Dueling growth strategies

Seldom have two restaurant philosophies been pitted so blatantly against one another. Contestants, start your cash registers.

In one camp are the experienced multi-concept operators who’ve decided to narrow their holdings to category titans—Taco Bell and Pizza Hut, but not the A&W burger chain, to cite the most pronounced example.

In the other group are the mini-conglomerates that figure they can maximize sales and profit growth by amassing a stable of next-tier concepts—The Office Beer Bar & Grill, not Red Robin or Max & Erma’s. They’re shopping for deals on brands that may not be tearing up the fast lane, but in the aggregate can still get you there financially.

The current test of strategies is shaping up in fast food, with Arby’s joining A&W and Long John Silver’s on the public auction block. Presumably there are plenty of other, smaller chains similarly available for the right price.

The situation echoes what happened in casual dining during most trying days of the Great Recession, when giants like Outback and Brinker pared down their portfolios—and counter-thinkers like Landry’s went on a shopping spree.

At the very least, the dynamic has changed the line-ups of who owns what. Among the new stables of restaurant brands are companies like Villa Enterprises Management, which just added The Office to such concepts as South Philly Fries, Banana Smoothies, and perhaps its best-known brand, Villa Fresh Italian Kitchen, still known to fans as Villa Pizza.

You might not know Beautiful Brands International, but you may already compete with one of its 12 concepts, including what may be the industry’s only crepe chain since the dissolution of Magic Pan, Le Beau Rouleau. Its other brands include Camille’s Sidewalk Café, Fresh Berry, Rex’s Bite Size Chicken, In the Raw Sushi, Dixie Cream Donut, Blazing Onion Burger Co., Greenz Salads, Caz’s Chowhouse, Top That! Pizza and SmallCakes, a “cupcakery.”

Then there’s Focus Brands, with Moe’s Southwest Grill, Schlotzsky’s, Carvel, Cinnabon and Auntie Anne’s.
One of the oft-mentioned other multi-concept franchisors is Kahala, the parent of Blimpie, Ranch 1, Cereality and nine other concepts.

Lesser known are Trufoods, parent of Wall St. Deli, Arthur Treacher’s and Pudgie’s Chicken; and Franchise Brands, the younger venture of Subway founders Fred Deluca and Peter S. Buck, with Mama DeLuca’s Pizza and Taco Del Mar.

All those clusters are tiny dots compared to the collection that Landry’s has pulled together: Some 33 brands, ranging from the Mongolian-themed Yak & Yetti to its namesake high-end fishhouse.

Will that more-is-better philosophy prevail? Or will Wendy’s prove that a focus on a single powerhouse brand delivers more of a return to franchisees, shareholders and employees?

We’re about to find out.

Set your TiVos for this one

A dandy takeover skirmish has slipped past almost unnoticed, despite the eleventh-hour victory of a restaurant veteran whose last turn in the spotlight still has observers telling war stories. They paint Bill Foley as a wheeler-dealer with the guile of a car salesman and the won’t-take-no tenacity of an insurance peddler.

Indeed, insurance was how Foley made his first fortune. Then he used the money and a sixth sense for opportunity to become the controlling investor in the parent of Carl’s Jr.—after he was brought in to keep the brand from being wrested away from its iconic founder, Carl Karcher. Karcher kept his job as the brand’s front man but lost financial control to Foley. Yet by all outward appearances, Karcher appeared grateful, not resentful.

Now Foley’s American Blue Ribbon Holdings has emerged as the winning bidder for Max & Erma’s, the Midwestern string of bar-and-grills that slipped into bankruptcy late last year. Blue Ribbon and its investment partners aren’t expected to close on the roughly $28 million purchase until Tuesday, but Foley is already sketching out his plans for the casual chain.

“We’re not in there to do anything crazy,” he told Business First of Columbus, a newspaper serving Max & Erma’s hometown. But Foley indicated that up to 10 of the chain’s 77-or-so restaurants will be shut to stem the chain’s bleeding before it starts growing again.

It’s hardly standard for a restaurant buyer to announce closings before the staffs of the doomed restaurants have been given the bitter news. At the very least, the places usually know their plug will be pulled. Otherwise employees will worry their units are in the crosshairs.

He also disclosed that Max & Erma’s will likely start selling pies from his two other sizeable restaurant chains, Village Inn and Bakers Square.

Foley, an attorney by training, definitely follows his own playbook. Some questioned his reasoning when a company he controls bought Village and Bakers, two of the earliest casualties of the economic downturn. The family dining greybeards hadn’t exactly kicked up their heels for ages. Why would Foley bother to turn around two stalwarts of a segment that’s been shrinking for eons? No one else seemed to want it.

Max & Erma’s, on the other hand, could’ve been a rock star fending off groupies. Two other suitors had declared they’d bagged the brand before Blue Ribbon slipped in with the actual winning bid.

Among them was a consortium that included investors in the Red Mango and Furr’s chains.That shopper, Dallas-based Concept Development Partners, had been identified as the buyer of Max & Erma’s as early as mid-July. But its reported bid of $26.4 million was topped, apparently afterward and with no fanfare, by Foley’s group.

Max & Erma’s, then operating or holding the franchise rights to 107 stores, was sold for about $10.2 million to Pittsburgh restaurateur Gary Reinert in early 2008. It was under his tutelage that the company filed for bankruptcy.

Reinert generated recent headlines by asserting he and Cantor Fitzgerald, the New York financial giant, were teaming up to buy Max & Erma’s for $32 million. But Nation’s Restaurant News reported the offer was never actually tendered to the bankruptcy court.

Reinert had apparently opened his mouth but not his checkbook.

'Sorry about the pennies.'

If recent restaurant valuations aren’t a fluke, gas stations will soon be giving away a casual-dining place with each fill-up, 200-seat grills will be awarded for good report cards, and the keys to sandwich joints will be used as stocking stuffers—“Collect all 20.”

Those situations are more plausible than the prices restaurants have recently been fetching. Consider, for instance, that Applebee’s parent agreed last month to sell 63 restaurants to a franchisee for $32 million, or about $508,000 per establishment. Sales would cover that figure in a matter of months. And these units were in Minnesota and Wisconsin, not Detroit, Port-au-Prince or Siberia.

Still, those dollars sound sweet compared with the outlay for the 10 remaining outlets of the bankrupt Ham’s Restaurant chain. A local concern bought the Carolinas-based brand and the restaurants for $360,000—on a per-unit basis, about what a family would pay for a decent sedan.

In a buyer’s market like the current one, it shouldn’t be a surprise that Max & Erma’s was set to be sold for $24.8 million. It’s unclear how many units of the venerable Midwestern grill-and-bar chain are still in operation, but official reports pegged the tally at the end of last year at 68 company stores and 28 franchises.

Sure, the chain is bankrupt. But that price prompted the current owner to join forces with another financier to tender a bid of $32 million. The court overseeing the chain has yet to say publicly if that offer will bump the prior bid, or if there are complications.

Maybe it’s just waiting for someone to return some bottles and pose a sweeter offer.