Steve took GYG to the US and failed. It cost $115 million, but he’s not done yet

Steve Marks, the fast-talking Guzman y Gomez co-founder and burrito salesman, likes to write. Lately, he’s penned plenty of notes about the topic that grabbed headlines late last week: the sudden capitulation of his $2 billion company’s ill-fated attempt to crack the United States, the world’s biggest fast food market, and his native country.

Some have called it hubris; others called it arrogance. Perhaps none have dedicated more thoughts or words to it than Marks himself.

“I’ve got pages and pages,” he says. “I write non-stop. For years and years, I have books and books that I write. I think about this business 24/7.”

He’s asked himself the same questions repeatedly: was Chicago the right city to launch the US venture in; was the real estate strategy right; should it have launched with different products? Marks has owned the Mexican-inspired restaurant chain’s hyper-ambitious, and now failed, six-year gamble on the $643 billion market in the world as his mistake. “I’m highly critical of myself,” he tells this masthead.

When pressed, he’ll skim over the details. If he could do it again, what city would he have picked? What should have been on the menu instead? “I don’t want to share that because some of that will come alive,” he says. “I gotta keep that up my sleeves.”

Marks doesn’t view the US exit as a failure. He says that, despite the early hiccups and missteps, he finally got it right, but he got there too late. It would have cost too much and taken too long to break even. The US expansion attempt had, over the years, become a massive cash drain on the broader business, which was otherwise firing on all cylinders.

“Pulling back now gives us the opportunity, in the years to come, to give it another crack,” says the former Wall Street hedge fund manager. “If it’s the right situation, the right model, [if] it’s the right time for GYG, you never know.

“The US is a market that I know one day we’ll be successful in. That’s really it.”

The first Guzman y Gomez store opened in Newtown in Sydney’s inner west in 2006, built on the dream of making fast food fresh and healthy. It would be another 14 years before Guzman y Gomez opened its first US store, in Naperville, Chicago, just in time for the COVID lockdowns. By this point, it had already gained a modest foothold in Singapore (2013) and Japan (2015).

The catalyst to launch into the US came after Guzman y Gomez opened its first drive-through in Queensland in 2015 and met lively demand for breakfast, lunch and dinner, igniting hope that its dual-track kitchen layout could handle high-volume American drive-through traffic. “We’re just as fast as McDonald’s, but we’re serving real food, you know,” Marks says.

Marks saw the potential to reinvent fast food in the country that invented fast food, and he surrounded himself with a team of Australian industry heavyweights to help him do it. On the board is Guy Russo, long-time McDonald’s veteran and the retail executive credited with turning around Kmart, and Ian Rowden, a former chief marketing officer at burger chain Wendy’s. Steve Jermyn, a former McDonald’s C-suite executive, was on the board for 15 years before he retired in 2024. In late 2018, Guzman y Gomez’s biggest investor, TDM Growth Partners, injected $44 million to bankroll the US expansion.

“We believed there was nothing like this in America,” Marks says, waving off common criticisms of the absurdity of trying to sell Mexican food to the largest Mexican diaspora in the world. “I’m not talking about mum-and-pop taquerías.” In Marks’ mind, Guzman y Gomez sits somewhere between the good value and speed of Taco Bell, and the freshness of the health-conscious Chipotle – but better.

The aspiring Aussie chain had set itself up as David against the two Goliaths of Americanised Mexican fast food. “What we believe, and I still believe to this day: nobody in the US serves the quality of food that we have, with the guest experience that GYG delivers,” Marks says.

When Guzman y Gomez floated on the Australian stock exchange, its market value of $3 billion (higher than KFC operator Collins Foods and pizza chain Domino’s) was boosted by its international potential and its grand ambition to be “the best and biggest restaurant company in the world”.

But to justify the investment, each US restaurant had to hit yearly sales targets of $US3 million. In fiscal 2023, the three stores combined turned over just $US4 million, less than half the targeted revenue, according to the company’s prospectus.

The Australian company also had to contend with the incumbency of Taco Bell and Chipotle, the world’s biggest Mexican chains, which had more than 9000 and 4100 stores respectively. Guzman y Gomez, with next to no brand recognition, struggled to secure high-quality real estate for its restaurants, and grappled with building costs that were much more expensive in the US than in Australia.

Discontent among the top ranks of the US leadership team ended in a handful of resignations and a bitter legal dispute. Former employee and consultant Greg Creed and his team filed a lawsuit accusing Guzman y Gomez’s leadership team of racism and ageism, and they alleged staff were told “we don’t give [promotional] T-shirts to fat people”, according to documents filed in Californian courts reported by the Australian Financial Review. The lawsuit says Marks had been placed on a performance management plan, which Guzman y Gomez denies. The matter was ultimately settled, but it set the company back.

Meanwhile, the US stores continued to lose money. In February, Marks moved to Chicago in a last-ditch attempt to turn things around. He recounted green shoots off in a list. “In February, we [were] at the spot I want to be,” he says. Time was running out. “Even though we’re making progress, [because of] the mistakes I’ve made, there [was] a lot to overcome on revenue.”

The boardroom call and the legal bombshell

After three months in Chicago, Marks returned to Sydney in mid-May to visit his young family. He would have gone back to Chicago if not for a pivotal meeting with the board convened on Thursday evening, where Marks, the board and his leadership team looked at the numbers.

The company had “ringfenced” a certain amount of money that would be invested in the US expansion, and that money had been spent. Guzman y Gomez declined to provide a figure for the total sum of investment, but public figures show the company spent at least $115 million on the aborted six-year experiment.

“It’s heartbreaking for me because you have teams, and you love your people in the US, and they believe,” says Marks. “That’s business, you know.”

“For me to ask for more money, knowing it would take longer, it wasn’t the right decision to make,” he says. “We gave it a shot. I’ve learnt a ton. I made a ton of mistakes. I’m coming back home.”

A company statement titled “Update to US strategy” hit the ASX at 8:23am on Friday. An hour later, Marks, co-CEO Hilton Brett, and chief financial officer Erik du Plessis held a snap call with investors and market analysts to front questions about the volte-face. In the immediate aftermath, shareholders were relieved. Good riddance was the general sentiment; the share price closed nearly 20 per cent higher on Friday after announcing the US exit.

Before the dust could settle over the weekend, the company was sucker-punched by a legal grenade: a class action complaint filed by Haseeb Legal, a sole operator in Illinois lodging complaints against credit bureaus, debt collectors and corporations for clients on a no-win, no-fee basis. The court filing, which names two plaintiffs, claimed hundreds of staff found out they were unemployed through a post on an internal staff platform that was deleted in 11 minutes, but had been automatically emailed to workers.

“After careful consideration, we have made the difficult decision to exit the US market. This means we will be closing all our restaurants from today,” posted director of corporate operations and culinary Scott Bayne on the staff communication platform WorkVivo on Thursday evening, Chicago time. Under US federal law, staff must be given at least 60 days’ notice in writing before termination.

The complaint, which requires a judge’s approval to become a class action, threatens to become an embarrassing and messy final act to a very public backflip. The claim that workers were mistreated carries an additional sting for Marks, who has long prided himself on treating his team well.

“That’s No.1, our people, and to me, that’s what hurts the most,” Marks says of the class action complaint. “[The US is] a very litigious market.”

Guzman y Gomez contests many aspects of the complaint, including the claim that staff had learnt of the exit through the leaked internal post. All employees were paid for their rostered period, salaried staff received at least three months’ pay, and leave and health benefits were honoured, the company told this masthead.

“We did not cut corners on the way out. Every person on the team was paid in full, with all entitlements honoured,” Marks says. Rather than wind down operations over time, all stores were shut immediately so as to not compromise food quality. “We are confident in how we handled this, and we will defend that position.”

There is still plenty to keep Marks busy and the pages of his notebook filled. Australia, the engine of the business, is marching towards a target of 1000 restaurants (about as many as McDonald’s in Australia). Singapore and Japan, which have 24 and five stores apiece, operate under a master franchise model that doesn’t saddle Guzman y Gomez’s balance sheet with commercial leases and financial risk. Marks and his team have pointed to this capital-light model as the right one for future international expansions.

Asia has become the next battleground. Chipotle is set to launch in South Korea and Singapore, where it will pursue the same health-conscious customers that Guzman y Gomez is chasing without the brand reputation that Chipotle has. Marks is up for the fight. “I’m very confident for Chipotle to come into other markets where GYG is, and for us to outperform it,” he told investors last Friday.

Guzman y Gomez’s mission remains unchanged. “We truly believe this is a global business,” Marks says. ”I see the food quality, and I know what our food quality is. It’s superior, and I want families eating it. That’s what drives us.”