Schmatz co-founder offers Japan startup takeaways

Schmatz Co-founders Christopher Ax (left) and Marc Luetten (right)

A version of this article appeared in The Japan Times

What’s the secret sauce to successful entrepreneurship in Japan? This author met Marc Luetten, co-founder of German restaurant chain ‘Schmatz’, to find out. Luetten and his partner, Christopher Ax, started selling sausages from a food truck in Tokyo in 2013 and went on to built a 39 ‘store’ restaurant chain in Japan.

The two partners became friends growing up on the same street in Hamburg, Germany. In their early and mid-20s the friends met again in New York City, when both worked in the venture capital industry. Each wanted to start a business. “Let’s figure out what the two of us can do together,” they agreed.

Both were passionate about food and Japan, a country Luetten had lived in for six months as a student. After kicking ideas about, they came up with a crazy idea: “Why don’t we start a German sausage and beer food truck in Tokyo?”

Within two weeks and with limited resources, the pair quit their jobs and relocated to Tokyo. On arrival, they bought air mattresses at Don Quixote and moved in, rent free, to a friend’s Naka-Meguro warehouse. Then they bought a used food truck off Craigslist which they sanded and painted themselves. After, they began selling sausages at a Tokyo farmers market, with the goal to learn the food truck business.

Learning wasn’t easy. Neither had any food sector or hands-on business experience. Nor could they speak much Japanese. “There were days that were not great,” recalls Luetten.

He remembers one especially cold, bleak and snowy day in December when people didn’t visit the market. He shivered all day in the food truck without selling anything.

Eventually, long queues formed outside the truck. “In challenging and in trying things out… our food truck became very popular,” he reports. How could the two friends build upon their initial success?

Tokyo has many great German restaurants. Many are expensive or serve guests old-world German cuisine, in matching ambient old-world décor. “Why was there no cool, modern and vibrant German brand?” they wondered.

To test their idea, the two opened a first restaurant in Akasaka in 2015, with funds provided by business angels. They ran the store hands-on with only a small part-time staff to learn the business, just as they had with the food truck

By trial and error they learned how to manage inventory, how to manage staff and how to serve dishes and experiences that customers wanted. “We reiterated a lot in those early days,” explains Luetten. “We changed everything,” even changing the menu completely from one week to the next.

They made many painful mistakes. But they also celebrated small successes, by approaching failure as a learning experience. Importantly, they learned from the ground up what it means to run a restaurant. “The restaurant business is hard,” Luetten says, with a wry chuckle.

Once business stabilized, the friends opened a second and third restaurant. The third store was the most difficult, because it was impossible for at least one partner to be present all the time at each location. But they learned how to ‘let go’ by trusting team members. “It was a new challenge to go from one store, to two stores and then to three,” he admits.

After, the pair raised private equity to fund further group expansion. With the funds, they hired experienced restaurant managers, formed an HQ team and started searching for lease locations.

They struggled at first to secure good leases, as reputable firms in Japan are shy to do business with unknown partners. It took them one and a half years to build enough trust with Japanese real estate companies, before securing a lease in Takashimaya’s flagship Nihonbashi store. After, the restaurant group quickly expanded.

Luetten described 2019 as being a “wild time”, when Schmatz grew from 12 to 24 stores. “At some point, we opened a store every two weeks,” simultaneously hiring over 600 staff (including part-timers). Still, the company did not have enough trained staff or managers to sustain growth. Luckily, team members from the firm’s earliest days met the challenge by taking a lead role in store rollouts.

For example, one of the most tenured employees from the original Akasaka store took charge of kitchen training for all new store openings. He spent two weeks at each, training 10 to 20 part-timers, before moving on to the next. “He worked tirelessly throughout almost the entire year,” says Luetten.

The group grew again in 2020 from 24 to 36 stores. Then, with stores in various stages of completion, the pandemic crisis hit in the first quarter of 2021. The restaurant business everywhere was hugely affected.

According to Luetten, the firm’s backers remained supportive throughout the crisis and continue to share a common vision—to build a modern German brand in Japan— which may take another 10 years to realize. Their financiers can do that because they’ve invested their own money into Schmatz and are not under pressure to return capital to outside investors. “We’re lucky to have such great backers who can afford to and think this long term,” Luetten says. For us, “Covid is not a game changer, but a time stopper.”

The young entrepreneurs, still in their early 30s, plan to grow the chain, post Covid, to over a hundred stores. They also want to build Japan’s largest international beer brand.

Luetten warns there is no “magic sauce” to successful entrepreneurship. The firm remains a work-in-progress. By trial and error, “We’re always trying to get a little bit better every day.”

He credits much of what he and his team have built to hard work. “Without our incredible team, we would never have been able to pull that off.” Luck too plays an important role. “I think we’ve also gotten lucky by meeting some incredible people who helped us along the way.”

Luetten believes that people make their own luck. Be courageous and risk failure, he suggests: “The only way to learn is by making mistakes… Fortune favors the brave.”

Refreshing the parts others cannot reach

Marc Luetten and Christopher Ax built Schmatz into a chain of 39 German restaurants in Japan, starting from a food truck. They learned by doing, making errors and correcting them. Among other lessons, they learned that guests want to drink delicious beer. So they started serving great tasting beer along with simple food dishes, now mainstay items on Schmatz’s menu.

Arguably, Germany brews some of the best beer in the world. But real German beer is difficult to get outside Germany as it must be served fresh—not over 3 to 4 months old—before it turns stale. Most restaurants don’t turnover enough beer to serve it fresh.

The entrepreneurs faced a similar problem in the early years. Back then, Luetten and Ax sourced beer only from local craft breweries in Japan. But by 2020, the firm had opened enough stores to also partner directly with Bavarian breweries. German beer shipments now arrive fresh within 6 to 8 weeks from date of order and consumed shortly thereafter. “Nobody else in Japan can do that,” Luetten believes.

Today, Schmatz restaurants serve on tap eight different types of authentic German beer, each brewed according to the firm’s own recipes. Schmatz beer is also sold through supermarkets, bars and other restaurants.

Richard Solomon is an author, publisher and spokesman on contemporary Japan. He posts Beacon Reports at www.beaconreports.net.

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