Michael Philippou & Victoria Philippou are the Co-Founders of Frozen Fruit Co. Frozen Fruit Co makes FroFru, a revolutionary vegan friendly soft serve made just from fruit and natural fruit sugars.
Please provide some information on your background and how you got into the food business?
Our journey into the food business began back in London, England. We were training as lawyers and as part of this our Law Firm sent us to do an MBA, before we starting our training at the firm. It was during this year that we both met and it planted the seeds of wanting to start and grow our own business.
Of course, we had no idea what business we actually wanted to do and furthermore we were tied in with our law firm in London for the next two years. It took about two years to come up with our concept. We were constantly searching and looking for gaps in the market. However, somehow we always came back to food.
We both love food (especially the sweeter things). One evening, Victoria came up with the idea for our FroFru. She had made the first ever batch of mango and strawberry and it was amazing. We couldn’t stop eating it. This was our light bulb moment. Why had no one ever made a healthier frozen treat made just from fruit and natural fruit sugars – a dessert which has big flavor, but that you can feel great about eating.
Frozen Fruit Co grew from there. We started researching the market, making batches and going on ice cream courses. No one was making anything close to what we were making in our apartment. The closest thing is a sorbet, but this is basically sugar water mixed with fruit flavor. In fact a lot of people in the industry simply thought it wouldn’t work. We used no base for any of our flavors and our FroFru simply did not fit into any frozen dessert category – ice cream, sorbet or frozen yogurt.
Within a few weeks of coming up with the idea, we knew LA and not London would be the perfect market. Less seasonal, more health conscious and the birth place of frozen desserts brands like Pinkberry. It took over two years to get here from London. In the interim, all we could do was test our flavors and branding in the UK and this is what we did. Selling small batches to retail stores and supermarkets. It wasn’t until we were starting to knock on the doors of supermarkets and garner feedback from them that we thought our desserts were really ready for the move to Los Angeles.
Prior to starting the process of finding a new location for Frozen Fruit Co., how long did you anticipate it would take to find a location and open for business?
Our time line for finding and opening was extremely tight. Everything was tied into our visa. We needed to show we had a lease and that the business would definitely launch before our visa would be granted. We had 3 months in Los Angeles to find a lease before we had to return to London. We then planned another 3 months from signing the lease before opening. From starting to look for a location to opening we anticipated a 6 month timeline. Whilst finding and signing a lease we managed within 3 months, it took 10 months from signing to opening the business. We completely underestimated the build out and the permitting process.
How did you first start looking for locations and what were your biggest challenges? I have been told by many clients that brokers advertising on sites such as loopnet are very non responsive. Was this your experience?
We had no knowledge of the Los Angeles real estate market or the real estate system. The system is different in the UK from searching to negotiating. We knew the main locations Beverly Hills and Santa Monica, but we needed to get a grip of all the areas to find the best location. To begin with our search focused on foot. We racked up the miles trying to get a feel for the types of units available and locations. We covered the whole of Los Angeles within 3 weeks. We started to call brokers directly after seeing advertisements on available buildings. However, often we would get no reply or the units were already let, or the landlord did not want a food concept. We had decided to narrow down our search to the Beverly Hills/West Hollywood area and Santa Monica. By this point we had found Loopnet, but it was very non-responsive and out of date. We felt like were missing something. It was at this point we started looking for a broker. We wanted someone specific to the industry and with restaurant experience. It was this point we found Mark. Mark helped us greatly in our search.
Through all of this the biggest challenge was being able to pitch to potential landlords our new concept. We didn’t have the time to source ingredients or the proper equipment to make our desserts. Time was just too limited. All we had was a pitch pack of our operations in the UK before closing and moving over and samples of our branding and packaging. This meant we had to really sell the concept. Something which was made more difficult by the fact that no one else was doing it and there was no easily definable category, like ice cream, which landlords could identify our offing with. We weren’t ice cream, or slushies we were FroFru.
How was your access to information working with a restaurant real estate advisor compared to searching on your own?
Access to information before we started working with a broker was basically limited to what we could find on the internet and Google. We both came from a legal background so being able to understand terms and leases was not the issue. What we lacked was knowledge on how to open a restaurant and the specific terms we would need in our lease. Having a broker on board who had this experience to help guide us made all the difference. Someone who could fill these gaps in our knowledge and point us in the right direction.
Before we get into the details of finding a location and negotiating a lease, what should readers know about the process of opening a business as a foreign citizen? What are the basic requirements to operate in the U.S.?
At the time of opening we came on an E2 visa. This is a business investment visa. Under it most individuals will buy a pre-existing business or franchise in the United States. The minimum investment is $100,000 and you need to show you are creating US jobs and that your business or franchise is viable and a going concern. If you decided to buy a business or franchise the process is much simpler as you often are simply taking over a pre-existing lease. The process becomes harder when you want to start a whole new concept from scratch, like we did. This is because you need to find and get in place a lease for your business, as well as spend at least $75,000 of the start-up funds (75% of the minimum required investment funds) before you can apply for your visa. This is combined with a detailed business plan and 5 year financial forecasts which are independently reviewed and approved by a certified CPA.
How long did it take you to receive a visa and what tips do you have for someone trying to get a visa?
The visa process is long and detailed. It took around a year from starting the process to getting our visa. Having an experienced immigration attorney is vital. You need to be organized and planned. Start getting all your documents in place early and make sure you have your funds in place before you begin the process. Also, allow for a buffer because it is inevitable that the process will take longer than you expect and costs will run over.
One of the challenges for new citizens when dealing with landlords is a lack of credit history. I always tell my clients to establish a bank account in the U.S. early in the process to provide proof of funds. What advice do you have to prove credit worthiness?
If you have never lived in the US before you will have no credit history here. We both had excellent credit scores in the UK, but in the US nothing. When you move you are starting from scratch. The best thing to do is to bring your domestic credit score with you. Get as many references both personal and credit before you move. The more the better and the more you can give to landlords as proof of your credit worthiness. Once you have moved to the USA open a bank account as soon as possible and start building your credit again. It takes time, but it is something we have managed to achieve in around a year (it takes time before you can even get rated).
In addition to credit worthiness, landlords want to learn about your concept.
I know in your case the landlord wanted to try your frozen fruit product. This was not possible since you did not have a production kitchen in the U.S. You did provide branded cups and other examples of your branding to the landlord. What suggestions do you have to win over a skeptical landlord?
Being able to offer samples of what you are doing is always the best option. However, remember your landlord may not be your target customer, so that does not always matter. What you need to focus on is to show your landlord that your concept will allow you to pay rent every month, attract customers and give you a profit. If you already have a pre-existing site or business abroad then show them your reviews, social media, your website, pictures of your store and concept. Take them through your business plan and financial forecasts. Find similar concepts which have taken off and explain to the landlord how you aim to capitalize on this type of market and why your concept would attract them.
What criteria did you use to evaluate possible locations and what suggestions do you have for others to determine if a location is good for their concept?
Size, visibility, rental rate and location.
Footfall is particularly hard to measure in Los Angeles. People tend to drive directly to where they need to go.
Size is especially important to consider in the food industry. You need to think carefully about your square foot utilization. If you are a sit down dining restaurant this is particularly important. The cost per square foot in areas like Beverly Hills and Santa Monica are high and it is only your seating area which is covering your costs. Kitchen, storage, etc take up a lot of room. Think carefully about your sizing and what you actually need.
Visibility is obvious, however, think really carefully about it. You have found this great location, but how visible is it. Is it on a corner, is it in the middle of the block, can you see it when driving, can people see it when they walk past, etc. Be honest with yourself and ask other vendors in the area what business is like. Get separate people to go look at the site.
Finally, Location, Location, Location. Location makes all the difference. Always go for the best location which attracts your target demographic.
You are my favorite type of client. You both were very active in the site selection process .
Many of the sites we considered you found online or researching different neighborhoods. Once you found something that looked promising, I would gather the details, we would discuss and start negotiations if the sites met your criteria. Many tenants think they can access everything online and they don’t need representation. I agree that you can access 80% of the available properties on your own. How did working with a broker help you through the process?
A good broker we think acts more like a mentor. The internet has made it easier to find available locations. However, working with a broker gives your access to someone who has experience in seeing different food concepts and how they are applied to different sites. We had our broker, Mark, who was a great sounding board and brought things to our attention that perhaps we wouldn’t otherwise have thought of. Having Mark as our broker helped us immensely through the process.
You have a very small store.
How did you determine what size space you needed for your business and what suggestions do you have for others to determine how much space they need. If you had to do it over would you consult with a kitchen designer first to determine what equipment you need and the ideal kitchen layout?
Our food concept is “fresh & fast” and “grab and go”. We offer a streamlined menu and a simple product offering. When selecting space size we wanted something small and compact. We didn’t want to be paying for extra space which we did not need. Before you start a restaurant you need to understand your size needs. A good way to understand this is to calculate your sales per sq ft. Our goal was maximum size utilization and sales per square foot. For seating restaurants this is particular important because your sales are limited by your covers which are limited by your table and chair area. Remember kitchen space or storage contributes no sales.
Now let’s dive into the details. First, I want to commend you for doing everything right. You both have a legal background and are more capable to negotiate a lease than 99% of first time restaurant operators.
In addition to working with a restaurant real estate advisor to negotiate the deal, you retained an experienced attorney that specialized in commercial lease agreements. I wanted to mention this because I see so many tenants get into trouble trying to save a few thousand dollars on proper legal representation.
Although you did everything right, you still ran into some issues getting the store opened on schedule.
Let’s discuss lease terms. We negotiated hard for certain lease terms, but in the end may not have achieved the exact terms we wanted for certain items. Rent Commencement was one of the terms. Let’s discuss why this is so important and how you were impacted or might have been impacted by permitting delays.
Rent Commencement is vital. It is also one of the harder clauses to negotiate for because you cannot account for what delays you are going to be facing. Rent Commencement serves to resolve Landlords’ concerns that: (1) you will be able to get all your permits and actually start your business; and (2) that they can start collecting their rent by a defined date. If you get your Rent Commencement wrong you may be faced with having to pay rent before you open. From this perspective, being able to have as much of an understanding of your build out and permit timings is essential to a tenant’s negotiating position. Unfortunately, permit and build out times are very uncertain, especially in Los Angeles.
Landlords and lawyers will often try to complicate the Rent Commencement language to the point where the parties are happy, but in reality the clause makes no sense when you try to apply it. Language becomes confused with start dates, end dates, contingent time periods and what ifs subjected to permits.
The key to rent commencement is to keep it as simple as possible. Set a hard and fast date for when rent will commencement. Don’t subject it to approvals or permits. This will only confuse matters and put you at conflict with your landlord when there are delays.
Whatever the clause says, keep your landlord updated and involved in the timelines. If there are delays outside of your control let them know why and explain why this is not your fault. Landlords most of the time want to know they are not going to be left with a half completed project and that they will be paid rent, even if it is a bit later.
If your landlord does not agree to this, then build into your contract clauses which allow for both parties to agree to a nominal rent for the period that you have not opened and the rent commencement has already passed.
Whatever you do, keep the clause simple!
I agree your clause was confusing. If your rent commencement date is calculated based on clear dates and milestones you can avoid the confusion and still protect yourself. For example, rent shall commence 90 days from receipt of approved plans to start construction, but in no event later than December 31, 2017.
Let’s discuss your experience with the permitting process.
The permit process will be the single biggest challenge you face. We planned on a 3 month build out. It took 10 months! This is because of delays and having to deal with two separate bodies for zoning/planning (Santa Monica) and separately for health department (LA County). Our plan checkers changed jobs during the process which meant we had to start fresh with a new planner. We had to have separate inspections for plumbing and to show that we were not cooking any hot foods so didn’t need grease traps or vents.
An architect or plan expeditor is essential to making this process as smooth as possible. However, you need to become familiar with the rules and regulations yourself. Understand what the requirements are and be as involved in the process as possible. Being able to speak directly to a plan checker or inspector yourself and being involved in the process means you have more control and knowledge.
- Don’t underestimate the time needed find a location, negotiate a lease or purchase and permit and build your restaurant.
- Be prepared with business plan, financial statements and proof of funds.
- Work with specialists that can guide you through site selection, lease negotiations, permitting and construction.
- Have a clear understanding of the infrastructure and city requirements for your concept including how much space you need for back of the house operations, storage and selling square footage.
- Get a few opinions regarding visibility, access and convenience for the sites you are considering.
Michael Philippou & Victoria Philippou are the Co-Founders of Frozen Fruit Co. Frozen Fruit Co makes FroFru, a revolutionary vegan friendly soft serve made just from fruit and natural fruit sugars. That’s It. That’s FroFru. Find them at 729 Montana Ave, Ste 2, Santa Monica, 90403, online at www.frozenfruitco.com or order online in the Los Angeles area through GrubHub, Postmates or Doordash.