customers and a model that is almost impossible to replicate.
It’s also fair to compare the Cooper’s deal to Fidelity’s $200 million investment in salad chain Sweetgreen late last year. That investment gave Sweetgreen a stunning valuation of more than $1 billion.
Cooper's Hawk U.S. System sales
Sweetgreen operated 90 locations at the time of the deal, with unit volumes of about $1.9 million. But the brand views itself as a “food platform” that embraces technology to get healthier food into the hands of its customers.
Cooper’s Hawk, like Sweetgreen, views itself as a lifestyle brand and a concept that has rethought the definition of the restaurant chain. In this case, the engine driving the Cooper’s Hawk bus is its wine club.
That club now boasts more than 400,000 members, making it the largest of its kind in the world.
That club has immense value to Cooper’s, making it like a loyalty program on steroids. Members are “at the center of our universe,” Cooper’s founder and CEO Tim McEnery has said. McEnery will remain with the company and retains a significant equity stake in the company.
Customers pay $19.99 a month, which gives them a bottle of one of the company’s branded wines each month. That gives Cooper's Hawk and its restaurants a recurring source of revenue that is rare in the restaurant business.
Those members almost always pick up their wine in the restaurant, and most of them buy something else when they do.
Cooper’s Hawk has done a lot to give those members an experience, enabling them to simply pay their restaurant checks with a signature and even working deals with other restaurant chains to let them bring their wine to those locations.
It organizes trips and holds regular events for members featuring celebrity chefs such as Marcus Samuelson and Tyler Florence.
Those customers are also loyal to Cooper’s Hawk, visiting the restaurants more frequently and almost never leaving the club—the average length of membership at the moment is five years. The chain is just 14 years old.
The club members give the company some freedom to expand. It doesn’t depend on retail traffic for its customer base, so it doesn’t have to locate near movie theaters or other retail areas.
Those members have also helped propel the chain’s average unit volumes, which now exceed $9 million. Same-store sales have risen every year since at least 2009, according to documents viewed by Restaurant Business.
All of this helps give the brand strong returns and profitability. Its cash-on-cash returns exceed 50%.
Cooper's Hawk U.S. Unit Count
What’s more: Ares will be getting a chain that currently operates in just nine states, meaning it has considerable growth potential. In other words, it is buying a company with a loyal base of customers and a recurring source of revenue.
The lesson in all this? The restaurant business is loaded with competitors, many of which operate in the same, traditional fashion.
Those companies that can find new models to service customers and get them to come back time and again are reaping rewards.