In this episode of the Instant Payments Podcast, host Tal Clark, CEO of Instant Financial, continues the conversation with Kep Sweeney, CEO of PDQ Restaurants. They delve into the business environment of the quick-service restaurant (QSR) space, discussing the handling and implications of tips, employee compensation, the free market, and industry trends. Kep and Tal also explore the challenges distressed restaurant brands face, common pitfalls, and the evolving role of AI in enhancing operations and financial forecasting. The discussion wraps up with advice for emerging restaurant leaders on gaining diverse experiences and taking advantage of educational opportunities.

Introducing The Instant Payments Podcast 

Tal Clark: Welcome to the Instant Payments Podcast. I’m your host, Tal Clark, CEO of Instant Financial. And we’re back for part two of our conversation with Kep Sweeney, the CEO of PDQ Restaurants. Kep, thanks again for being a guest on the show. Let’s jump right back in. We left off on the last session talking a little bit about the headwinds and the business environment within the QSR space.

What I’d like to do is sort of shift a little bit. And let’s talk about, you know, the people, the employees. As you know, what we do is we wanna make sure that employees have access to their wages, when they want them, and where they want them, and their tips as well. And there’s been a lot of conversation around tips in the last year, from a legislative perspective and just the environment, around tips as well.

A lot of conversations around tipping etiquette. What are you seeing in the fast casual space and QSR [00:01:00] specifically, around tips? How do you feel about it? And, and how is PDQ handling tips? Are you making those available to employees? And what does that look like going forward for you guys?

Kep Sweeney: Well, we don’t take tips at PDQ and I think that the offset is speed. Speed is critical. So it’s a little bit like a Formula One pit stop. So. Again, like we spoke about in the last episode, that you had an interest, if you have an interest in going to a QSR restaurant, you’re either gonna have a poverty of income or a poverty of time.

You, you, you’re driving and you’re really hungry, and now what is your best alternative? And you may pull into a PDQ. The tipping slows everything down. So we try to embed that full compensation package into whatever is an hourly rate or a salary, wherever they are [00:02:00] in the stack.

Tal Clark: Got it. What is, what do you, what are you seeing just in the QSR space as a whole? As an example? I know that Subway has made tipping available across most of their franchisees. If you go to a Subway now, when you check out, you have the option to leave a tip. And I know there have been just challenges in dealing with that.

Not only for those guys, but also with other QSR brands. And I, and I feel like some of this to be honest is driven by the payments business. You know, my background is payments, credit cards, facilitation of payments, and I think a lot of it has been driven by the payments industry. The reason is because they make money on volume, right?

The more dollars. The more revenue, right? And so they can add, you know, 10, 15, 20% to a check in a place that has not been, having tips, then all of a sudden they see their interchange revenue go up.

Kep Sweeney: Mm-hmm.

Tal Clark: So what, I mean, I guess just your general [00:03:00] sense of where it’s gonna go in the QSR space. Have you noticed it in other places?

Do you, do you think they’ll ever be pressured just in general to, to provide tips, I guess to in, in all places.

Kep Sweeney: Well, I’m not sure that in QSR that it is a good idea and, but it doesn’t mean that the employee should make less. I just think it has to be embedded in there because again, when you, when you pull in that, how many decisions do you want the guests to have to make? And if you are, if you are on a stopwatch, it’s a lot different than if you have a waiter.

And whether you spend 30 minutes in a casual dining restaurant for lunch or 45 at Outback, it’s all the same, right? If you get to choose and you didn’t go there because you have to be back at your desk in 45 minutes. So if you work at a Wells Fargo bank and you wanna get lunch and you have 5 minutes to drive and park.

Five minutes to get back and [00:04:00] park. Now you’re down to 35 minutes. So it’s like that time goes very quickly. How long does it take you to sit there and eat your meal? How long does it take, take you to, get through the line to order your meal? How long does it take the kitchen to prepare your meal?

All of that’s important, and that time goes very, very quickly. So you just have to, I, I just think that adding in tips will slow things down, but no way should people make less and they wouldn’t. By the way, that’s the beauty of a free market, that if we weren’t paying that, what the equivalent is, everybody’s smart, they’ll just go next door.

Tal Clark: Absolutely. Absolutely. Well, that makes all the sense in the world. I’ll tell you another example. I will refrain from calling out the brand here, but, it’s been a little bit, but I think I was on the road somewhere in one of the quick bites, as you mentioned, stopped in a quick service restaurant brand, and they had, they had the tips, you know, you checked out and they, they, they had the tip screen pop up, [00:05:00] but I thought it was interesting.

I actually asked them about this. They had a tip jar right by the point of sale. So they had it on the screen, but then the people working there had a tip jar and I said, what’s up with the tip jar? You’ve got, you’ve got it right here on the screen. We can tip. But, and you know what it came down to, they didn’t trust that they were ever gonna get the tip money that was across the screen, so they had set out a tip jar so that they felt more secure about that.

So it’s an interesting dynamic going on.

Kep Sweeney: That they’re discussing with you the mistrust they have with senior management.

Tal Clark: Exactly. Exactly, and I think there’s been some confusion about that. Did you, did you have any thoughts on the whole discussion, legislative discussion around no tax on tips? It didn’t sound, doesn’t sound like it really impacted you guys at all, but did you have any thoughts or opinion on that?

Kep Sweeney: You know, it doesn’t, it, it, but it, I have a soft spot where in general I might be on this side of the aisle. So I have a soft spot for the restaurant [00:06:00] industry and it’s a very hard industry. And yeah, if that can help out some and it doesn’t hurt somewhere else, and that’s, I, I would, I need to get better educated on that.

But how bad is it hurting some, there’s only a hundred percent, right? So we’re dealing with a hundred percent. If you don’t pay taxes here, you’re gonna pay more over here. So. That’s the way it works. So what’s over here? And I’m sure that somebody out there is going to be clamoring that their taxes will not.

But I do, I do like that for the restaurant industry, it’s what- is the second biggest industry in the world and is a great starter industry for people. I mean, again, going back to Outback, the number of people that started as a waiter and moved up. To a manager, moved up to the partner, moved up to a regional and has built a great life for their family, and they have businesses that they run and [00:07:00] support their community.

I mean, it’s phenomenal. So it is a great starter industry, and it’s an industry where you don’t have to come from Harvard. There’s a, you know, there’s a lot of industries that don’t have Harvard, Stanford, Yale- you’re not going to, you’re not going to be able to participate.

Tal Clark: That makes sense. And well, let me, let’s continue to talk about people . What are you seeing or hearing from your employees or as you’re recruiting employees that they’re looking for? We know, you know, we’re doing surveys every two years and, and what we find out is that, we’ve seen a real shift, especially in, in, in, in the restaurant space and the staffing space around flexibility, speed to pay and, and financial wellness. What are you hearing from your employees, first of all, and then I probably have a follow up question. And, what do you think’s important as you hire someone today?[00:08:00] 

Kep Sweeney: Well. So when you look at hospitality people, they have pride, they have energy, they have extroversion, and they have empathy. So those are the four characteristics that you would want to interview for and test for. When you see an employee who’s happy that they consistently say the same thing, my manager cares about me.

So when we go and what we did is we’ve studied here the higher performing restaurants, and we’ve tried to bring, whether it’s the, the way that they scheduled, to the rest of the restaurants, the top quartile to the bottom three quartiles, or we’ll go in, and or, or their business practices. And the one thing that you see over and over again in the top quartile is they take a personal interest in each one, [00:09:00] each person and their families.

So they’ll sit down with some frequency and they will talk about it, like weekly. What’s going on in their world? How’s school going? Those things. It’s not about chicken, it’s about them personally. So companies like yours really enhance people’s lives. One is that they take out that people were doing it, but there was predatory lending, right?

So now you guys have made this very easy and I think that it’s something that we enjoy offering because of, you know, there, there’s empathy. There’s a lot of people that in, in QSR, there’s a, I don’t have the exact percentage, but there’s a certain number of people that are homeless.

Tal Clark: Okay.

Kep Sweeney: There’s a certain percentage, there’s a big percentage of people that live in multi-generational homes.

That money that they’re getting at the end of that shift is critical. It’s not because they [00:10:00] now have disposable personal income. That’s for perhaps grandma’s medicine. These are real issues, and what we try to do is be aware of them. One of the founders here is Nick Reader and, that, you know, and I’ll call him out in a positive way, which I, I mean, he’s a hero, but there are things that where people have, and I found out through other people, I don’t find out through Nick, but he’s gone and found that somebody was homeless.

And got them an apartment and then had it furnished or was getting moved out of their house and have kids and done the same thing because they can’t sign a lease because they don’t have any kind of guarantee. So he’s done that for a lot of people here and, and he and Bob did a very nice job setting the standard where Nick goes in, to restaurants and he will know, like kids will bring their parents in to meet him.[00:11:00] 

That’s the aura that, so I think it’s that, it is, it’s back to how your manager cares about you. It’s not the square footage of the office. It’s not that you’ve got a dollar more an hour. It’s because my manager cares about me. And that’s the key point there. And a caring manager brings us products like yours and says, Hey, this would help us.

Tal Clark: That’s huge and that’s insight. And that also would lend critical importance to making sure you’re hiring the right managers, which it sounds like you guys are as well. Yeah. Good stuff. Let me ask you this and we’ll kinda shift back a little bit to some of your background.

You have, you know, you spent time working with distressed restaurant brands in your history. What are some of the common themes that you see as you go into that environment that you could share with? Current restaurant operators or [00:12:00] future restaurant operators that might help them avoid getting in those situations?

What is it that, that, that you sort of see as, are there any common challenges typically when you, when you see that distress?

Kep Sweeney: Well, there are a and that, that there’s, and, and, and it, it’s true whether it’s restaurants, manufacturing, you know, all the industries that there are these common themes and in restaurants. There’s only three ways to change the outcome. It’s either corporate governance, capital structure, or operations.

And we all think in terms of operations, that in general its capital structure. So it would be naive to say, well, they went out and overlevered the company. It’s generally not that. It has to do with the rollout. And you see this over and over and over again, the expansion part. And a lot of people were that, that are pushed for growth maybe before they’re ready for growth? [00:13:00] Do they have all of the infrastructure necessary? How’s their supply chain that needs to be examined? How do you hire people? How do you keep getting these managers? Everybody wants to be In and Out Burger, but In and Out Burger will only open a restaurant when they determine they have a killer general manager.

Now it’s time.

Tal Clark: Okay.

Kep Sweeney: They’re not pushed by Wall Street for growth. They don’t have PE behind them saying that you have to build X units next year. And the CEO knows that. The CEO knows that the only way they’re keeping their job is if they get these open. So you might make bad decisions. So you see that it’s generally in restaurants around growth in manufacturing, it’s very often around a failed software install.

And you can go and I go to a, a board, a whiteboard, and I put up on the whiteboard, a timeline. And then I’ve counted back a year with the board of directors, and I’ve circled that date. And I said, what happened here? [00:14:00] Well, that has nothing to do with why you’re here. What happened here? Oh, we installed an ERP.

How did that go? Poorly. You know, so that’s why I’m. So it’s like, it’s just you, you, you see those consistencies, but it’s generally in the capital structure where you’re overlevered and you’re, you’re kind of struggling and having to make decisions, but it’s not that you got over levered, it’s that you had to close units.

The investment, the debt, and the equity didn’t go away. They’re still. On the balance sheet, you just have less units to be able to support that cash.

Tal Clark: Yeah. Okay. That’s interesting. And I think that’s a very valuable insight for anybody that has an opportunity to listen to this. So let’s talk about, I mean, everywhere you go you and I met at Prosper Forum, this year and there was quite a few sessions around AI and the [00:15:00] use of AI for inventory or order taking or, reservation taking, you know, all all types of things.

Talk about, I guess, what you’ve seen in regards to AI solutions in the restaurant environment. Which of those are truly maybe ready for prime time? And then maybe a little bit about what you guys are thinking or, or might be using now or in the future.

Kep Sweeney: Right now we’re finding that in corporate. It is a more valuable tool than at the unit and that we’re like, like I do think, and we don’t have like a speaker box and a speaker box, AI driven. They’re probably getting there. And the difference between January, 2025 to March, 2025 is phenomenal: what happened in AI, the difference between March 25, 25 to June, phenomenal.

I can do things [00:16:00] today that I couldn’t do in June. So it’s, it, it, it’s actually, we’re getting pretty close to being able to have our financial forecast done, but through prompts and anybody that wants to kind of get ready for the future, learn how to prompt that’s, that’s the most important skill I think.

I have two kids that are one year out of college in the workforce. And, I, they don’t like hearing it. They think it’s boring for me to say, but that they, but I think prompting and knowing how to do that is really important, but I think that they, I’m not seeing it for us. I don’t have any interest in having our hand breaded tenders done mechanically.

You know, through AI. I do think that from predictive sales, I think that that’s really [00:17:00] important. So how do we, how do we make sure that our inventory is as close to spot on as possible? And I think from labor scheduling, AI has become very effective for us.

Tal Clark: Okay. And what are you using there? What? What tools are you using in labor scheduling that work for you?

Kep Sweeney: Well for us, you know, that we have, in the back, hot schedules, but everything that’s being built for us right now, we do internally using one of three or four AI agents.

Tal Clark: Okay. Okay. Well that’s good. That’s really interesting. 

Kep Sweeney: You can build most of this yourself. You can build apps, you can build most of this yourself. I set a goal in January. Well, a little before January, 2025. Really got started in January to become, you know, a quasi expert in AI for the restaurant industry. Now, keep in mind, that’s like saying I’m the best [00:18:00] surfer in Omaha.

Tal Clark: You’re good.

Kep Sweeney: I’m not set in a high bar, right? It’s like there are other industries that are far, far ahead of us, but I think that, that I’ve, I’ve been. I take classes at night and I’m just shocked at what I can build on my phone. I’m shocked this morning over coffee while watching CNBC, I’m able to write a contract.

They’d got me 80% there and at some point I’m gonna print it today, review it. I think I’m gonna have two or three tweaks and I’m gonna send it off.

Tal Clark: That’s amazing. So, so gimme a little more detail. What, what tools are you using specifically for your use?

Kep Sweeney: I like Claude. I like Manus a lot. I think Manus has the best reasoning capability of any of the AI apps. And, we have subscriptions to these. And, I, [00:19:00] there, there, there are a couple people here that prefer certain things, Grok and Gemini.

Tal Clark: Okay.

Kep Sweeney: But we could do real estate analysis.

I can plug in the location and I could plug in demographic data that we have per location, and I could plug in our sales and of every location and. By, you know, some of these will take a little longer, but from a statistical analysis perspective, I can get really good information on why this location is working, what’s the day pop, what’s the night pop, those types of things, versus another location.

Because they look to the naked eye identical. And I think that type of analysis used to be very, very expensive. And we can do all of that internally now.

Tal Clark: That’s really good knowledge to share and we certainly are looking at it, looking for ways to use it, continuing to use it and build it within our [00:20:00] business. And certainly good to hear that you guys, sounds like you’re ahead of the curve and in many ways, so well look.

Finally, you’ve had such, such a diverse career, Kep, chef, analyst, consultant, CEO, if you had to give one piece of advice to the next generation of restaurant leaders, you’ve given quite a bit on this podcast already, but if you had to give one piece of final advice before we depart, what would it be?

Kep Sweeney: I, I think that range would be the bit of advice, and it’s, it’s, let’s say that you’re a 25-year-old in the industry. Give yourself to the next 10 years, give yourself the next 10 years to 35 and learn as much as you can. And it doesn’t have to be about the restaurant industry. My dad used to talk about before I went to MBA school that the best training for MBA school is reading Shakespeare because you have to be able to peel that onion.

You have to have to be able to understand the essence of what they’re talking about. [00:21:00] So whether you, one, one of the best things that I did was I, I hired a professor, from NYU and we wrote a screenplay. And I spent two years writing that screenplay. And I mean, I hired actors and he’d fly out and we would do a rehearsal so I could hear it and I could see what parts were working, what parts weren’t working, but you really had to understand the essence of each character.

Well, each, I worked with a lot of characters here and I have to understand what makes everybody tick. So don’t, don’t pride yourself on cooking that same steak for two years in a row, do something else and then it will all come together. One of the other things that we did here, and I’m very proud of, I do this everywhere, is I start an education program.

And I’ve never been trained by the way in my life, but I have been educated. So I’m trying to bring that to everybody that I work with. [00:22:00] And so I put together a reading list that includes Good to Great Annie Duke’s Thinking and Bets, et cetera. I put together a speakers program that has Bob Nardelli and Joe Essa and I, we watch masterclass.

Different, Schultz’s Masterclass and a couple of the others. So I want people to start thinking. And then suddenly I have unit level managers, talking about, yeah, but Kep when you’re doing the analysis, you’ve completely forgotten about the supplier power in Porter’s model. And I’m, oh, okay.

You’re right. You know, and they’re using my words against me, which is hurtful in the beginning, but it’s, but I’m saying that they’re just, they’re, they, they, when you educate people, you’d be amazed at what can happen.

Tal Clark: Well, that’s, that shows you’re being successful though. If they start using your words against you, it means your program’s [00:23:00] working.

So, absolutely. I think that’s great advice and it’s been great speaking. 

Thank you for joining us on Instant Payments Podcast. Your perspective bridging finance, operations, and culinary makes your rare voice in the restaurant industry and such a valuable guest.

To our listeners, you can learn more about Kep’s work at eatpdq.com and follow along with the new podcast episodes at instant.co/podcast Be sure to subscribe and leave a review wherever you get your podcast. Kep. Thank you again, and thanks to all of our listeners for tuning in to the Instant Payments podcast.

Kep Sweeney: Ah, thank you.