ZaLat Pizza: Khanh Nguyen’s Plan for Global Domination

• Khanh Nguyen, founder of ZaLat Pizza, doesn’t just want to get rich—he wants to make his employees rich, too, including the pizza makers and the dishwashers.
• Not only does ZaLat provide all employees with full benefits, including health insurance and a 401(k) plan, they’re also offered stock options in the company.

Related: Being employee-owned creates huge advantages for Johnny’s Pizza House

By Rick Hynum and Brian Hernandez
Photos by Kathy Tran

Khanh Nguyen has told his life story about a million times. So it seems anyway, judging by the ongoing blitzkrieg of media coverage earned by his Dallas-based concept, ZaLat Pizza. Fortunately, the story is anything but dull. As a child, he and his family narrowly escaped Vietnam as communist forces took over in 1975. He became a corporate attorney, then a software startup CEO, then the owner of DaLat, a Vietnamese restaurant and bar in Dallas. He even lit the spark, so to speak, that ignited Uber Eats.

But ZaLat Pizza just might be Nguyen’s crowning achievement—and that’s saying a lot. Named one of the “5 Hot Concepts” for 2021 by Nation’s Restaurant News, ZaLat’s first store opened in 2015. Now there are 17 locations around Texas, all of them company-owned, including the latest one that opened in Houston. At least six more are in construction now, and all but one focuses exclusively on delivery and carryout.

For Nguyen (pronounced “Nuwen”), ZaLat isn’t just another ghost kitchen concept. “Our entire business model was designed with plans for global pizza domination,” he says. “I’m a natural business guy, especially with my ADD. Whatever I do, I’m always designing for global domination, whether it works or not.”

There’s another mission behind ZaLat, too. Nguyen doesn’t just want to get rich—he wants to make his employees rich, too. And not only the GMs, but the frontline workers and the dishwashers, too. In other words, if Nguyen wins, everybody wins.

The Accidental Restaurateur
Nguyen was born in a country in which a very different—and quite literal—battle for global domination once took place. His father was a general in the South Vietnamese army and governor of a province called Dalat (hence his first restaurant’s name). When the U.S. gave up on that war, the North Vietnamese army took over the entire country, and things were about to get ugly. In the midst of a mass, panic-fueled evacuation, his dad tried to get the family out of the country by air, but due to a mixup, three of his nine kids couldn’t board the plane. The desperate family headed to the beach and hunkered down for days until a troop carrier ship arrived and took them on. From there, they eventually ended up on a battleship bound for the U.S.

Nguyen didn’t speak a word of English yet, but he had brains aplenty. After getting his law degree and working as a corporate security attorney, he co-founded, along with his brother, a tech company specializing in software for hospitals. After selling off that startup, he found himself with some downtime.

Related: ZaLat Pizza hires two new top executives

“I call myself an accidental restaurateur,” he says. “I had no intention of going into this business. I was going to start another software company.” But one day he decided to make dinner at home, even though he never cooked. “I made ramen and eggs, but with my ADD, once my passion kicks in, I’m all about it. Every day I researched recipes and cooked a four- or five-course meal for nine months.”

With so much free time, he decided, what the heck, he might as well open a restaurant. “I didn’t know a soul in the industry. I just hired three people off Craigslist who didn’t know how to cook,” he recalls. Nguyen did a lot of the heavy lifting himself, from creating the recipes and running the kitchen to serving guests, tending bar and washing dishes. But DaLat became an instant hit, specializing in pho and other soups, as well as entrees like pad Thai and ramen dishes. The eatery’s late-night hours drew in Dallas’ service-industry crowd, who needed somewhere to drink and dine after clocking out at work. “We had a service-industry following immediately, which propels us to this day,” he says.

ZaLat came next in 2015, along with a new sense of purpose. “I’m always thinking multiunit,” Nguyen notes. “Why knock out one concept, only to go and change it up? It’s very complex getting one of these ideas to work. If you have one that survives and makes it, why not just perfect that model so you can replicate it at scale instead of coming up with a brand-new one every single time?”

Steady Organic Growth
Before long, Nguyen had opened four ZaLat locations. “That was organic growth, restaurant by restaurant,” he says. As ZaLat expanded, each existing store helped pay for the next one. After opening No. 4, Nguyen started taking on investors and adding more and more locations.

As a DELCO kitchen, ZaLat doesn’t require a lot of space, with a footprint of about 1,500 square feet. “Our buildout costs are insanely low compared to everybody else,” he says. “They don’t care about their buildout costs, because someone wrote them a $300 million check. They’re going to go as fast as they can so their [investors] can exit at a high multiple in five years. Then, the company is left holding the bag, thinking, ‘How are we going to find additional growth going forward?’ We’re going to have steady organic growth. We have stores that pay for themselves in five months, total. That means we’re kicking off two or three more stores per year for each unit.”

ZaLat’s biggest advantage? “We just concentrate on one thing: A-plus execution on the pizza,” he says. ZaLat’s menu is all pizza, all the time, plus one side salad. No calzones or pasta dishes, no burgers or sandwiches. “Ninety-one percent of our sales is pizza,” Nguyen says. “We offer Ben and Jerry’s ice cream for dessert and Cokes. By design, we don’t want to make anything except pizza so we can make it as perfectly as we can. My thought in designing this model was, let’s conquer this space by focusing on one product.”

Related: The possibilities and pitfalls of ghost kitchens

Partnering With Uber
Getting that pizza into customers’ hands was a tougher challenge. ZaLat started out with its own team of delivery drivers. That turned out to be one more headache Nguyen didn’t need in his life. “It became very apparent to me that the pizza chains that do delivery are not in the pizza business,” he says. “They’re in the logistics delivery business. The cost of maintaining those drivers is like a second kitchen you’re paying for. [The chains] can afford that because of the economy of their pizza, how they crank those pizzas out. We were trying to focus on great pizza and found that the entire shop was worried about who’s going to take that pizza out.”

Even with 10 or 12 drivers working on a Friday night, ZaLat was struggling to get orders to customers’ doorsteps. “Now I’ve got managers jumping into their cars,” Nguyen says. “I’ve delivered to all of these apartment complexes myself. I was, like, ‘This sucks.’ It’s all we worried about. The stress level was just intense all the time.”

Nguyen soon found himself calling Uber drivers for help. “The driver would come up to our shop expecting a passenger, and we’d walk out with a pizza and have a three-minute conversation: ‘Please take this pizza to a customer, and maybe they’ll give you a tip.’ We convinced three or four to take it, and one cussed us out.”

A pizza-shaped lightbulb flashed above Nguyen’s head, and he went to Uber with a proposal: “I told them, ‘I’m glad to pay full fare for your drivers to carry my food. You’ve got thousands of drivers. Get into this business, and I’ll help you. I came from a tech company. I’ll give you all the tweaks [to your software] to test out whatever model you want to deploy, but you need to be in this business.’ A month later, Uber corporate took me up on it. They said, ‘We have a piece of software we’re using in San Francisco to deliver flowers. We think we can use it to try out food delivery. Do you want to be our restaurant test project?’ They came in a few weeks later, deployed it on a Monday, and I got rid of all our drivers that Friday. We were the only restaurants Uber delivered for in the first three or four months.”

A Glorious Mission
Offering delivery only through third-party companies—ZaLat also partners with DoorDash—has worked like a charm, Nguyen says. Granted, that personal connection between the brand and the customer is lost, but the pizza is so good, he believes, it doesn’t matter. “We don’t touch our customers at all. Their only contact is when they eat the pizza. So we’re focused 100% on the quality and taste of the pizza.”

Maintaining that food quality calls for what Nguyen terms “an extremely high give-a-sh*t factor” among his staff. There’s only one way to get that, he believes: Treat your employees as if they truly matter. “It can’t be a minimum-wage-plus employee force. They take care of the customer and the pizza to their maximum capability, and on our side, as a company, we do everything we can to take care of them.”

Related: MOD Pizza helping employees earn their high school diplomas

Not only does ZaLat provide all employees with full benefits, including health insurance and a 401(k) plan, they’re also offered stock options in the company. “All of our employees have a chance to be owners in this company,” Nguyen says. “This comes from my tech experience. If you get in early, you’ve got some stock options. At a company like Google or Facebook, no matter what you did there, when it goes public, you’ve got a huge amount of cash as your payday.”

So the better workers do their job, the better their chances of a future windfall. But most service-industry employees don’t understand stock options and evaluations, so Nguyen makes sure to educate new employees on the benefits of buying in. “We explain how it works. You get a chance to buy a brick in this house. When you do [good work] that causes the value of the house to go up, your brick becomes more valuable. You’ve got a chance to buy in at a very low price. They’re not going to get this opportunity anywhere else. Where else can you be a frontline cook and potentially have a chance of cashing out on a tech-level IPO? We’re talking frontline guys potentially getting millions out of it. It’s a glorious mission, and they all get it.”

The strategy has helped ZaLat weather the labor crisis while some restaurateurs can’t even find enough employees to open a new store. At the time of Nguyen’s interview with PMQ, ZaLat was gearing up to open a new store in Houston. “It’s the largest application pool we’ve ever had,” he says. “We’ve had 200 to 300 people apply already.”

If ZaLat does achieve global pizza domination, Nguyen believes it will be on the strength of “the best pizza in the universe” and his employee-first model. “There’s more than a food mission here,” he says. “There’s a people mission. We’re going to do everything we can to make sure we don’t go the way of other concepts, where the rich get richer and we’ve got equity coming in and it’s all about money for us. Supporting ZaLat means these very hard-working men and women—who are usually neglected in our society—have the chance to cash out at a tech level in five or 10 years if we really grow. So you’re supporting a beautiful mission.”

Website-Only Content:
How ZaLat’s Stock Options Work
Stock options for employees can be a bit hard to understand, which is why Nguyen makes sure to educate his team on how they work. Here’s his summary:

“Options have a vesting schedule. Ours vest in tranches over a five-year period. Vested options are exercisable, and you can purchase them and convert them into shares. Once you purchase the shares, they are yours to keep regardless of whether you still work for us or not.

“Vesting schedules vary, but they can be as short as monthly, meaning you have vested options on a monthly basis. Ours are currently monthly, but we’re thinking about moving them to annual vesting to simplify the associated tracking and accounting for them.”

Rick Hynum is PMQ’s editor in chief.