Authentic, Differentiated Dining Experience Delivers Long-term Shareholder Value

Media:  “The Gaucho Way”

Founded in Porto Alegre, Brazil in 1979, Fogo de Chao (or “the Company”) is a leading Brazilian steakhouse or churrascaria specializing in the centuries-old Southern Brazilian cooking technique of churrasco.  The Company provides patrons with an authentic, engaging and unique dining experience—mastering the art of serving an extensive tasting menu of 20 different cuts of meat and Brazilian side dishes in the traditional espeto corrido (Portuguese for “continuous service”) table-side serving style.

In 1986, the Company expanded to Sao Paolo, and opened its first U.S.-based restaurant in 1997 in Addison, Texas (at the request of George Bush Sr.).  Currently, the Company operates 10 restaurants in Brazil, 30 across the U.S., and 1 in Mexico City.  On June 19, 2015, Fogo de Chao completed a widely successful IPO; the stock opened at $25.70, a 28.5% premium over the $20 per share offering price (compared to $16-$18 per share expected range). (1)

The Company’s successful performance is a testament to its ability to offer a valuable, authentic and differentiated dining experience and to leverage its operating model to drive sustainable growth and profitability.

Authentic Dining Experience

Thirty years since its establishment in Brazil, Fogo de Chao has remained true to its Brazilian roots, providing an authentic dining experience that is difficult to replicate.  The key to the Company’s authenticity, and ultimate success, is its people, and particularly its gaucho chefs.  Given its reputation and restaurant footprint in Brazil, the Company is able to attract top talent in Brazil.  In Brazil, top recruits are trained in the traditional cooking method of churrasco (fire roasted on skewers over an open flame to expose natural flavors) and serving method of espeto corrido (continuous service).  After undergoing a rigorous training program, gaucho chefs are placed in U.S. restaurants.  Through the gaucho chefs, the traditional Brazilian method of preparing and serving cuisine is preserved.

The Brazilian churrascaria concept allows the Company to offer a constantly evolving tasting menu (no set printed menu) of cooked and seasoned meats including Brazilian style cuts of beef such as the fraldinha and the picanha, as well as other premium beef cuts, lamb, chicken, pork and seafood items.  The churrascaria concept also allows Fogo de Chao to better control volatile commodity costs by changing its product mix.  For example, when beef prices rose by approximately 25% from 2011 to 2014, the Company introduced more non-beef items to its tasting menu to offset increased prices while maintaining the guest experience through product innovation.  Ironically, the introduction of non-beef items has allowed the Company broaden its customer base.

Furthermore, the churrascaria concept is a simple cooking technique when combined with table-side service allows for efficient kitchen and labor operations.  Compared to traditional fine-dining peers, Fogo de Chao is able to operate with a space-efficient kitchen and maximize front-of-the-house dining square footage, resulting in higher sales per square feet and increased operating leverage.

Differentiated Dining Experience

Fogo de Chao offers authentic Brazilian cuisine in an upscale, elegant atmosphere where the gaucho chefs provide a truly memorable dining experience.  As soon as the customer is seated, he or she has the option to start at the self-service Market Table, which features a variety of seasonal, on-trend salads and gourmet side dishes.  Through the Market Table, the Company has been able to capitalize on health trends by offering gluten-free and vegan options and appeal to a wider base of customers.  Given the self-service nature of the Market Table and minimal staffing and kitchen preparation, the Company has been able to reduce labor costs simultaneously.

Then when the customer is ready for the entrée, he or she is approached by friendly gaucho chefs who carve the selection of fire-roasted meats tableside according to each customer’s preference (size, cut, and temperature).  By constantly engaging and interacting with the customers, the gaucho chefs are able to learn customer preferences and provide customized dining experiences.  The continuous service allows guests to control the pace of service and tasting menu selections, creating excitement, engagement, and overall high customer satisfaction.

As mentioned above, the gaucho chefs butcher, prepare, and serve the food.  The cross-functional role gaucho chefs play not only provides authentic cuisine and high customer service, but also significantly reduces labor costs.  In 2014, Fogo de Chao generated restaurant contribution margins of 32.5%, compared to 20.4% for fine-dining peers.

Industry Leading Returns and Growth Opportunity

The Company’s authentic and differentiated dining experience creates long-term value for customers and shareholders and is supported by the Company’s performance.  In 2014, the Company recorded 137,000 customers per restaurant, approximately 60% more customers than competitors.  The same year, the Company recorded annual unit volume of approximately $8 million and contribution margin of 32.5%.  Industry-leading volume and margins has generated an average year three cash-on-cash-return of 50%.  Given the Company’s track record of success, I believe Fogo de Chao is well positioned to capitalize on domestic and international growth opportunities and am very bullish about the Company’s long-term prospects.


Source:  Fogo de Chao S-1 Filing dated June 15, 2015.

(1)  McGrath, Maggie. “Investors Devour Steak Chain Fogo de Chao: Stock Pops Nearly 30% in IPO.” Forbes. 19 June 2015. Web.


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Student comments on #GOFOGO

  1. Very interesting read!

    It certainly has been a strong year for food related IPOs – Shake Shack and Bojangles are just some examples.

    Do you know who Fogo views as competitors in this space? I don’t know of any other churssaco establishments that operate on a scale anywhere near to Fogo de Chao. What do you think are key barriers to entry in this market?

    1. Hey Sid!

      Thanks for the comments. Just a few of my thoughts below:

      – Fogo views other Brazilian steakhouses, steakhouses (general), and fine-dining restaurants as competitors. Primary competitors would be Del Frisco’s, Ruth Chris, Capital Grille, Fleming’s, and Sullivan’s.
      – There are not many scale players in the Brazilian steakhouse space. Texas De Brazil is Fogo’s main competitor. I believe the lack of scale players may be attributed to the level of sophistication in the Brazilian steakhouse space. The majority of Brazilian steakhouse are mom and pop restaurants that may lack professional management and capital to pursue aggressive growth strategies.
      – Key barriers to entry in this space I believe are access to capital (as mentioned above due to level of sophistication) and access to talent. What really differentiates Fogo is its authenticity that is espoused through its gaucho chefs. Gaucho chefs deliver not only authentic cuisine but authentic service. Because Fogo has a large footprint (10 stores) and great reputation in Brazil, it is able to recruit top talent.

      Hope this is helpful!


  2. Nice post! We should write a case on Fogo as the new Benihana!!

    1. Marco,

      I think Fogo would make for a very interesting case. I would be interested in digging deeper on the similarities and differences in the two restaurants and how these will affect Fogo’s long-term performance.

      A key to success for both restaurants is its people. Benihana recruited hibachi chefs from Japan, and Fogo recruits gaucho chefs from Brazil. In Benihana’s case, it became more difficult to recruit native talent as the Japanese economy strengthened and work abroad became less appealing. In Fogo’s case, gaucho chefs prefer to work in US locations and have more opportunities for advancement in the states. I believe Fogo will continue to have success in recruiting top talent but also wonder how market/government changes may impact its ability to transfer native gaucho chefs to the US.


  3. In a market where “fast casual” dining, smaller portions, and healthier vegetarian and vegan options are becoming more prevalent, I find it your position really unique to the broader view in food trends. It would be great if we could see their growth trend and customer behavior trends over the past few years as other restaurant concepts have been popping up. Perhaps their competitive advantage is in the margins, but with more and more upscale consumers are looking for organic or “all natural” ingredients, I wonder if and how Fogo will adapt their operating model to meet these customer demands.

    1. GC,

      I completely agree that the fast casual segment has been growing quickly, but think players at lower price points are being impacted more than the fine dining players at the other end of the spectrum.

      I also agree that consumers are demanding more healthy dining options, and Fogo has been trying to capitalize on this trend. Fogo’s Market Table is a standalone option, and last year the company re-engineered the Market Table to be gluten-free and local. Also in 2014, Fogo introduced a seafood entree and seafood appetizer to attract non red-meat eaters. I believe Fogo will continue to modify its menu and operating menu to meet customer demands.


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