Mercato Partners Forms $90 Million Fund for Restaurant Concepts

Growth investment firm Mercato Partners is whetting its appetite for restaurant deals with a new $90 million fund formed in partnership with veteran sector investor Andrew K. Smith. 

The new Savory Fund I will provide capital to help fill what Mr. Smith, a managing director, says has been a dearth of institutional support for emerging restaurant concepts as more consumer-focused private-equity firms raise ever larger funds. 

“There is a natural chasm that has developed,” Mr. Smith said. “There are these amazing food and beverage concerns coming out, but there’s no one that can help them go from three or four units to 30, 40 or 50 units.”

Mr. Smith said that Savory Fund I, which is partly owned by Mercato, seeks to provide initial investments of $5 million to $10 million to emerging restaurant concepts, as well as operational expertise.

Savory also has the ability to provide more capital as the concepts grow. Although it typically takes majority stakes in the brands it backs, Mr. Smith said it doesn’t buy concepts outright. 

“We want the founders to stay,” he added. 

Before joining Mercato in 2018, Mr. Smith spent years as chief executive of Four Foods Group Holdings, a restaurant operator he co-founded that has backed brands such as the Little Caesars pizza chain and Kneaders’ Bakery & Cafe. Mr. Smith said that around 50 people he previously worked with in the food and beverage industry have become part of a team at Savory that helps its portfolio companies with operations, site replication and revenue growth. 

So far, the Utah-based Savory Fund has backed three restaurant chains, including Mo’Bettahs Hawaiian Style, R&R Barbeque and Swig soda fountain shops.

Although the coronavirus pandemic has challenged the restaurant industry and forced closures, Mr. Smith said that it has also prompted more owners to innovate, such as by introducing touchless ordering systems and by rethinking how they serve their customers. 

While the pandemic is changing the way restaurants do business, it is not necessarily changing what people want to eat and drink, Mr. Smith said, adding that Mo’Bettahs opened two new locations in the midst of the pandemic. 

“The market is always changing and those that can innovate to adapt are the ones that win,” Mr. Smith said. “Those brands that had to innovate will come out smelling like roses.”