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Introducing Bootlegger co-founder and CEO Ricky Ruthenberg:

Ricky Ruthenberg has truly taken a ground-up approach to his career. Adapting to opportunities as they present themselves is clearly a powerful skill. From waiting tables at Col’Cacchio to helping launch the first Bootlegger in Sea Point, he’s gone on to build the team that runs a national chain of nearly 100 Bootlegger restaurants.

From espresso to enterprise, this is the story of building something from nothing. Hard work, perseverance and self-belief are the ingredients in this delicious recipe.

On episode 5 of The Finance Ghost Plugged in with Capitec, Ricky talks about what it takes to grow a local brand into a national success story.

Episode 5 covers:

• The value of Capitec as a franchise funding partner
• The hard work required when opening a restaurant and why owner involvement is critical in the early days
• Building the Bootlegger brand and overcoming challenges along the way
• Why the group runs a mix of corporate-owned and franchise stores and how that creates opportunity
• The pros and cons of having master franchisees vs many individual franchisees
• How the retail store model helps drive brand awareness and loyalty
• How his role has evolved from cooking and closing up the first store to leading a national team as CEO
• Managing coffee price volatility and the strategies behind it
• How the Bootlegger survived COVID and thrived afterwards

The Finance Ghost plugged in with Capitec is made possible by the support of Capitec Business. All the entrepreneurs featured on this podcast are clients of Capitec. Capitec is an authorised Financial Services Provider, FSP number 46669.

Listen to the podcast here:

Read the transcript:

The Finance Ghost: Welcome to episode five of The Finance Ghost plugged in with Capitec. I am fighting with broken internet this morning, and some coffee managed to get me through some of that pain at least. My guest today is someone who is very well experienced at providing people with coffee to get them through their day. That is Ricky Ruthenberg and he is one of the founders at Bootlegger. That is certainly a brand that I think everyone knows by now, Ricky. So congratulations on that – what a cool thing to have been part of building what is basically now a household brand in South Africa! There really aren’t a lot of people who can say that. So welcome to the show.

Ricky Ruthenberg: Yeah, thanks so much. It’s an honour to be here. In the busy days nowadays, you’re just kind of moving through the day-to-day, and you don’t really get an opportunity to reflect on what you’re doing. So always nice to have a bit of a chat and discuss what’s up!

The Finance Ghost: Yeah, absolutely. Thank you for your time. You are a busy man, so let’s get the important one out the way first – just to show how busy you are, you are now in a position to answer this question: what keeps you up more at night – strong coffee, or a newborn? Which one?

Ricky Ruthenberg: At the moment, the newborn! But historically, it was a misplaced coffee in the afternoon when you’re losing track of the day. If you drink coffee after two, you don’t sleep. But at the moment, definitely the newborn. I’ve got a very, very rigid cycle where I just basically wake up at four and I don’t sleep till the next day at four.

The Finance Ghost: Incredible.

Ricky Ruthenberg: It flows quite nicely.

The Finance Ghost: Yes, that does sound fairly wild. Speaking of wild, and certainly the baby is one startup, Bootlegger has been another. Give us the backstory here. How did you get involved in building this business?

And I know from us chatting before the show that it was actually a case of you being an employee first, which is quite a nice nuanced story vs. the norm around these startups and business stories. Walk us through the backstory to your involvement there.

Ricky Ruthenberg: I got involved with the guys around 2012, I was working for a brand called Col’Cacchio. I was actually a waiter. Happened to move from the waitering role into a management role and I found myself in a Pieter Bloom store and he obviously owns it with some of the other shareholders. I was a manager in their store. I worked there for about a year. I didn’t really work too closely with Pieter, but after about a year working there, I started hearing murmurings from customers like, “Hey, I hear the store is sold.” And I was like, “No, there’s no way these guys have sold the store.” Anyways, I still phoned Pieter and said, “Listen, did you sell this business?” And he’s like, “No, no, no, no, we never sold it.”

You know, life goes on. Two to three days later, hear it again. And I’m like, no, man, this can’t be a coincidence. So I phoned him. I’m like, “You definitely sold it.” He’s like, “No, no, I didn’t, I didn’t.” “Okay, I trust you. You’re my boss.”

Then a couple of days later, he comes to the store. He’s like, “Okay, I lied. I did sell the store, but we’re starting something really cool.” And at that stage, he had already bought the coffee roaster, already just named the brand, and the original intention was to roast coffee and do wholesale coffee.

So in the transition out of the Col’Cacchio store, while the handover to the new owners was happening, we basically built out this entire Bootlegger concept. The original idea was to bring the coffee roaster, which recently been imported. It was sitting in at the Ou Meul up in Riviersonderend. The idea was to bring it down to Cape Town and find a house for the roaster itself. Peter happened to find a really nice location in Sea Point on the corner of Regent and Clarens. It was the ideal location for a cafe, even though the original idea was just the roast coffee. But we thought, if there’s going to be a coffee roaster and there’s a nice front shop, maybe we have a coffee bar?

That very, very quickly evolved into a 6am to midnight operation. Quite an interesting journey. It was completely unexpected – and I actually resigned two weeks before we opened! We had set up the entire restaurant from menus to drinks to crockery, cutlery, staffing, everything. It was a lot of work and I met Pieter two weeks before and I had just gotten a job offer. In my head, I just couldn’t turn it down. And I said to him, “I can’t do this with you.” He obviously didn’t take it very well and he said, “Listen, it’s not acceptable. I’ll see you Monday morning!” So I said, “okay,” rocked up on Monday and he gave me a contract. He put it in front of me. He said, “Write your own contract, whatever’s going to make you comfortable.” And I wrote it, he signed it, and we’ve never had any discussions from there on about that. And here we are.

The Finance Ghost: Amazing. I love that. Oh, my gosh.

Ricky Ruthenberg: Yeah.

The Finance Ghost: So were you an equity partner then from that point onwards, or how does it actually work that time?

Ricky Ruthenberg: No, no, no, I wasn’t. I was essentially – very, very complicated stories, but basically the three shareholders in total, so it’s Pieter, De Waal, and Antonie, and I was essentially the first employee. And I basically employed the whole team and built the whole store out. I’m incredibly ambitious so I kept nudging the guys to say, “Listen, I really want to be part of this. I want to be part of this!” And they said, “Well, you know, this is our little baby. What do you want to do?” So I said, “Okay, let me try something.”

So I hopped onto Alibaba and I found a cup manufacturer in China and I bought half a pallet of branded cups, essentially the first Bootlegger branded cups. I imported it, it landed, I showed the guys, and I was like, “Listen, this is what I want to do. I want to sell this, these cups to you.” And they’re like, “Okay, cool, let’s be partners.” So we started a business together, which was called Clarens Road Trading, because we were on Clarens, and we were selling, essentially importing cups and selling it to the stores.

And that lasted all of, like, two, three years and then eventually I just said to the guys, it doesn’t really make sense, we all kind of agree, it doesn’t make sense that I have a business that sells to the businesses. So they essentially bought that business out and we traded that for shares into the business.

The Finance Ghost: Okay. Wow!

Ricky Ruthenberg: Yeah. So quite an interesting little journey into the whole story.

The Finance Ghost: That is pretty interesting. They made you work for it. There was no “day one” equity partnership.

Ricky Ruthenberg: No, that wasn’t the end of it. It got a bit deeper. I’m also a franchisee at the moment, so I’ve got a bunch of franchise stores as well over time that I started with some partners. No, it’s been a very interesting journey, but, yeah, I guess all part of business.

The Finance Ghost: Yeah, it is. That’s the thing – it’s very rarely a linear process. Actually what you’ve talked to there is something that’s pretty common in business, which is this concept of: what are you bringing to this to be an equity partner? Which is not wrong, to be fair. And kudos to you for bringing them something to make you an equity partner. So well done.

Ricky Ruthenberg: Yeah, thanks.

The Finance Ghost: It sounds like an interesting backstory of note. Lots of complexities in it, so thank you for that candid answer. I think there’s far too much nonsense online of just everyone sits around and sings Kumbaya and becomes equal shareholders and everything works beautifully. I hate that kind of narrative. It’s very rarely how it works in practice.

Ricky Ruthenberg: Yeah, exactly.

The Finance Ghost: Speaking of things that are difficult: restaurants! When I hear you say things like “6am to midnight,” I just get tired thinking about it. I don’t know who you were selling coffee to at midnight. People are making bad choices out there in Sea Point. Anyway be that as it may, it is a late-night vibe, so I’m only kidding. If you can have a Red Bull alcohol drink at 2 in the morning, I think a coffee at 11pm is not the biggest sin you can commit against your sleep patterns in your 20s.

Ricky Ruthenberg: You’re making an interesting point there, I think, like I said – originally we were just going to do roasting coffee, just wholesale and then it kind of moved into coffee, croissants, lunch, sandwich. Then eventually it got to like, okay, but what do you do after work? You have a beer!

So we created a proper bar – that little Bootlegger store in Sea Point was a proper evening bar, which was confusing for the future of the brand because our logo had quite easily baked “Coffee Company” underneath the name. It was Bootlegger Coffee Company. But every time you drive past them at 10 at night in Sea Point, Monday to Sunday, there’s people just drinking beer and having a jol. And so it was quite confusing. The people in the area initially understood it, but as soon as we started branching out into the ‘burbs and to Joburg, people just didn’t really get it. Why are people drinking beer in a coffee shop?

The Finance Ghost: So what do you think is the secret? It’s amazing how you started with this idea of one thing, then it became another. Then it evolved again, then it grew out into a totally different thing really and now it’s a big franchise story. The end result is the dream, which is this big, national brand franchise chain. That’s what I think anyone starting this kind of restaurant would dream of. But the route to get there has obviously been absolutely crazy.

Ricky Ruthenberg: Yeah.

The Finance Ghost: And restaurants have a very high failure rate. They are notorious for it.

Ricky Ruthenberg: Yeah.

The Finance Ghost: I think everyone who likes food has at some point fantasised about the idea of a little space that becomes available at your local mall. And you think to yourself: “That could be my XYZ shop!” There are a lot of dreams that get broken and hearts that get broken along the way.

What attracted you into this industry other than, at the time, you were working in a very junior role? It’s actually quite fun, it’s not like you sat up and said, “Hey, I want to start a restaurant.” You were like, “Oh, I need to waiter somewhere.”

What attracted you to stay in this industry? And what do you think the secret is for anyone who actually really does want to make it work with a restaurant? Because a lot of people listening to this will be either current restaurant owners or aspiring restaurant owners who will look to the Bootlegger brand as a real success story.

Ricky Ruthenberg: Yeah, I think it’s an interesting question. When I finished school, it was the natural way to make some money. My siblings did it. They were waitering and managing in restaurants just while they were studying. And so for me, finished school, day one – I need to make some money, let’s go waiter! I kind of got sucked into that for the first year, and then I was really interested by it, but obviously it’s not very lucrative. I didn’t have any tertiary studies, so I was trying to find ways in the industry to make some extra bucks in it and essentially to grow. I evolved from waitering the first restaurant, then managing and then I went overseas. I worked on cruise ships and worked in some bars and eventually decided to come back. So I want to say I almost fell into it myself.

But when it comes to the secret, I want to say that the secret in that instance was just timing! But the reality is, if I could, maybe the secret is to not start. No, I’m kidding.

Restaurants – I almost want to say at the time we were building Bootlegger, we didn’t really know we were building. You had no idea. You kind of open up a coffee shop. I think from day one, we were seeing at that stage, within the first week, we were doing like a thousand coffees a day. You don’t know why people are coming in, what they’re doing, why they’re returning, and what you’re building. And you only kind of look back on it and then start trying to unpack what it was that you created and the community that you built, essentially. And now, obviously, we’re skipping 10, 12 years forward, you’re in franchising and you’re seeing all different types of approaches to restaurants.

In restaurants, I think presence, maybe even clarity, like, what are you doing? What are you selling? Who are you selling to? And then presence. Are you there? And I think a big, big part of the success of our early days was the fact that myself and Pieter were in that store open to close. Talk about long hours. For the first almost two years of that restaurant, we were there every day before 6, and we closed the store every day, 11, 12 on the weekend, sometimes 2, and then you back there the next morning, 5, 6. Like, it was incredibly hard environment.

But we were there. We got to see all the different parts of the business. We were involved. We made all the food, we made all the drinks. We literally made everything to the point we had a little joke about, like, a Sunday roast. Pieter would be off on a Sunday and I’d phone him in because we’re out of coffee. And he’d come literally roast coffee, barefoot, and we’d take it from the roaster and throw it into the hopper. I want to say the success is being there and speaking to your people and understanding and building something. And I can tell you, to this day, people still say, oh, I know Pieter, I know Ricky. They talk about it. And talking far removed, like 100 stores down the line, in the middle of Bloem, someone’s like, oh, I know Pieter Bloom. Yeah, that’s a coincidence.

But I think that builds a lot in the brand and it builds trust, and I think it builds authenticity. I don’t think there’s one secret. I think there’s many different formats of restaurants and different opportunities, but I think the location is key and being like, super clear on what you want to do and having the time to actually be there. Can’t just open a restaurant, employ people and expect people to understand your dream. You have to show them what you’re doing, right? So very difficult!

The Finance Ghost: Yes, you’ve touched on such great points there. So that initial – I mean, it’s the grind, right, coffee pun included?

Ricky Ruthenberg: Yeah.

The Finance Ghost: Being there for long, long hours. As you said, those are very long hours. And I think that is part of the mistake people make is they think: “Oh, I’ll open this thing, I’ll hire a manager.” As you say, it’s not going to work to get it off the ground, you need to go there and actually make the thing what you believe it needs to be. And then location, definitely, you’ve touched on that as well. When you’re talking about a thousand coffees a day, if you’re in the wrong place, I don’t care how cool your coffee is and how nice your place is, you’re not selling a thousand coffees a day.

Ricky Ruthenberg: Yeah, exactly.

The Finance Ghost: Location is critical. Right? Particularly on something like that.

Ricky Ruthenberg: Ghost, just to speak to being there. So over our tenure with the guys, we’ve built five different concepts. We’ve had different brands. You think you’ve built something cool and you feel like you know how to do it. You reflect back, trying to understand what you built and how you made a success. And then someone’s like, hey, let’s create a new brand. You’re like, yeah, sure, it’s easy. We know all the – it takes time, but it’s easy. Then you build out a new brand, you open a restaurant, and then it doesn’t work. And you might even be in a good location, you can’t understand why.

And I think a big part of that, is that presence. The restaurant or the new brand that you have, doesn’t have a lot of personality and you’re not physically there creating a name for yourself, you’re manager-run. It’s really, really, really difficult to do that. So think carefully before opening a new restaurant. But I obviously always encourage it. I love new little spots.

The Finance Ghost: Yeah, absolutely! And I think that’s a very, again, just very candid and fair answer. It’s a real-world look at what it’s going to take to make this thing work. And like you say, even with all the experience you have, sometimes you’ll try something and it still won’t work. That’s the failure rate that is so hard. And once you’re an established chain and you actually have some money to incubate a concept and roll the dice, that’s one thing. But when it’s someone piling their life savings into a dream and then it doesn’t work, it’s a catastrophe. I think that’s where it’s such a tough industry and breaks so many hearts along the way.

I guess the one good thing I’ll say is at least AI can’t replace it because we all need to eat and we all need to drink coffee, or at least we want to, most of us. So, you know, at least you’ve got that – you’re on the right side of AI, if nothing else.

Ricky Ruthenberg: Exactly! We’re safe for now, I think the more disconnected humans become, the more connected we want to become. And I think that’s what we’re seeing in our restaurants, that even though we’re that co-working space for a lot of people, people might walk into the spot, they sit down, open their laptop, put their headphones on, they don’t talk to anyone, but they still feel like that they’re part of a community and in a vibe, you can’t replace that by being at home. So I think it’s really, really important to keep building these little spots out, creating community.

The Finance Ghost: Yeah, you’re right. I make a point actually of walking every day. So I moved house recently and there’s this cute little deli down the road and I go and buy either a smoothie or something almost every day because (1) it gets me out the house because I work from home. But (2), if you don’t support these little businesses in your community, they fail. And then you end up losing such a core part of the DNA of where you live.

Ricky Ruthenberg: Yeah, 100%.

The Finance Ghost: And I get to walk there and so I’m very lucky, which is cool. You can’t walk everywhere in South Africa, but I can walk there.

Ricky Ruthenberg: Do they know your name?

The Finance Ghost: They do.

Ricky Ruthenberg: Do they call you Ghost?

The Finance Ghost: No, no, they don’t know my stage name. They know my actual name luckily. I try to be as normal as possible in my real life, Ricky. And it’s just nice to see the same faces and the same names.

I think it’s like some of that familiarity that you’ve bred in Bootlegger – you mentioned to me also when we were chatting before the podcast, just stuff like having the same Wi-Fi code across all your stores. Right? It just breeds familiarity.

Ricky Ruthenberg: Yeah, exactly. Yeah, it’s all intentional.

The Finance Ghost: Those are the tricks.

Ricky Ruthenberg: Don’t give them away.

The Finance Ghost: I think there are slightly more tricks than that. If it was as easy as a Wi-Fi code, there would be more national chains!

So that brings me to my next point, which is this is now a national brand. Having started down in Sea Point, it’s now gone all over the place, which is amazing. When I was growing up actually, Bootleggers – with an “s” – was the liquor store near my house, I remember it clearly. So I know there was a bit of head bumping along the way with that and maybe some brand confusion. Bootlegger has somewhat of an alcohol connotation, for want of a better description. How many times did you bump your head with this name along the way on the journey you’ve been on?

Ricky Ruthenberg: Yeah, probably a few times. I think Bootleggers in Joburg was probably the biggest one in terms of: what is Bootlegger? Funny thing is, when we started Bootlegger, everybody used to call it Bootleggers. And we spent years telling people: “It’s Bootlegger! We are not Bootleggers.”

And then you go to Joburg and I think our first store in Joburg was 2017, so four years after we opened – and then it’s like you start that cycle again of educating people: it’s Bootlegger, not Bootleggers. I think that was probably the biggest head bump, to be honest. There weren’t too many along the way.

I actually want to take even one step back. I think you build a brand in Cape Town – we built like 17-odd stores – and then you’re like, okay, cool, we’re ready now for the rest of the country. Let’s go to Joburg and let’s start in Sandton and let’s go all out. Let’s build a monster, so we built this massive restaurant in Sandton in the Marc, the old Village Walk. We’re like, okay, but people know us. We open the doors and people are like: “Bootlegger? Is this a liquor shop?” The entire time, even up until now, still people thought like, oh, you’re affiliated.

The Finance Ghost: Taking you back to your Sea Point roots.

Ricky Ruthenberg: Yeah, 100%.

The Finance Ghost: It was the liquor shop.

Ricky Ruthenberg: Yeah, exactly. As time went on, I guess we slowly started establishing our name a little bit more firmly. And I think the most confusing thing for people was essentially the “coffee company” and what we are. So you might have seen in our new branding, we’ve actually removed the coffee company. And a big part of that was just to tell people we’re a national brand. We’re not only coffee, because when people are like, why are you building a 500 square coffee shop in Sandton? You’re only selling coffee. We actually got an extensive food menu and you’ve got a massive team that’s focusing on our food offering and stuff.

So in terms of head bumping, not too much except for the invoices we got from Bootleggers’ distribution in Joburg and people mistakenly thought we were the liquor company occasionally.

The Finance Ghost: Amazing. Yeah. There’s always going to be these stories. I want to ask you more about the store mix just now, but I think let’s maybe touch on one more thing about the coffee because like you say, you’ve evolved from being a pure coffee company now into much more than that. But if I go to my local retail store, I can still buy Bootlegger beans and I’ve done so before several times.

I know that competitors like – I can say this to you, “competitors like” Famous Brands – it’s pretty cool to be able to come up in that kind of context! Competitors like them also do this. They will sell you their branded sauces etc. in the retailers and I’ve looked at the numbers before with the likes of Famous Brands and it’s not huge, it doesn’t appear to be much of a money spinner for them, to be honest. Although obviously their restaurant business is very big, so it dwarfs anything.

Ricky Ruthenberg: Yeah.

The Finance Ghost: So it strikes me as a bit of a hard way to make money. More of a brand recognition thing for the customer versus outright profits. Why do you guys stick with that route of having the beans in the stores? Is it kind of a take-my-brand-home, have-me-in-your-kitchen strategy?

Ricky Ruthenberg: Yeah. Essentially you want to be in people’s homes, but it’s just marketing, to be honest, I think you touched on a few of the points. It’s very, very thin margins. I think in some cases there’s almost no margin for us because you’re using essentially merchandisers to put your product on the shelves and they manage it and they pack the shelves and they take a big cut and so do the retailers.

So for us it’s a decision when you want to go into retail – we’ve had to work quite closely with the merchandisers to discuss which retail stores we want to go into – how aggressively do you want to go? Because if you’re not making money just to put all that stock into the stores, that’s extremely strenuous on your cash flow.

I think up until about a year ago, we were only in 50 retailers. Oh, and the other thing is that there’s obviously terms, up to 90 days on most of these guys. So that stock is literally just sitting.

But we’ve done some cool things with it. So we used to use it as a bit of a strategy. If you’re entering a new node, for example, when we went up to KZN, we signed a site probably 12 months before we went up and then we just made a decision to speak to the merchandiser and say, listen, activate us in as many retail stores in KZN as possible just to see if people just start getting familiar. Because like our previous lessons before, you go to Joburg, you think everyone knows you and 99% of the customers have no idea who you are. It’s quite shocking. At least now there’s a few touch points and one of them being in a retail store. So there’s definitely strategy.

Downside – they manage the price. They don’t only squeeze you on the purchase price, they squeeze you on the selling price, which is obviously where some head bumping with franchisees occurs. But we try our best to manage that, and ultimately we believe that the upside is better.

The Finance Ghost: I was going to say, that is definitely not the first story of someone going from Sea Point to Joburg and being humbled by the sheer size of that beast.

Ricky Ruthenberg: Yeah, exactly.

The Finance Ghost: This is a story as old as time.

Ricky Ruthenberg: Yeah, exactly. I found in Joburg the first three, four stores were doing okay, but as we started opening a lot of stores and having a big presence, we built a lot of trust with people. Driving down the highway and you’re seeing a Bootlegger sign: “What is that?” And you’re seeing it again and then you’re seeing it the third time, like, “Oh, I definitely should try that!” versus just driving past and seeing it as a once-off shop. So I think there’s a lot of value in expanding like that too.

The Finance Ghost: Yeah, absolutely, I would agree with that, actually. Even just as a consumer and from an economics perspective, I know that’s the case in terms of scale and everything else.

I mean, look at – now you are the CEO of this thing and you are not opening the store at 6am anymore and closing it at 12. Your role has changed dramatically.

Ricky Ruthenberg: Maybe I am!

The Finance Ghost: Maybe you are! Yeah, maybe. Maybe that’s still part of it. Let me actually ask you that – just listening to the backstory and everything, your role today is presumably so incredibly different from what it was back then. What does it look like now? What keeps you busy? Where is the focus area? Is it on finding sites? Is it on the menu?

I imagine you’ve got people doing all of this stuff and you’ve got to just now steer the ship like any CEO.

Ricky Ruthenberg: I haven’t necessarily got any formal experience in this, or training, so I learned it as we went. From day one, essentially my contract that I had way back when, never had a title on it. So now I’m just a manager. And then it’s like you’re a manager of two restaurants, then you’re a manager of five, and now all of a sudden you’re managing 20 restaurants and you’re just hiring people.

I still remember there was time where I needed to employ someone to do my job and I was like, that was so strange. So I went to the shareholders, “Listen, I’m going to change my job title from Operations Manager to Operations Director and then I’m going to employ another Operations Manager.” They’re like, “Okay, ja sure.” And their approach to me and kind of watching me grow was like, if he really believes in it and he’s going to own that title, he must do the work. And I think that’s pretty much how I got here today.

We kept advancing and I kept looking for gaps in the company, employing people to replace myself and essentially got myself to this role and now things look incredibly different.

Listen, I’ve got in theory 12 operational departments. My head office team’s about 70 odd people. There are obviously teams who manage teams, but I try and participate as much as possible. So we’ve got a new business team, we’ve got a project team and you got marketing, accounts and all the way through to manufacturing, which is our roastery and I’ve got quite a big bakery as well. And then you’ve got your restaurants division, your brand standards division. And then the ones that I essentially focus on mostly would be your support functions like your HR.

Finding people at this level is extremely important and making sure you’ve got the right people in the right place, like you say, steering the ship. I actually gave myself a title at the beginning of the year and I told the guys that this is my role for the year: I’m the Unblocker. I will make sure that I watch, I just watch everybody in the teams. It’s really, Ghost, I don’t know how to tell you…

The Finance Ghost: …Chief Unblocking Officer, man, that hasn’t made its way to VC land yet, let me tell you! That’s incredible.

Ricky Ruthenberg: Yeah, exactly. Well, the whole point is you want people to move forward and everybody has their own agenda. So you need to create a vision, create values, create objectives and try and get everybody on the same page. But not everybody understands it. They don’t understand exactly what you’re doing. They don’t know why you’re doing it. So you have to make sure you create the “why” – and then there are some people that are just stubborn and they just won’t do it. And you’ve got to find out who they are, coach them, send them on courses or essentially find other people to do those jobs.

So that’s the main focus.

I want to say, I’m sitting in my office now, it’s a glass office looking at the entire team in front of me – there are so many day-one employees here, which is super important. So many of my guys have been with us from like nine years. My actual first employee below me is sitting in my office now too.

The Finance Ghost: Yeah, that’s amazing.

Ricky Ruthenberg: So she runs a whole other division on our business. They focus on tenders and stuff like that. The upside is that they understand you, so you don’t have to give a lot of context. “I want to do X,” – they know how Ricky thinks, they know what he wants to do. They don’t need much more. Then you get a new person who’s essentially in a more senior role that’s three times more senior than that and they don’t understand you. You’ve got to spend a lot of time with them. So essentially the Master Unblocker. I look for the gaps and I see how I can help people move forward.

The Finance Ghost: Love it. It’s amazing. It’s also such a wholesome story. So because my background is very different, I’m a Chartered Accountant, a lot of my friends who went that route, those who have started businesses, they start at that like “CEO” level. They know exactly how to do that job and they struggle so much to understand the operational stuff. It’s almost like, “How do I hire someone to take this off my plate?” They are singularly bad at outsourcing. Whereas you’ve gone the other way around, which is actually to learn the nuts and bolts first and then say, okay, it’s time to replace me.

Ricky Ruthenberg: Yeah.

The Finance Ghost: Which is very cool!

Ricky Ruthenberg: That’s 100%.

The Finance Ghost: That’s a really good way to actually build a business.

Ricky Ruthenberg: Exactly, but you know from my side, like the operational side, you miss certain parts of it too.

The Finance Ghost: I’m sure not the 6am unlocking of the door. Surely?

Ricky Ruthenberg: Well it’s 4am now, so …..

The Finance Ghost: Oh my goodness. Actually, what was worse? Was it unlocking the door in Sea Point or was it chasing drunk people out at midnight? Which was more irritating?

Ricky Ruthenberg: It’s hard to answer that because I was one of the drunk people. No, I’m kidding. I’m just kidding! No, I’m an early guy. I think the nights are always harder. I love mornings. I’m a morning person and I get my day started early already.

The Finance Ghost: Oh really, okay but probably my worst nightmare would be to have to – well, I say that, but Ghost Mail I have to start early in the morning. At least I don’t have to be somewhere at six other than my office at home.

Ricky Ruthenberg: Yeah, exactly. And imagine what time the staff have to be at work, 5.30am.

The Finance Ghost: No it’s wild.

Ricky Ruthenberg: To get ready for the 6am coffee.

The Finance Ghost: People work hard hey, people do. They work. They hustle. Much respect for it.

So speaking of where people need to be, Bootlegger now is a hybrid franchise model. That means that your footprint is a mix of corporate owned and then franchise stores, which is very interesting. Pretty common approach.

I think the mix is very important and I’m keen to hear it in your own words, why this is a common approach. I obviously, from an investor perspective, I’ve read about it in all of the big global names, even the local equivalents. But I’m very keen to hear from you as an Operations CEO, why do you think that mix is important? And as you mentioned earlier, you’re also a franchisee, so you actually sit on both sides of it, which is extra interesting. So I think maybe walk us through elements of that. I’m just keen to learn some stuff from you on some of that.

Ricky Ruthenberg: I think first and foremost, we built up to, I think it was 16 or 17 stores before we decided to franchise. And we decided to franchise because the brand was gaining some traction and there were opportunities coming our way and when you’re building quite a few sites, cash flow is starting to get tight. You can’t take on all these opportunities on your own. We’ve got a really good team. We had training department, we had a menu department and we had operations. We thought, okay, we’ve got a big enough team to build out a franchise model. What does that entail? Do you get some consultants involved? Chat to them, you try and understand franchising, you build out the model and we were successful in doing that.

And then you build a few franchises. So the initial idea was one store and then we got to 20 stores and it was like, okay, cool, we got some traction, let’s build more. But we can’t necessarily do it all on our own cash flow wise. So that’s where the idea of franchising came. And then flash forward to now, the split is around, we’re almost on 100 sites and we opened number 94 yesterday in Knysna. I think our corporate sites are on 22 at the moment, and then the rest are all franchise.

Why it’s important is we are as affected as the franchisees in the ups and downs in the cost of the business and we need to make sure that the store is profitable. And I think it’s very, very difficult to do that if you’re not physically in it, you’re not physically feeling the profits. So it gives us a really, really good window into how all the stores are doing.

I can tell you the net profit off the top of my head, if I look at a store at their turnover, understand where they’re located, I can give you a very good idea of what that store’s making profit wise, can tell you if it’s losing money. And that’s all because I have an inbox full of income statements that we go through all the time. And I think a lot of people, it’s such an interesting thing when you get to scale, everybody wants to sell you a service because it’s like, oh, it’s only a R1,000 a month – times 100!

Restaurants, they constantly have these stacking costs. If you don’t own the restaurants yourself, from a franchisor perspective, do I want all those services? I want every single one of them, because it makes my life easier and it makes the franchisees life easier. Will the store make profit if you have all those stacked costs? No, it’ll make zero. So it’s important that we feel the pressure that the franchisees do. I’m not saying we’ll ever lose sight of that because we’re obviously pretty good entrepreneurs, or we believe we are, we believe we know what we’re doing. But I think the mix is important to feel it. So there’s another strategic point is like, if we’re opening stores, our corporate store cluster houses probably about 500 to 600 people in those stores. So let’s say I’m opening a new store in, I don’t know, Durbanville, I can just loan them staff. I can open that store in a month’s time. I can move staff from around Cape Town. We kind of use half-new, half-old, and I can shorten the time it takes to open the restaurant.

So there’s some strategy involved in that, in having corporate sites, and then obviously your franchisees and their staff can train in your stores and then it helps. We’re busy going through a revamp cycle now too. We’re obviously doing the viability of a revamp. It’s very easy to go to a designer or our design team and say, put together a new design and they’re going to come back and say, a revamp costs 3 million. It’s very easy to say 3 million and then kind of go to your franchisee and say, this is your revamp cost. When you’re spending the money yourself, you do learn how to cost engineer very, very quickly. There’s a lot of positives that we learn in corporate that we then roll out to our franchise group and systems and stuff.

And there’s also a balance, right? So owning five corporate stores, it’s one operator and maybe one person doing accounts. Owning 20+ is a beast. There’s a whole bunch of people on the back end in the office that work to support those stores. Plus because we’re not in the stores, we pay a little bit more for our operators. There’s a balance. If we had to offload, let’s say 10 or 11 corporate sites, then our corporate cluster comes under pressure. So there is a good balance to have.

The Finance Ghost: Yeah, it’s fantastic. It’s such a good answer. I mean, the one thing I just want to touch on there quickly is, it actually talks so brilliantly to the value creation process for any business. Because obviously as you are scaling the footprint, you need to add on some head office costs and then your profitability probably gets worse for a short while and then it starts to accelerate again. It’s that J-curve, and it’s a lot of little J-curves over and over again.

Ricky Ruthenberg: Yeah.

The Finance Ghost: And it’s so easy for financial professionals who have never actually run or started a business to look at this and say, “Oh, but your profit went down in the last year.” They don’t understand what it’s like to scale a thing. It’s hard and it’s constantly having to think about the costs that come on versus the sustainability of the business versus key person risk. I have nothing but respect for entrepreneurs have been through this journey. I think it’s fantastic.

Ricky Ruthenberg: Yeah. Thanks.

The Finance Ghost: I wanted to also mention, in your franchise network, do you have some master franchisees who own several stores? Do you allow people to come on now and get their first one, or do you try and stick to a smaller pool? I’m just wondering if anyone’s listening to this, thinking I’d actually love to own a Bootlegger.

Ricky Ruthenberg: Yeah.

The Finance Ghost: What does that look like?

Ricky Ruthenberg: We have got a mix. So a lot of it is location dependent. If you go to, let’s say a smaller town that there’s not an opportunity for 10 sites, you generally want a local operator. And also local is best, right? Ideally you want someone who’s involved in the nearby community, so someone who knows somebody at the schools and the churches and the malls and whatever the case may be. So that’s familiar.

But we do have some franchisees that have multiple stores. From ten and then some on five, a couple on four, lots of them on two, ready to expand. We’re constantly onboarding franchisees. I think this week we’re taking on a new one. Our site in Plett, Knysna our new franchisees. So it’s a mixed bag. I’ve got a whole team that can onboard them. It’s not too tedious for us to take on new franchisees.

But to be honest, what is the ultimate? Not entirely sure yet. I have to be extremely honest. We’ve got guys who want one store and they operate really well. There are some times where if a landlord, for example, owns a site and they want to own the store, we really like the location, we might not want to take on another franchisee, but you won’t get the location without the franchisee. You vet them, they turn out to be a good operator for us, and then they come on board and they have no ambition to open a new store and that’s fine.

But in an ideal world, you want clusters of five to ten because essentially then you have one conversation. Right now, if I’ve got five restaurants with five single owner-operators, those are five separate conversations you’ve got to have. Every time you’re rolling out a menu or a new procedure, there are five different lines of communication. Whereas if it’s a single store cluster, you’re speaking to potentially one person that understands it and can roll it out in their stores.

The Finance Ghost: So, Ricky, you’ve highlighted some of the major operational considerations there and I really do genuinely just find it fascinating. So thank you for leaning into some of this stuff. It’s really cool to understand what goes on in the background there and how difficult it must be. And of course, one of the other difficulties is one of your input costs is completely out of your control, which is coffee. And coffee is an international commodity, where the prices flap around all over the place.

I recently did some research. There’s a bit of a mega merger on the table at the moment. Keurig Dr. Pepper and JDE Peet’s overseas are looking at merging. Those names won’t mean much to South Africans, but they will know Jacobs and Douwe Egberts. If you buy instant coffee in your local retailer, which is nowhere near as good as Bootlegger coffee – you should not do that, you should go beans to cup and have less coffee every day – it will change your life, I can tell you from my own personal experience. But anyway, the point is that margins tend to be all over the place for coffee businesses and I think the volatile input costs are part of it.

That must be a reality for you guys all the time, especially on the retail business, where the margins are already thin. I guess in the restaurants, because you’ve become so much more than just coffee shop, you’ve got lots of different inputs there, lots of levers you can pull. Is that a major thing that you have to manage all the time?

Ricky Ruthenberg: There are a couple of elements to this answer. Firstly, we’re quite a big micro-roastery, or we considered ourselves quite big. We’re roasting up to 400 tons of coffee a year, obviously growing. And what that allows us to do is to import coffee directly from the origin that we source from. So we get most of our coffee from Guatemala, Tanzania, Costa Rica, a little bit from Brazil and some from Colombia.

There are agents involved but essentially we source from the farm. The downside of that is cash flow. So we have to put up the cash and the upside is that we essentially manage that chain. So if you’re a new coffee roaster and you’re starting out tomorrow, you’re going to phone up one or two of the importers and they’re going to give you today’s price on the coffee market, essentially. You’re going to be paying whatever the replacement cost is of that coffee today. With us, we procured all our coffee about a year in advance. You’re essentially hedging on the back of crops that are supposed to grow – go to the farm and say listen, I need 100 tons of X.

Essentially all the coffee we’re using today in October, we’ve known the price of this coffee that we’re selling since roughly June/July last year. I think with the volume and scale, one of the advantages is that you can at least manage your input cost to some degree. It does catch up with you at some point, but at least we can see a really big price issue coming a couple of months ahead of time. So that affects one big part of our business, which is the roastery.

We’ve got a full wholesale business that obviously supplies everybody from retail, we’ve got quite a few other big clients that sit outside the hospitality space and also in the hospitality space, and essentially that business is heavily affected. But on the restaurant side we can also manage the price. You’ve got quite a diverse offering, coffee in our businesses makes up – let’s thumbsuck a figure to not give away too much – coffee only makes up 30% to 40% of our sales. You could essentially then tweak some other items to offset the price of coffee or to ensure that you’re not going to charge too much for coffee and out price yourself in the market. So there are some advantages to where we are, but it’s a massive risk. We’ve got a little risk plan how to manage that as well because essentially, if coffee supply goes out of whack, then we’re essentially screwed.

But everybody in coffee in South Africa has the exact same problem. If the price of coffee goes to R60, we’re not going to be the only ones. We’re hoping that we’ll be on the safer side. So, positives.

And then sorry, I didn’t touch on one of the most important things. We’ve actually got an in-house Q Grader. His name is Tyron Bester and he’s been in the industry for years. He essentially gets his Q Grader qualification and that allows him to source coffee. You can go source coffee, check out the quality of it and he’s extremely good. I mean he literally watches the price of coffee and fixes containers every other day. It has helped.

It won’t help if the market goes sky high on a J-curve with no return…

The Finance Ghost: No, exactly.

Ricky Ruthenberg: …but he seems to watch the market closely enough to understand where the dips are coming and all of that. So it’s important to have those people in your team.

The Finance Ghost: Absolutely, right? This is the stuff that they don’t talk about at high school career day. It’s like, what could you be when you grow up? You could be a coffee expert who sources coffee. That’s what you could be. No one talks about this.

Ricky Ruthenberg: Yeah.

The Finance Ghost: That sounds very interesting. I want to start to bring this to a close, I’ve got two more questions for you Ricky, and then I’ll let you go and sell a lot of coffees to people.

So the first one, I’m going to try and avoid triggering any PTSD here for anyone. And we don’t need to go into it in much detail, but I think we have to accept that during the pandemic there were winners and losers. The tech industry was a big winner. There were a lot of winners. But one of the losers was undoubtedly face-to-face businesses, restaurants, hospitality, the whole story. I mean that must have been a super high stress time for the business.

Ricky Ruthenberg: Yeah.

The Finance Ghost: I guess the question I really wanted to ask you is, what do you think got Bootlegger through it? Was it just that you were big enough by that time? It must have been pretty wild.

Ricky Ruthenberg: Yeah, it was a really tough time. Interestingly enough I was in a restaurant the other day and one of the waitresses came up, (I was with one of my business partners), with like a mask on and he just said like “Geez, that instantly took me back to a really sad time in my life.” Tough time for everybody.

On Bootlegger’s side, we are self-funded so COVID was an extremely tough time. It’s not like we’ve got bags of cash to get us through. So the banks helped us a lot. TERS helped us a lot, the government fund, with staffing. And then on the expansion side, we had started franchising in 2017. In those three years we built out the franchise system and we started onboarding a lot of franchisees that have the bucks to open up restaurants. They were affected, but they weren’t necessarily the most affected. Not all of them, new franchisees, new people in the industry and a lot of people getting out of other industries trying to get into restaurants or entrepreneurship.

So we had a couple of strong franchisees going into COVID, obviously bit scared, but some were pretty excited to do business. And on the corporate side we still believed, I want to say six months into 2020, we still believed that things were going to be okay. We obviously saw the early coffee shops opening with the restrictions and they allowed us to sell coffee out of hatches. And the volume of coffee during that time was so big that we were like, no, man, this is definitely still going to be – there’s still something in this.

So what happened was, there were quite a few really good opportunities that came up. Obviously the landlords needed tenants and we had some franchisees that were ready to go. We were able to secure quite a few strategic sites. It didn’t come for free though.

In COVID, I remember my banker from Nedbank phoned me and she worked essentially opposite our Sandton store and she said “Ricky, Nedbank just got a work from home notice. It’s going to go on for at least two years. I’m just letting you know.” They were our biggest client.

And the back of that and some other insight, we decided to make a call. We closed that restaurant. So that was obviously not fun, but that was our first corporate restaurant outside of Cape Town and we essentially – yeah, we closed it. We shipped the equipment and furniture down and we found one or two other little smaller opportunities and repurposed everything. And so we continued the growth, but we really left Joburg with our tail between our legs because that was not fun. We closed about two other restaurants as well during that time. So it was tough.

We lost some sites that I think we probably wouldn’t have lost if it wasn’t for COVID. But on the upside, we were able to be agile enough to take on opportunity that was there.

The Finance Ghost: Ricky, that’s an incredible story of survival. I can imagine how tough that was. You’ve taken me back to my Sandton banking days at a very specific bank which you mentioned there, so nice that they had a Bootlegger even for a while. It is a beautiful office.

I think let’s talk about banking while we’re here. Obviously this series is powered by Capitec, they’re very keen to showcase some of the great entrepreneurs we have in this country, which I think is amazing. The story from your perspective is you work with Capitec, as I understand it, on a lot of the franchise funding.

Ricky Ruthenberg: Yes.

The Finance Ghost: So how does that actually work in practice and why are they your pick for that?

Ricky Ruthenberg: They’ve just made financing for franchising extremely easy and they’re really, really quick. I obviously developed quite quickly some good relationships within Capitec and it got to the point where we built a model that they understood our business, essentially a financial model. They understood how we operated. We found a very nice way to communicate with them and continuously update our numbers and just made financing for franchisees really easy. And their vetting process was really quick, which I think is not really common in the game of franchising. So it’s important to have a partner that understands the business.

And more importantly, speaking to the previous question of COVID, when there are opportunities that are like a month away, you need partners that can essentially help you act on it. And I think that’s where Capitec has been instrumental.

You need a loan approval within 10 days or whatever the case may be, I don’t want to speak to the current timelines, I’m not entirely sure, but at that point that’s what it was. Pick up the phone, phone someone say, “Listen guys, I need approval. We’re opening the site. Is everything on track?” And they would be good enough to say, “Yeah, I don’t see any issues with this. Proceed.” They financed a massive part of our franchise business.

The Finance Ghost: Well done, Capitec. They’ve clearly understood the business there and I think that’s what it comes down to with a banking partner. You’re just looking for a partner who actually takes the time to understand what you’re doing. And especially in something like franchise, you almost need to be able to offer it as a – it’s a product, come and open a Bootlegger. Here we go, here’s the pack.

Ricky Ruthenberg: Exactly.

The Finance Ghost: You need to sign up for the risk, sure.

Ricky Ruthenberg: Yeah.

The Finance Ghost: But bankers are ready to go, ops ready to go. Menu ready to go versus going and starting your own restaurant. That’s the decision, right? That’s the appeal.

Ricky Ruthenberg: Yeah, exactly. Well, I mean, they believed in us as well.

The Finance Ghost: 100%.

Ricky Ruthenberg: Very nice to have partners that understand that. Yeah.

The Finance Ghost: Final question, Ricky, and this is an interesting one because I think you have achieved so much already. I mean, you all have there at Bootlegger. It’s fantastic. So many wins under your belt.

I guess the question is, what keeps you motivated? What keeps you getting out of bed nice and early? Apart from the fact that you’re an insufferable morning person, obviously. What keeps you chasing the next milestone?

Ricky Ruthenberg: That’s a good question. I ask myself that question at least once a week, maybe more. At this level, business is extremely tough.

The Finance Ghost: I was going to say, only once a week is not bad. Once a week is not bad. If you’re not doing it every day, then you’re doing fine.

Ricky Ruthenberg: Yeah, listen, it’s a constant choice to keep going. I think that’s really important. Like, I really – we really really enjoy what we do. But there’s obviously been many moments and conversations – myself, shareholders – what’s next? What is the next plan? For me, personally, what keeps me going is obviously seeing growth, not just in the business, but people around us. And I think from a very young age, I’ve always enjoyed helping people push themselves and asking questions, understand what drives them. How can I help them reach the next level?

The motivation really comes from knowing that as we grow, we’re creating more opportunities, for myself, for other people.

And interestingly enough, I was recently reminded by one of my senior team members – she’s like, “Ricky, not everybody wants to grow. You think everybody wants to grow.” And I’m like, obviously! A very valuable lesson. It’s a very valuable lesson.

The Finance Ghost: It is.

Ricky Ruthenberg: There is a place for people who don’t want to, don’t necessarily want to grow too much. And there’s a place for those who do – and for those who do, I believe we’re building that playground.

The Finance Ghost: Yes, that’s one of the fundamental arguments for capitalism, right? It’s not everyone who actually wants to get to the top, and the people who do should be given the chance to do so.

Ricky Ruthenberg: Exactly.

The Finance Ghost: But, yeah, I can believe it, that just watching the people around you succeed is such a big driver of it. That’s fantastic.

Ricky Ruthenberg: Awesome.

The Finance Ghost: Ricky, this has been such a good chat. I really enjoyed getting to know you, getting to learn more about the business. It really is fascinating. And to the listeners, if you’ve enjoyed this go and support your local Bootlegger but I think more than that, go and support your local XYZ coffee shop as well, because I think everywhere out there, there are a lot of Rickys who are building these things and at the end of the day if we don’t have coffee shops, suburbs just aren’t the same.

So definitely support Bootlegger, but go and support these small businesses wherever you can, they are so often the DNA of the area that they are in. It’s certainly something that I try very hard to do. You can redirect some of your spend away from the national grocery chain to go and buy that little croissant somewhere small, it really is a valuable thing.

Ricky, thank you so much for your time, I really appreciate it. I really enjoyed this. Just all the best man, love watching the business grow.

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