Inside 2015’s Boldest Restaurant Deal

Eating and shopping. Shopping and eating. Though they're incongruous bedfellows — who wants to try on clothes after housing a bowl of spaghetti carbonara? — they go back like babies and pacifiers.

Retailers know this. Restaurants know this. There have been partnerships between the two realms in the past (see: David Burke at Bloomingdale's, Starbucks at Macy's). But never have eating and shopping been merged as purposefully, as ideologically as they were earlier this year, when URBN, the Philadelphia-based retail juggernaut whose outlets include Urban Outfitters, Anthropologie, Free People, and Terrain, went shopping for a restaurant group and came home with Marc Vetri's.

Vetri is the executive chef and, as of October, former owner of what he and his posse cutely call the Vetri Family, a colony of restaurants in Philadelphia, all of them mostly Italian, all of them mostly well-regarded. Vetri (the restaurant) is the nucleus of the organization, housed in a slender, amber, Center City townhouse since 1998, when Vetri (the chef) returned to his hometown to open a place of his own with front-of-house partner, Jeff Benjamin. Food & Wine named Vetri to its ‘99 class of Best New Chefs, and the restaurant rose to national prominence. Since then, the Vetri Family has produced many offspring: Osteria, aka Vetri Lite; Amis, a Roman trattoria; Alla Spina, a magnet for cultish Italian ales and pig's head poutine; rotisserie-focused Lo Spiedo; and fast-casual Pizzeria Vetri.

There has never been a case where a company like URBN has straight-up bought-out an independently owned restaurant group.

URBN paid Vetri and his partners, which in addition to Benjamin include Jeff Michaud (the original chef at Osteria) and Brad Spence (the original chef at Amis), somewhere in the neighborhood of $20 million for six of the group's seven restaurants. (The original Vetri is exempt.) The Pizzeria concept is the one fast-tracked for expansion, both in freestanding form and as part of the new lifestyle centers URBN is erecting across the country — a bid to lure more dollars away from customers in a shopping landscape that has shifted like quicksand, slowly but decisively beneath lethargic retailers.

The unprecedented-ness of the deal bears repeating: There has never been a case where a company like URBN has straight-up bought-out an independently owned restaurant group. This deal is like IKEA acquiring Momofuku. Or Target giving Rick Bayless a check to turn its hot dog-and-SuperPretzel snack bars into tiny Tortas Fronteras. "As far as I know, there's been no deal of this nature," says URBN's chief financial officer, Frank Conforti. "I do think what we're doing is unique."

What also makes the deal unique the size of its players. While Vetri and his partners run a healthy, respectable restaurant group, it's not even the biggest in Philadelphia. You wouldn't be wrong for thinking it hardly worthy — at least on paper — of an acquisition by a publicly traded Fortune 1000 company.

"You gotta understand," Marc Vetri says. "They're not buying the restaurant group; they're buying us. They're buying our enthusiasm, our passion, our creativity." Which is all well and good. But with what finance consigliere does enthusiasm and passion and creativity pass muster? Deals are done on dollars and cents. Money is the bottom line. Right?

Photo: Rommel Demano/Getty Images

To understand this deal, you have to understand the city in which it was done. Philadelphia is the fifth-largest city in the country but for better and worse, has the intimacy and incestuousness of a small town. The majority of Philadelphians are born-and-bred Philadelphians or Pennsylvanians. Families have lived on the same block for three generations.

For this reason (and despite that $20 million is not an especially significant investment for a company with a market cap of $3 billion), the Vetri/URBN deal feels within the purview of some romantic, streetwise past, when you were only as good as your word. According to Vetri, that vibe is not imaginary: "You know why it feels like handshake deal? Because it is." From a professional standpoint, the relationship between Vetri and URBN began with Glen Senk, URBN's CEO from 2007 to 2012. Senk became a Vetri regular, and the two men became friendly. Senk later became the chairman of the Vetri Foundation. Lo Spiedo, Vetri's seventh restaurant, didn't open down the street from URBN's campus in the Philly Navy Yard until after Senk's resignation, but the relationship no doubt helped lay that groundwork.

But really, the relationship between Vetri and URBN precedes all that. "In a way," Vetri says, "I was weaned on Urban Outfitters." Whereas Marc Vetri owned a collection of restaurants, his father, Sal Vetri, owned a collection of jewelry stores. His Crown Jewel and Dazzles kiosks in the malls of South Jersey and Delaware County kept South Philly princesses replete with monogrammed gold necklaces for the better part of the 1980s.

"You know why it feels like handshake deal? Because it is."

The elder Vetri's architect, Ron Pompei, who Sal Vetri hired while he was in his early 20s, was a fixture in the Vetri household. According to Marc, "He was like my uncle. I remember, when I was, like, 12 years old, heading down to West Philly to see Uncle Ron's new store he designed." That store was the original Urban Outfitters, on the fringe of University of Penn's campus. "So there's always been this synergy," he says. "It's like things have come full circle."

In a way, Vetri has his dad to thank — not that Sal Vetri didn't try to lure him into the family business. "I was in LA, working as a line cook and doing music, and my father wanted me to come home and work for him in the stores." Vetri asked his father if he would wish that fate on his worst enemy. "And — he remembers this, too — he said, ‘You know what? No, I don't. Just do what you want to fucking do.' And I moved to Italy that same year."

What does Sal think of his son's decision to sell his businesses? "Loves it," Vetri says. Which makes sense. Sal Vetri sold his jewelry stores to Piercing Pagoda in 1993.

Quiet and unreported, an earlier deal laid the foundation for the buyout. In early 2013, Pizzeria Vetri had just opened its first location, and investors, recognizing the concept's inherent scalability, were lobbing softballs of cash at the self-financed company.

Frank Conforti was one of them. "In the past several years, I've interviewed over 100 small food-and-beverage companies, from New York to Texas to California... The more people I met, the more Marc and Jeff felt like the right one for us. I was in charge of keeping them fully engaged and interested," he says. "I knew [the Pizzeria Vetri concept] needed capital to grow, so I set up a deal to loan them money, and we could get to know them and their financials. If their expansion of Pizzeria Vetri was successful and Marc and Jeff were in alignment, I knew it could evolve into something bigger. [A total buyout] was always one of the options."

Vetri used the capital from URBN to open the second location of Pizzeria Vetri, in Rittenhouse, last summer. Each pizzeria costs between $600,000 and $800,000 to build and outfit, and the formula is easily replicable. Vetri agreed to open in a new lifestyle center URBN was planning in Devon, a town on Philly's old-money Main Line — construction on that complex has yet to break ground — and then URBN brought up Austin.

"It was like, as long as we’re holding hands and making out, why don’t we just consummate the marriage?"

"We went to look at it, we liked it and said yes," Vetri says. "Then they were talking about some other ones. And they sounded good, too. And somewhere along the way, they were like, ‘You know, maybe we should just buy this pizzeria concept.' And then, somewhere along the way, someone says, ‘Well, what if we just buy the whole restaurant group?' It was like, as long as we're holding hands and making out, why don't we just consummate the marriage?"

On behalf of URBN, Conforti and Dave Ziel, chief development officer for Urban Outfitters, made the official offer last February during a meeting with Vetri and his partners in the upstairs dining room at Lo Spiedo. Eight months later, papers were signed, and the deal was announced on Monday, November 16. Both parties were pleased. Shareholders, suddenly finding themselves in the restaurant business, were not.

According to Bloomberg, URBN stock had taken a six percent hit by close of business that Monday, part of an overall slide of 34 percent since March 20, when the company was trading at a lifetime high of $47.01 a share. "Hindsight is 20/20. Maybe we could have done the announcement differently," says Conforti, "but I think any time there's ambiguity out there or something that [investors] don't fully understand, there's a cause for concern. Initially because it was something relatively unique, there was some confusion there."

Stocks are stabilizing after the announcement of the Vetri deal, but still, the trend is alarming for a company that hasn't traded below $20 a share since 2Q 2009. It speaks as much to shareholders' unease with getting into the restaurant business as it does to the precarious state of retail in general.

URBN's diversified experience centers might be the antidote to sales atrophy, and the company is doubling down on the food front: Cleveland chef and The Chew host Michael Symon signed on to URBN's Austin location, saying "[Vetri's involvement] was a huge part of our decision." New Orleans's John Besh, one of Vetri's Best New Chef Class of '99 pals, and Aarón Sánchez are also rumored to be installing their Johnny Sanchez concept, though neither URBN or Besh's reps will confirm.

Does URBN have any buyout plans in the works for these chefs? According to Conforti, "We're done with acquisitions for some time."

At the craft station in the sun-dappled ‘backlot' of URBN's Space 24 Twenty in Austin, undergrads hovered over swatches of bubble wrap and anthills of glitter. Stands, spread around the plaza like a farmers' market, sold wood-and-tea-scented perfumes, burlap crops tops tattooed with animal cracker illustrations, and pastel-glazed pottery sized for dolls. A jam-maker offered samples of ‘Straw Barry Manilow' preserves. Father John Misty wannabes hung in a chill tent whose coffee table was stacked, inexplicably, with green bananas. People lined up at the Lumiere Tintype Photobooth for portraits tinted to make them look like characters from the Oregon Trail.

Welcome to Pizzeria Vetri's grand opening.

As recently as spring, this part of the Drag (the nickname for Guadalupe Street running along the University of Texas at Austin's western border) harbored a mix of entrenched and darkened businesses, including an existing Urban Outfitters that's been in business since 1995. URBN annexed the real estate, retrofitted its original store into 14,000 square feet of womenswear, created a new dedicated shop for guys and demolished the rest to make room for restaurants.

Inside the stores, URBN's target demo, the Experience Seekers, had turned out to sniff expensive candles, flip through old records, and stroke selvedge denim like petting zoo animals. A stack of throwback CK One T-shirts elicited the kind of reflexive thrill of nostalgia Urban Outfitters is known for commodifying. Outside, alt-R&B vocalist Kelela was tuning up, but all I could hear was the DJ in my head spinning Keith Sweat's Greatest Hits.

People were experiencing, but were they buying? The same question could asked of Pizzeria Vetri.

The pizzeria stands opposite the UO stores, looking like a little stone cottage with a sloping teal roof and a patio furnished with red picnic tables and matching umbrellas. Inside, staff did side-work: polishing glassware, inventorying beer, folding and stacking take-out boxes in Jenja towers. White marble, polished concrete and splashes of Maraschino red matched the Philly aesthetic. Wine bottles arranged upside-down like glass bats gathered into a chandelier.

Would-be customers passed through, using the restaurant as a shortcut from the parking lot to the impending grand-opening party in the plaza. One paused at the bar and ordered a UFO Hefeweizen, then headed outside to join the millennial ranks draped across wrought-iron chairs. On their tables: Herschel backpacks, iPhones, a teacup Yorkie, beverages... No pizzas.

People were experiencing, but were they eating? Vetri says yes: "Guest counts were great and it was a successful opening." How great exactly? "Not really at liberty to discuss numbers, now that we're publicly traded and such."