What's up regards?!

You don't remember me since I haven't posted here since the July 2023 boycott (when I deleted my entire post history).

Many of you are looking for an answer as to what's happening right now and I'll be honest, as much as I love seeing the memes.... it's time an OG like myself schools you all on market mechanics.

Let's get some admin stuff out the way real quick.
My credentials: my first buy order was Jan 18th, 2021 when I saw the hype on the Betz sub and used TA to check out GME. I saw the ascending triangle on the chart and invested $1000 expecting GME to go bankrupt. Imagine my surprise when a week later my account hit $80k before they shut off the buy button. You think TA doesn't work? Cool. Who cares. I'm here to make money, not argue over tea leaves. I now own xxxx shares and attempted to DRS my calls like a true regard. I've written 3 DD on Options and Market Mechanics which wound up at the top of the sub and all ~fall of 2022. How do you think I have all that karma without any posts?

Moving On.

The market is insanely complex, so forgive me for trying to simplify these complex mechanics into an easy to read social media post. People who understand, PLEASE... help me in the comments. All of this stuff can be found on Investopedia or a quick ChatGPT prompt.
There are four main mechanics at play right now driving the stock price: 1. options, 2. Direct Registration, 3. social media, 4. DFV.

Part 1. Options

Look, I get it. This sub hates options because 99% of us lose money on them. Fun fact, you aren't supposed to hold options to close. They are meant for quick plays where you get in and out, but don't want to tie up all of your capital waiting a week for the stock to settle. Here's the rub: Options drive the vast majority of the market. Considering the ENTIRE GLOBAL GDP is $109 trillion, from every country on earth. The estimated options only market: $12.4 trillion actual value, with a notional value of $600 trillion!!! Options alone are 6x the entire global GDP. If you don't think a handful of calls move the price.... well. Go back to school I guess and learn how to math.
Call contracts are worth 100 shares each, so options are like 100x leverage over shares for like 10% of the cost. So when the price swings drastically, options pay back way more money than shares, but unlike shares, they expire and go to zero. The way options were created, they also affect the share price 10x+ more than shares. Most retail (I.e. plebs like me and you) don't know this. Options (calls specifically) give the option to buy 100 shares of a stock at an agreed price, the strike price. The formula to calculate the price of an options contract is very complicated but consist of variables called the Greeks.
The two main Greeks are the delta and gamma. The delta says how much a contract will affect the share price, I.e. acceleration (up or down), and the gamma sets the impact on market makers who wrote the contract. Remember, someone has to sell stocks if a contract gets executed. So gamma is the rate of change for the delta (i.e. the higher the gamma, the faster the delta increases.) Since market makers have special privileges, they don't have to own the shares before they write (sell) the options contract to buyers. This is (one method) of naked shorting a stock. Most call strikes are out of the money (above the share price) so market makers don't own 100% of the stock to sell if a contract goes in the money. I.e. the share price goes above the strike price. So what happens? This is where delta becomes important. The market maker has to go onto the open market and buy the shares that they don't have. This is called delta hedging. Well, if the options delta is high when the MM go to the market to buy the naked shares, the price becomes volatile and starts to skyrocket. Now, since the gamma affects the delta, as a ton of people start buying options, each options gamma begins to grow, exponentially increasing the delta effect on the stock price.
In GMEs case, the stock has been extremely flat, with no volatility for months. This dropped the delta significantly over time and most options contracts were nearly worthless if they were more than $5 above GME's share price. Last week the price started moving up into low delta strike prices (which were un-hedged by MMs). As the price continues going up, more call strikes go in the money leaving the naked MM's at very high risk. Now the market makers have to hedge those calls since they are either in the money, or about to be in the money. Since each call is 100 shares, for every call bought, the MM has to buy 100 shares (oversimplifying). So if there's 16,000 calls that means 1.6M shares have to be purchased on the open market.
Joe schmoe isn't moving the share price with his $5,000 stock purchase. But if a MM has to buy $54.4m of shares at once (1.6m shares times $34), guess where the price goes? UP.
https://preview.redd.it/wfk4as7lhd0d1.jpg?width=1179&format=pjpg&auto=webp&s=e682d09b140f856b385d359a1ef6f6f06541a31c
So now the price skyrockets due to the MM massive purchases, putting even more calls in the money. Requiring more hedging. Requiring more purchases, requiring more hedging. This ramp is called the Gamma ramp. Eventually the loop stops and the price stabilizes at the top of the gamma ramp. Right now, the max strike yesterday was $34 for GME so the ramp can't go higher (which is why after market close the price moved up to $33). But today, when the new strikes are released (max strike is $57), if there's enough hedging required, the ramp continues until either 1. No more hedging is required, or 2. the stock hits max strike price again ($57, and the stock price is currently at $45 at 6am). Wait a day, rinse repeat. (FYI, MM have two days to hedge, so just because the price drops down to $28, does not mean the hedging is complete for today). Low supply + high demand = recipe for insane share prices as MMs fight to close out their naked shorts.
Check out this chart from 2021:
https://preview.redd.it/bv329dpnhd0d1.jpg?width=624&format=pjpg&auto=webp&s=069dfc38cdaf33cff6c514614ad999730b610799
This has happened so many times in the market and this is a GAMMA squeeze. GME is not being short squeezed right now. It's being gamma squeezed. However, if too many contracts are sold short, they still require a share to close the position. Too many shorts equals not enough shares. It becomes the hunger games on crack. A gamma squeeze is the predecessor to a short squeeze. If the gamma squeeze keeps going through this week, next week will be a blood bath as the short squeeze kicks off and Market Makers begin liquidating real companies like Apple and NVDA and TSLA to pay for the GME squeeze.

Part 2: DRS

Okay, so now we established that GME is undergoing a Gamma Squeeze, pushing the price high, very very quickly. Well, for literal years, this sub has DRS'd over 75 million shares, removing approximately 50% of the float, that we know of. This means that HALF the available shares on the market are locked away from MMs, who can no longer use them to hedge with. DRS was never going to cause the MOASS, but DRS is like pouring a thousand gallons of gas on a camp fire. It's going to go BOOM and there's nothing can stop it. Take the limited supply due to the gamma ramp, and get rid of HALF the remaining supply. It's making the gamma ramp problem exponentially worse.
https://preview.redd.it/bfcturw8id0d1.png?width=726&format=png&auto=webp&s=c6d2622586ac9a9bf40e00386a716b5616974dd1
It's possible that the DTCC failed to properly account for real shares, and let Market Makers use their liquidity fairy powers to create fake shares by naked selling them through brokers. If this is the case, then there are no actual shares for market makers to buy off the open market to fulfill their obligations during the gamma squeeze. Just like the old punch buggy squeeze in 2008, no shares alone will cause the price to skyrocket. This means that we are about to see Institutions blow up as their obligations exceed their assets with no way to purchase real shares off the market. When these banks, hedge funds, and market makers blow up, it's going to ripple across the market. Expect a lot of drama from everywhere including many unexpected places.

Part 3: Social Media

How does social media play in this? The spread of information. Remember the old bets sub, where people yolo'd tens of thousands of dollars into options contracts in order to make a fortune? Yeah, for every one person on that sub YOLOing their entire 401k into 0DTE calls, there are probably 10 more who dump theirs into the exact same stock options. Suddenly, those $10k YOLO posts are the equivalent of $100k+ for each one posted. $10k in share prices won't affect the price much, but $10k in high delta calls? Yeah, RIP to the Market Makers trying to buy and hedge shares.
Additionally, the 2021 squeeze spread massive awareness of these types of events. Add in GME's synonymy with meme stock, make me rich, and the non-stop reminded for the last three years by this sub, no one is going to miss this opportunity to invest again. Remember bitcoin and Apple Computer, and Amazon? Who wouldn't go back and invest everything in those stocks. Social media is driving people to invest in GME, not wanting to miss the rocket this time around. And that bring me to my last point....

Part 4: DFV, the man himself, returns.

Remember this guy?
He made like... ALL the money... Off of only $50k initial invest in 2019! Insane!
He's Back...
https://preview.redd.it/108r9cm4md0d1.png?width=987&format=png&auto=webp&s=2faeaec294fb2a86a763f294822c42a962b31c33
Time to get serious. All the OG's like myself are back, and we have 3 years of savings to pour into this thing. This is our (un?)intentional catalyst. And MOASS is about to start.
BUCKLE UP. The fasten seat-belt sign is on. We are number one for departure....
TO THE MOON.

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Salvation Army Kroc Center Gulf Coast Welcome to the Salvation Army Kroc Center Gulf Coast! We've got it all - a state-of-the-art facility in Biloxi, Mississippi, offering activities for everyone.From our indoor pool with a two-story water slide and lazy river, to our full-sized gymnasium and dance studios, we've got you covered.But it's not just about fun and fitness here. 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We've an indoor pool with a two-story water slide, a lazy river, and a zero-entry pool for those who prefer a more relaxed aquatic experience.If you're into sports, our full-sized gymnasium is the perfect place for basketball or volleyball. We also have state-of-the-art weight and exercise rooms for those looking to work on their fitness goals. Dance and aerobic studios are available for those interested in dance or group fitness classes.Whether you're a swimmer, athlete, or dancer, the Salvation Army Kroc Center Gulf Coast has something for everyone.Now, let's move on to our opening hours, so you can plan your visit accordingly.Opening HoursOur opening hours at the Salvation Army Kroc Center Gulf Coast cater to individuals of all ages and interests, providing ample opportunity for you to enjoy our facilities and activities. We understand the importance of freedom, so we offer flexible opening hours to accommodate your schedule. 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The center offers various ticket options for visitors to enjoy their facilities and activities. Here is a breakdown of the ticket prices:Ticket TypePrice--Swim Pass for Adults$10.00Swim Pass for Kids (2 and under)FreePrivate Swimming Lesson (for non-members)$180.00For adults looking to take a refreshing swim, the swim pass costs $10.00. Children aged 2 and under can enjoy the pool for free. Additionally, the center offers private swimming lessons for non-members at a cost of $180.00.Now that we have discussed the ticket prices, let's move on to expert tips on how to make the most of your visit to the Salvation Army Kroc Center Gulf Coast. By staying updated on their social media platforms, you can discover programs and events that align with your interests. Don't forget to browse their event calendar for fitness classes and art workshops. During the holiday season, the center hosts festive events, providing an opportunity to support their mission. 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From food drives to mentorship programs, there are plenty of ways to get involved and contribute to a greater cause.By following these expert tips, you can maximize your experience at the Salvation Army Kroc Center Gulf Coast and make the most of everything they have to offer.Next, let's move on to the contact details of the Kroc Center Gulf Coast.Contact DetailsThe contact details for the Salvation Army Kroc Center Gulf Coast can be found below. If you have any questions or need more information about our facilities, activities, or programs, please don't hesitate to reach out to us.Address: 575 Division St, Biloxi, MS 39530Phone: 228-207-1218Website: Visit our website at [website URL]Social Media: Connect with us on various social media platforms to stay updated on our programs, events, and community initiatives.We are committed to providing a safe and welcoming environment for individuals of all ages and backgrounds. Our center offers a wide range of facilities, including an indoor pool with a two-story water slide, a lazy river, and a zero-entry pool. We also have a full-sized gymnasium, state-of-the-art weight and exercise rooms, as well as dance and aerobic studios.Our opening hours are as follows: Monday to Friday from 6:00 am to 8:00 pm, Saturday from 7:00 am to 6:00 pm, and Sunday from 1:00 pm to 6:00 pm.For ticket prices, our swim pass for adults is $10.00, while children aged 2 and under can enjoy free admission. Private swimming lessons for non-members are also available for $180.00.We encourage you to stay updated on our social media platforms and browse our event calendar for fitness classes, art workshops, and other exciting programs. Additionally, during the holiday season, we host festive events and opportunities to support our mission. Engage in community service activities to make a positive impact in our community.Please feel free to contact us with any inquiries or to learn more about our center.Frequently Asked QuestionsWhat Is the Age Limit for Using the Indoor Pool and Water Slide?The age limit for using the indoor pool and water slide isn't specified.Are There Any Discounts Available for Senior Citizens or Military Personnel?Yes, there are discounts available for senior citizens and military personnel.These discounts are typically offered by various businesses and organizations as a way to show appreciation for the service and contributions of these individuals.Senior citizen discounts are usually available to individuals who are 55 years of age or older. These discounts can range from a certain percentage off of the total bill to special promotions and offers.Military discounts are available to active duty service members, veterans, and sometimes even their family members. These discounts can be found at a wide range of businesses, including restaurants, retail stores, and even travel companies.To take advantage of these discounts, individuals usually need to provide some form of identification, such as a valid military ID or proof of age.It's always a good idea to ask about available discounts before making a purchase or booking a service, as not all businesses may advertise their discounts upfront.Can I Bring My Own Exercise Equipment to Use in the Weight and Exercise Rooms?Yes, you can bring your own exercise equipment to use in the weight and exercise rooms. It's a great way to personalize your workout routine and use equipment that you're comfortable with.Just make sure to follow any rules or guidelines set by the facility to ensure a safe and enjoyable experience for everyone. Bringing your own equipment can enhance your workout and help you achieve your fitness goals.Is There a Dress Code for the Dance and Aerobic Studios?There is no dress code for the dance and aerobic studios. You're free to wear comfortable workout attire that allows for easy movement. We want you to feel comfortable and confident while participating in our classes.Do They Offer Childcare Services While I Use the Facilities?Yes, they do offer childcare services while we use the facilities. It's a convenient option for parents who want to work out or participate in activities without worrying about their children.The staff is trained to provide a safe and engaging environment for the kids. This service allows us to enjoy our time at the center while knowing that our children are well taken care of.ConclusionIn conclusion, the Salvation Army Kroc Center Gulf Coast is a vibrant and inclusive facility that offers a wide range of activities for people of all ages. Whether you're looking to have fun in our amazing pools, stay fit in our state-of-the-art gym, or engage in community events, there's something for everyone here.Join us and embark on a journey of health, wellness, and connection. Come experience the joy and excitement that awaits you at the Kroc Center.

The kitchen is on fire. Welcome to the final part of the Vapiano story where the tables are turning. In the first two episodes we followed Mark Korzilius' journey from setbacks to founding Vapiano, a groundbreaking restaurant concept, highlighting its fresh ingredients, dynamic atmosphere, and data-driven operations that drove rapid success. While achieving initial profitability and garnering attention from industry giants like McDonald's, Vapiano's global expansion has led to stellar revenue growth. However, it has also resulted in the emergence of numerous side projects (or distractions), operational challenges, increased costs, significant investments, and a notable accumulation of debt. This underscores the prioritization of top-line growth over profitable growth. We will continue on this thread and see how the story ends, but I would encourage you to read part one and two for better context. Vapiano P1: Italian Food Made in Germany (substack.com). Let's dig in.
Before Going Public
We are now in 2015 and the year is a disaster for Vapiano's PR department. Employee time stamps are being manipulated, endless overtime for employees and high turnover in managerial roles are reported; mice in the kitchen and even rotten food allegedly found.
The company is confronted with allegations of exceeding working hours among trainees in an article published by Welt am Sonntag, while the same outlet accuses Vapiano of manipulating punch times. The auditing firm PwC is commissioned to investigate the allegations and finds that there is no systematic approach but rather misconduct by individual employees, a mistake that’s being corrected. Internal however, investigations into stamp times are carried out regularly now and beyond its obvious reputational impact, this sucks up valuable management time and attention.
In the summer of 2015 CEO, co-founder and investor Gregor Gerlach, who has been running the group since 2011 is stepping down and Jochen Halfmann is taking over. A new Vapiano People Program with an App is being developed with the aim to better interact with customers that will incorporate innovate features such as mobile pay. The German website sees a launch of new magazine to further promote the brand and there is now a full inhouse blogger and Instagram team being installed. In October the company buys seven restaurants from original co-founder, former co-investor and ex-president previously responsible for internation expansion Kent Hahne (2x Bonn, 3x Cologne, 1x Koblenz and one in Cologne that’s under construction). This package of Vapiano restaurants is very successful and generates net sales of more than 20 million euros in 2014. Hahne opened his first Vapiano restaurant in Cologne in August 2006 and in 2015 with his company apeiron AG, Hahne operates six L'Osteria franchise restaurants, a direct Vapiano competitor, and two self-owned restaurants GinYuu.
Then in November of 2015, the next public relations bomb goes off with allegations regarding the company's quality standards. The company immediately investigates the issue through internal and external specialists but finds no evidence of any quality issues. Nevertheless, knowing that the group is now being closely watched, the company’s already in place hygiene standards are being reinforced. Additional audits and inspections are performed nationally. Further, all Vapianos worldwide are being audited twice by the partners SGS Institut Fresenius and SAI Global. Auditing software is purchased to simplify the implementation of the audits and the resulting measures. Apart from the external examinations, there is a food sampling plan in place being performed continuously. Again, all of this sucks up costs, management time and attention. With all these tumultuous developments the company’s growth engine is undeterred. Revenue grows by a whopping 50 million euros to 202 million euros, an increase of 33%. Impressive. While average spent per customer increases in all countries, the number of customers per day in Germany decreases by 3.3% partially due to the negative press towards the end of the year. Five own, four JV and 19 new franchise restaurants are added that year to the group, the total number of own managed restaurants grows to 51, there are 31 JVs and 84 franchises which bringing the total to 166 Vapiano restaurants. Global restaurant sales are now above 400 million euros.
But while revenue grows by an astronomical 50 million euros, operating profits, alarmingly, shrink again. Gross margins are staying perfectly healthy above 75% but operating costs keep growing disproportionately fast. The Company’s outstanding debt jumps by almost 30 million, close to 85 million euros by the end of the year. With operating profits at 9.5 million euros, alarm bells should be going off right now.
In Q4 of 2015, new CEO Jochen Halfmann introduces Strategy 2020. The new strategy includes five essential points. One, profitable growth in the newly defined core markets of Germany and Austria as well as in the UK, Netherlands, France and USA. Two, operational excellence through strict “best practice” management. Three, further development and digitalization of the concept considering guest feedback. Four, greater focus on long-term employee retention and five, building a modern and sustainable IT landscape. Sound’s good on paper but let’s see how things pan out.
Vapiano's investments (capital expenditures) that year are primarily directed towards new restaurant openings, renovations of existing establishments, and share acquisitions in other Vapiano restaurants from franchisees or JV partners. A significant portion of funds is allocated to the digitalization of the guest experience, including the development of a new app scheduled for market release in 2016 and the implementation of a time recording system across all group restaurants. The world's first standalone Vapiano restaurant with a delivery service that year is built in Fürth, Germany. The company keeps expanding its presence in both inner-city locations and international markets, such as Shanghai, China.
To finance all of this, the group has its own operating cash flow which comes in at 18 million while capital expenditures are 26 million euros plus 14 million for acquisitions. The funding gab is filled with 26 million euros of new debt and a seven-million-euro equity raise. At that end of the year and after the equity raise Gregor Gerlach (through his AP Leipzig GmbH & Co. KG entity) holds 30.1%, Hans-Joachim and Gisa Sander through their Exchange Bio GmbH hold 25.5% and the Tchibo heirs, Herz through their Mayfair Beteiligungsfonds II GmbH & Co. KG hold 44,4%.
But for the first time the restaurant’s concept that was so successful to date is being questioned. Some customers are starting to mislike the operational flow of the concept itself. If you want pasta, you must queue for pasta. If you want pizza you stand in a different queue. A small side salad, yet another queue. "You spend more time carrying trays than an actress in Berlin-Mitte. The audience in the pasta limbo can only consist of people who have worked for an insurance company for a long time and, like Stockholm syndrome, they can no longer get away from the industrial canteen feeling," writes TV host Beisenherz provocatively. While overly harsh in his assessment he's not entirely wrong judging by customers venting their frustrations in forums and social media channels. It isn’t uncommon for those who ordered pizza to have already finished eating while there is little movement in the pasta queue. Long term that doesn't go down well, QSRs competitors like L’Osteria are handling this process differently, with much success.
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Tipping Point

Where are now in the year 2016 and things start to deteriorate visibility. Perhaps not for the leman’s eye but any business minded observer can see that there are problems under the hood. Yes, revenue grows yet another whopping 50 million to almost 250 million euros but half of that growth, comes from acquisitions of restaurants that the group didn’t already own 100%, which is now being fully consolidated within the group’s accounts. Here is a concrete example. In the past, Vapiano SE, the group’s top holding company held an indirect 50% stake in a French subgroup via the subsidiary VAP Restaurants SA, based in Luxembourg, and included this as an associated company in the Vapiano SE consolidated financial statements using the equity method. Due to the acquisition of additional shares in September of 2016, Vapiano SE's indirect share in the French subgroup increased to 75%. This means that Vapiano SE takes control of the French subgroup, which is therefore included in the group’s financial statements as part of the full consolidation. The revenue from the acquired subsidiary now recorded in the consolidated income statement amounts to 12.8 million euros. While that’s great for the top line, the loss of the fully consolidated entity equates to 0.2 million euros. Yes, you are buying revenue, but there are losses attached to them, not profits. A similar case is the Swedish entity that runs eight restaurants with revenue of 11.5 million euros but has losses of 235 thousand euros. So much for Strategy 2020 and “profitable” growth.
That year the group’s operating profits are absolutely tanking, halving to 3.5 million euros. Operating profits are now a mere 1,4% of revenue. Remember original founder Mark Korzilius who talked about operating margins of 25% to 28% at the restaurant level? Yes, there are overhead costs for the organization that sits above the chain of restaurants, but operating margins that low indicates a course correction is needed. What’s telling is that in the annual report, in the management discussion section, the company starts talking about EBITDA as a proxy measure of profitability, rather than operating profit or net income. This wasn’t the case in the years before. Is this window dressing for an upcoming IPO? EBITDA is short for earnings before interest, tax, depreciation, and amortization. How can you measure profitability of a restaurant chain that absolutely and unequivocally needs capital investment to maintain its restaurant operations, the very source of cash generation, by simply excluding this maintenance charge (depreciation in the income statement)? Vapiano’s own annual report talks about the fact that existing restaurants must be rejuvenated from time to time and that new interior designs have to be implemented every few years. These things wear and tear, they go out of style, kitchen equipment breaks and needs replacement. This business absolutely needs maintenance capital expenditure, why anyone talks of profits before these maintenance costs is beyond me. Fun fact: in the previous annual report EBITDA is mentioned seven times, mostly around restaurant acquisitions and financing, not however as a profit indication for the group. In the new annual report, EBITDA is mentioned 28 times. Maybe it’s just me but belated Charlie Munger liked to call EBITDA: bullsh*t earnings. When in doubt I stick with Charlie. Interestingly, EBITDA for Vapiano keeps growing while operating and net profits keep falling.
Operating cashflow for the group that year is about 21 million euros, but capital expenditure is 30 million and acquisitions for subsidiaries another 20 million. To finance these expenditures another 28 million euros of debt and 16 million of equity is raised. Net debt rises above 130 million euro. The operating cashflow of the group before any capital expenditures is 21 million euros. I am not sure free cash flow would be significantly positive after maintenance capex is paid out; it’s not broken out so we can’t be sure. Granted, I am not on the ground during this time, and I am not in the board room, I am simply reading what’s in front of me, but to me this is starting to look like a distressed situation. Regardless, the following year the company goes public.

IPO

Where are now in the year 2017 and its Vapiano’s first year as public company. The company’s annual report reads the following “Sales revenue, like-for-like growth (LfL) and the earnings figures EBITDA and adjusted EBITDA are used as the most important financial performance indicators for controlling operational business activities.” The very same report however also says: “The majority of the group's investments regularly go towards opening new restaurant locations and modernizing existing restaurants. The latter are differentiated into regular replacement investments that occur during ongoing operations (Maintenance CAPEX) and fundamental investments in the renovation of a restaurant (Remodeling CAPEX). On average, a restaurant remodeling takes place nine years after opening.” It says it right there in their own report; every nine years a remodeling is taking place. Remodeling and updating is not cost free, so why exclude depreciation charges which reflect capital expenditures? I understand that perhaps you would want to strip out one-off opening costs, that’s fine and fair, but don’t go overboard.
The number of restaurants increases by 26 (previous year: 13) to a total of 205. The increase consists of 27 new openings and one closure. Group revenue grows to an astonishing 325 million euros but here comes the shocker, operating profits turn negative to 25 million. Fine, strip out foreign exchange losses of 3 million, IPO costs of 5.8 million and new opening costs of 6.1 million and you still have 10 million euros of operational losses. All the while the debt load of almost 130 million hasn’t materially changed, so those operating losses are before a six-million-euro interest payment. 184 million euros are raised through the IPO of which 85 million go to the company. This money is earmarked for further expansion as the group has ambitions to almost double the footprint to 330 restaurants by the end of 2020. The company is currently not profitable on an operating basis, and still wants to expand aggressively? I don’t get it. The remaining 100 million euros of the IPO money raised is distributed to co-founder Gregor Gerlach and Wella heirs Hans-Joachim and Gisa Sander. The family office of the former Tchibo owners Günter and Daniela Herz with a 44% stake, don’t sell a single share. After the IPO, 32% of all the company’s shares are now in free float.
One year later, in 2018, things get even worse. Revenue grows to 371 million, but operating losses mount to 85 million euros, that’s before interest expenses of 9 million. Even the beloved EBITDA figure turns negative, meaning the operating business before any expansionary or even maintenance capital expenditures is loss making. All regions are experiencing significant deterioration in their earnings profiles. Like for like sales are down 1% across the board. That’s revenue, not profitability. The question naturally arises: is the Group approaching its natural saturation point here or this operational by nature? The operating cash flow is now 9 million while financing cost are close to 7 million. That leaves 2 million for maintenance capital for 74 own restaurants and 76 joint ventures ones. Describing this as financially tight, would be an understatement.
Things are not looking good at this point. Yet the company still grows restaurants by 26 new sites. 64 million euros are spent on acquisitions, new openings, and maintenance costs, financed through a 20 million-euro equity raise and 72 million of new debt. The Company now has net debt outstanding of over 160 million euros. After the equity raise and by the end of the year 2018, Mayfair owns 47.4%, VAP Leipzig, Gregor Gerlach’s entity owns 18.9% and the Sander couple own 15.5% of the company. Yes, the Sanders and Gerlach may have taken 100 million euros off the table, but they still have substantial skin in the game. Plus, Mayfair hasn’t sold a single share and instead injects more money into the company through the equity round. The stock has now fallen from its IPO price of 23 euros per share to under 6 euros by the end of 2018. Something must be done here. And indeed, there is pivot in strategy and a hard push for change. At last, the management team abandons its aggressive growth plan and curtails new openings significantly. Additionally, the team wants to run a thorough analysis of weak locations to then either discontinue or sell sites. In Europe, the operating focus will be put on corporate restaurants and joint ventures in major cities to ensure the ideal size and location to match the respective demographic target group. Outside of Europe, the franchising business is being expanded and at the same time a consolidation of the existing corporate and joint venture markets is being sought. All future investments will be reviewed to achieve higher rates of returns on new openings. Investments are also being made in the renovation of older restaurants. The goal in the future is to also open smaller formats, like Mini-Vapianos (less than 400 square meters) or Freestander at prominent transportation hubs outside city centers (currently in Fürth and Toulouse) to cater to individual location requirements, and to enter new partnerships. I am not sure why management hasn’t stopped all expansion altogether, bringing the ship in order first, getting profitable, clean up, all hands-on deck before considering any further expansions whatsoever. But again, it’s easy to comment from the sidelines; maybe they saw white spaces that would be covered by competing concepts if they weren’t moving fast and aggressively enough. Although pushing internationally means competing with local players such as Jamie's Italian, Prezzo, Pizza Express, Wagamama, Nando's and many more which brings in its own dynamic.
Management also aims to enhance guest satisfaction. This involves refining operational processes, reorganizing the support center, and refocusing on the core offering: providing fresh and high-quality Italian food at affordable prices for a broad audience. The group also aims to reduce waiting times, especially during lunch, while also improving the evening atmosphere. There is even what I would call an evolution, away from Vapiano’s original concept, reorientating the customer journey. The ordering flow is being changed, offering guests synchronized preparations of all dishes while eliminating wait times at the cooking stations. The open show kitchen remains, staying true to original mantra of freshness and transparency but now guests can choose their preferred method of ordering through a mobile app, using a digital order point (kiosk), or by personally placing an order with a waiter. Guests can still freely choose their table and are then informed about the complete preparation of their order through a pager or their smartphone. This is a substantial deviation from the original concept, but a needed one. The group is also exploring and implementing the expansion of take-away and home delivery services but only at suitable locations, not universally across new openings. I am not sure why home delivery is even a priority here; it adds operational complexity. It’s better to clean up shop first and get back to the basics before adding new complexities. To be fair management does try to simplify. There are 49 different permanent dishes on the menu and additional 10 seasonal ones. Customers can choose from eleven different types of pasta. There is simply too much choice, and it makes orders complicated. The company announced to slim the menu down to its most popular and typical Vapiano dishes. There’s no need for an Asian salad at an Italian restaurant. "We have to go back to the roots, i.e. classic, honest Italian cuisine" says COO Everke. Regardless, in November of 2018, the supervisory board pulls the plug on CEO Jochen Halfmann and replaces him with Cornelius Everke. Everke himself has just become COO five months ago. Since 2017 he was responsible for international expansion. From 2011 to 2017 that role was filled by Mario Bauer – put a pin in that name, he’ll play a key role in the groups fate later. Then nine months later, in the middle of 2019, Cornelius Everke quits. He essentially concludes that his skillset and experience in the areas of internation expansion is no longer needed in the foreseeable future. To put it differently: Vapiano has moved from a growth story and has become a restructuring case, and other skills are required for that job. In June of 2019 Everke says the following “(we’ve) made a bit of a mistake when it came to foreign expansion”. No sh#t. Vapiano postpones the presentation of the 2018 annual financial statements three times in the spring of 2019, citing negotiations over an urgently needed loan of 30 million euros. It’s not until the end of May that a binding loan commitment comes through from the financing banks and major shareholders.
We are now in August of 2019 and the corona pandemic is just around the corner. Supervisory board chief Vanessa Hall takes over as interim-CEO and things are unravelling. Visitor numbers are declining; originally, it was planned to sell the US business but halfway through the year the buyer cannot come up with the money. But not all restaurants are performing poorly. The group's poor figures contrast starkly as an example with the experiences of the Swiss-German franchisee, who runs six restaurants. The Sodano family in Switzerland pays Vapiano a royalty of 6% of sales for the use of the brand. Enrico Sodano explains in an interview that they operate largely autonomously from the licensor. If an “accident” were to occur, he could immediately replace the Vapiano sign with Sodano, he says. The family concluded the rents and contracts with employees and suppliers independently. The Sodano family have six locations in Bern, Basel and Zurich, around one million guests every year and 350 employees. Things are going well on the ground. The delivery service they’ve built is offering them a second income stream. Expansion into Winterthur, St. Gallen and Lucerne are being planned; small locations with 150 to 250 square meters and an attached delivery service. Originally, Vapiano restaurants used to be huge but for such a large restaurant to be profitable, 800 to 1,000 guests per day are needed. That’s possible in medium-sized cities, but not in smaller towns which is why the Vapiano group now also supports smaller formats. Back to our corporate drama. The 2019 annual report would be the last report the group files. By the end 2019 the outstanding debt of the company is at an astronomical 450 million euros. Revenue has grown by another 7%, produced by four net new openings through two JVs and two franchise restaurants but operating losses come in at 317 million euros. That sound like an absolute shocker at first but depreciation and amortization charges are 345 million, so that operating cash flow is actually positive but unfortunately capital expenditures and interest payments are so large that they are eating up all of the company’s operating cash flow. Then in the beginning of 2020 Corona hits with full force and the world shuts down. As a result of the measures to prevent further spreading of the virus, the group is forced to cease all global business operations (except in Sweden). While all these shutdowns are happening, the group is the middle of negotiating with its lending banks and main shareholders. There are additional financing needs for restructuring measures, even without a pandemic happening in the background. The situation is so dire that the company starts pleading to the German government to roll out the package of financial help more quickly. Unfortunately, it’s to no end. The rapid closure of restaurants and the resulting lack of operating cash inflows in conjunction with the additional financing requirements, lead to the company’s final knockout punch. In April of 2020, the Vapiano group officially files for insolvency proceedings. The end of an era.

New Beginnings

Because of the pandemic, the majority of the group's subsidiaries in Austria, the Netherlands, Denmark, the United States, Sweden, and China also file for insolvency or seek liquidation. The US business never gets sold in the end and is wound down. In the summer of 2020, significant group divestments occur, including the sale of 75% shares in the group's French subsidiaries, shares in franchisor companies, Australian subsidiaries, German subsidiaries, associated companies, self-managed restaurants in Germany, and insolvency-related sales in the Netherlands, Great Britain, and Sweden. The buyer of the Vapiano brand and one of these bundles of Vapiano restaurants is company named Love & Food Restaurant Holding, a consortium led by Mario C. Bauer – a name I told you to remember. Bauer was a former Vapiano board member and led the national and international expansion, opening 200 sites in 33 countries from 2011 to 2017 until he was succeeded by Cornelius Everke. Bauer didn’t feel comfortable with the IPO at the time but clearly has a lot of managerial and entrepreneurial talent.
The buyer consortium is an absolute A-Team comprised of European QSR top league hitters, including the founder of the Pret A Manger chain Sinclair Beecham; Henry McGovern, the founder and Ex-CEO of the giant international restaurant and foodservice operator AmRest; the Van der Valk Family that runs hotels and Vapiano restaurants in the Netherlands, and co-founder and ex-CEO Gregor Gerlach. The acquisition value is 15 million euros and entails 30 Vapiano restaurants in Germany, albeit that’s just the purchase price which comes on top of any capital investment needed to refresh and return the sites to its former glory. Nevertheless, just as a thought experiment, if you can get each site to 2 million euros of revenue and 400,000 euros in operating profit on average, which wouldn’t be an overly aggressively assumption given the company’s history, you’ve got yourself a package that can deliver restaurant-level operating profits of 12 million euros or more. It’s not disclosed how much capex was needed to refresh the operations, just that fact that the overall investment plus purchase price was a middle double-digit million-euro figure. Stil, it probably was a decent purchase. The same consortium buys Vapiano’s French business for 25 million euros just two weeks prior. After the transaction concludes, the master franchise is given to Delf Neumann and his Gastro & Soul GmbH. Neumann is an experienced operator, and he is ambitious to revitalise the brand with new services and products. For example, instead of pizza, the restaurants will be serving pinsa - a flatbread made from sourdough, wheat and rice flour, topped similarly to a pizza. It targets a more health-oriented customer base looking for a less calory heavy option. The menu overall is expanded by including a variety of vegan and vegetarian dishes.
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Today Neumann’s Gastro & Soul GmbH operates 18 Vapianos on its own account and has 29 franchise sites, amongst other brands. By the year 2021, Vapiano operates 191 restaurants in 34 countries. This is around 50 fewer sites than before the bankruptcy. The number of branches is particularly thinned out in Germany – from 80 to 55. Nevertheless, Vapiano's home country remains by far the largest market, followed by France with 35 restaurants and Austria with 15 locations. “We have shrunk ourselves to health,” says Bauer in the aftermath and there is no further shrinking planned. Quite the opposite, the smell of expansion is in the air again – pun intended. Not as aggressively as before and with a new menu and ordering process.
Overall, the team around Bauer is filled with industry experts with knowledge and networks gained over decades who have a great track record, a long-term view, and the staying power to let Vapiano breath and finds its way back to success. The pressure of being a public company with all the associated quarterly, half-year and yearly disincentives have been removed. The menu is changed and extended with new types of pasta and sauces with significantly more vegetarian and vegan dishes available. Guests can order with restaurant staff, at terminals or on their phones and there are barcodes attached to the tables identify the respective seat. The food is brought to your table, all at the same time if you are in a group, no more annoyances with waiting in line. There is a plan for smaller, 350 square meter locations, with half the number of guests and significantly fewer staff and less set-up costs required to make the economics work. Locations that capitalize on remote work and increased demand for local lunch options, higher population density with shorter delivery routes and therefore cost-effective in house delivery services are targeted. And Bauer is testing the concept of ghost kitchens, which operate without a dining room or service staff, focusing solely on preparing food for delivery services, which for obvious reasons have a very different operational set up and footprint. Original founder Mark Korzilius however is not entirely convinced. He is not a fan of the pinsa for instance and he considers Vapiano's pizza as its cash cow, flagship product and believes that the core Vapiano proposition of Pizza, Pasta, Bar that has given the company its original success is being diluted. He instead admires the competitor L'Osteria, saying they’ve done a better job by focusing on Italian classics, especially the impressively large pizzas that sticks out beyond the plate is leaving every customer in awe. The guys who run L’Osteria are the same guys who have built Vapiano with him in the first place. Bauer on the other hand, like a true business leader, remains undeterred, stating that he is frequently asked whether Vapiano's restart was bold or foolish. He believes in entrepreneurship, franchising, in his experienced fellow partners and importantly the Vapiano concept. By the year 2024 you can find over 140 Vapiano branded restaurant in 27 countries across the globe, including locations far away from its birthplace like Australia, USA, Columbia, Chile, Bahrain, and Saudi Arabia. And why not? Italian food is, and will remain to be, incredibly popular. Vapiano offers fresh and tasty food at affordable prices in a good atmosphere. This combination of attributes should attract a lot of customers. It certainly has in the past.
For more stories: WIP Thomas Weitzendoerfer Substack