After Some Setbacks, Sushirrito Is Flourishing

Sushirrito, a San Francisco-based restaurant that has four brick-and-mortar locations and 10 as part of a licensing agreement with Local Kitchens, a micro food hall, specializes in burrito-sized sushi with Japanese and Latino influences.

But it expanded too quickly in the same geographic area and was forced to close three of its four San Francisco brick and mortar stores in 2021 and 2022 and opened up two outlets in New York in 2016 and 2017, near Union Square and Times Square, whose leases were also not renewed.

Peter Yen, its co-founder with chef Ty Mahler, worked for a private equity firm in 2004 that invested in food and food manufacturing companies, and noticed that sushi restaurants had not been “fast-casualized.” That was because traditional sushi, which combined nigiri (rice molded by hand) with cut rolls, could not be made fast enough to fit a fast-casual format.

If he could apply the “Chipotle model” to sushi and prepare a one-pound sushi burrito in less than a minute, “now you have something,” he declared.

Sushiritto, a sushi chain, offering larger-sized portions has faced setbacks, but is bouncing back, and is being helped by its licensing partnerships with a micro-food hall.

The sushirrito’s are so large that “they’re cut in half. You eat it like a burrito with your hands, and what comes across from a customer’s standpoint, are the flavors and size,” Yen noted. For example, flavors such as chimichurri sauce or Mexican mole.

After graduating from Northwestern University’s Kellogg School of Management in 2008 and launching a medical device company, he joined with Mahler and after testing hundreds of recipes, they developed the sushirrito. In 2011, they launched their first Sushirrito restaurant in downtown San Francisco, in a compact 540-square-foot space, offering only weekday lunch and to-go orders.

It caught on early, with lines forming around the block. And eventually they expanded to four eateries in the San Francisco area. Start-up costs varied widely from as little as $50,000 to as much as $700,000.

To capitalize the business at first, Yen invested some of his own capital and then, as it began to expand, raised money from friends, family and angel investors.

The bulk of its sales has always been off-premises, based on take-out and delivery, more so than sit-down dining. Yen said depending on the retail store, about 80% to 90% of current sales stems from take-out and delivery.

At first during the pandemic, Sushirrito did well because few people dined out and most people relied on take-out and delivery, which was its forte. But soon, Yen admitted, “There was too much over-concentration and not enough demand, and we closed three of our four stores.”

“It’s been quite a ride,” Yen admitted. “When we launched, there was no online ordering, no DoorDash, and we were designed for walk-in business. But we’ve learned to adapt,” he said.

Once it got its supply chain and operations in order, Sushirrito regained its footing and opened three new brick and mortar eateries, outside of San Francisco, in Burlingame, Redwood City and Palo Alto, totaling four with its remaining store.

In January 2022, Sushirrito devised an inexpensive way to greatly expand their footprint by getting involved with Local Kitchens, which operates out of eleven locations, all in California, and enables start-ups to launch at next to nothing and also helps with their marketing.

“At first, we weren’t bullish on ghost or virtual kitchens. But Local Kitchens isn’t a ghost kitchen and they have brick and mortar, and they’re trying to expand by combining different brands under one roof,” he said.

Its Local Kitchens’ connection has gone so smoothly that it is now participates in ten of their locations. “Local Kitchens has been great partners to scale rather than we could on our own. They do a good job of executing on our recipes and holding true to our branding,” Yen said.

It licenses the brand and pays Sushirrito a percentage of sales. Participating in one or two of their micro food halls wouldn’t pay off substantially, he indicated, but now it’s up to 10 and growing, which is boosting its cash flow.

Moreover, he described it as a “good platform to test new products and market or collect more data to innovate different things.”

Post-pandemic, many San Franciscans moved out of the city, and since they were familiar with the brand, they knew it and ordered it at various Local Kitchens outlets.

A Local Kitchens’ spokesperson described it as “Unlike the ghost kitchen models where restaurants lease out kitchen space, Local Kitchens licenses the restaurants’ recipes and trains Local Kitchens chefs to accurately recreate each of the recipes, packaging and presentation. This allows for restaurant brands to expand and compete against larger chains by partnering with Local Kitchens.”

By partnering with them, the spokesperson noted start-ups can “eliminate start-up risks, additional rent, and staffing costs.”

Yen acknowledged that “You lose a bit of control, as in franchising, but we work together and trust them.”

In the future, Yen envisions expanding with Local Kitchens, exploring other licensing partners, and expanding its brand outside of the Bay area. He envisions opening one or two more brick and mortar locations, “but it would take a lot of capital to expand beyond that and we’re not thinking about that now.”

Yen described the three keys to its future success as: 1) Food first and that involves the menu, 2) Continuing to strengthen its brand, 3) Executing its menu and operations.

“The most gratifying thing for me is to see both new and repeat customers eat a giant sushi roll with their hands. It’s been quite a journey with lots of ups and down from ideation to where we are now,” he admitted.