The Chicago Tribune – A dumpling served by a robot? Wow Bao gives Chicago its first fully automated eatery

Wow Bao is set to open a new location that will be missing something big: waitstaff.

The quick-service Asian chain will open Chicago’s first restaurant with fully automated service Dec. 1.

Customers will order and pay at a kiosk and pick up their food from one of a dozen LED-lit cubbies, which will display their name on an LCD screen when their food is ready. Wow Bao is also introducing a new app in tandem with the Near North restaurant so visitors can order on their phones.

There will still be cooks preparing the chain’s steamed buns, noodles and rice behind the scenes, but they will be invisible to customers. The only staff customers will see will be a“concierge” or two tasked with guiding them through the order process and assisting with problems.

But are Chicagoans ready for this restaurant of the future, devoid of human interaction? Wow Bao President Geoff Alexander thinks so, noting that Wow Bao has always been a leader in technology, adding self-order kiosks and online ordering in 2009. And because customers are already accustomed to digital options at the chain, Alexander said the automated restaurant “is a natural evolution for us.”

The new technology has failed to catch on in markets outside of San Francisco for its creator, Eatsa, a grain bowl and salad chain that scrapped its own plans for a Chicago store and announced last month that it was closing existing sites in New York, Washington, D.C., and Berkeley, Calif.

But Wow Bao is betting heavily on automation. The chain plans to double its locations next year, implementing the new technology at all new sites. The Near North restaurant will be Wow Bao’s sixth location in Chicago and 14th overall, including a delivery-only location in Los Angeles and stadium, airport and college campus outposts.

“Was the world ready for Facebook? Shopping on Amazon? It’s the same thing in restaurants,” Alexander said. “Hospitality is evolving.”

Technology in the restaurant industry is changing quickly, with even large chains like McDonald’s rolling out mobile order and payment systems and installing ordering kiosks in restaurants. For restaurants, there are a number of benefits. Orders that come through kiosks or on mobile phones can be placed more quickly and with fewer errors. Customers also tend to spend more when ordering electronically, and the technology allows restaurants to scale back employee hours.

Alexander said Wow Bao’s order kiosks are overwhelmingly preferred by customers.

“There are times when we have no one in line at the cashier, and six or seven deep at the kiosk,” he said.

Alexander admits that it may take customers time to adjust to a restaurant without any waitstaff, but he said he believes that the model is a sign of where the restaurant industry is headed.

“Are we early? We may be. But the world changes in a heartbeat, and we’re not far off from it becoming mainstream,” he said. “We are going to help make it mainstream.”

Wow Bao is the first restaurant chain to license this technology from Eatsa, which is operating just two locations in San Francisco as it tests and builds out its brand.

Eatsa also hopes to pursue other deals that involve licensing its technology to established chains, CEO and co-founder Tim Young said.

At Eatsa, Young said, customers place orders and get their food in less than 90 seconds, which is comparable with fast-food service. He added the model also takes out “pain points” that can be present at restaurants, including the slowdowns and glitches that can occur between different apps and in-store technologies.

But John Gordon, principal at Pacific Management Consulting Group, said that while there are clear benefits to technology in the restaurant industry, full automation may not sit well with customers — especially older generations.

“We’ve got to remember that the restaurant business is still essentially a human-to-human endeavor,” he said.

Wow Bao, which was founded in 2003 by Lettuce Entertain You Enterprises, recently got an undisclosed investment from Chicago private equity firm Valor Equity Partners to accelerate its growth. Valor Equity has an existing partnership with Eatsa.

sbomkamp@chicagotribune.com

Twitter @SamWillTravel

The Street – Odds of Potbelly Sale Increase With Activist Appointment

Odds of Potbelly Sale Increase With Activist Appointment
 Potbelly Corp. (PBPB – Get Report) announced late Thursday, Oct. 5, that it had added Joseph Boehm of activist fund Ancora Advisors LLC to its board and strategic review committee, in a move that will likely increase the company’s odds of getting some kind of deal done, though roadblocks remain.

“We believe yesterday’s naming of Mr. Boehm to the board likely would accelerate any potential refranchising program,” wrote Maxim Group analyst Stephen Anderson in a note Friday morning. “For now, however, we expect such a program to be delayed until a permanent CEO position … is filled.”

Former CEO Aylwin Lewis was left in August just as the company announced it had JPMorgan Securities LLC to advise on the review.

Boehm’s position on the strategic review committee is part of a larger settlement between Ancora and Potbelly. The firm cannot acquire more than 9.9% of Potbelly’s shares and must keep its stake above 3% or else it will lose its seat.

The board goes to eight members from seven with the appointment.

Cleveland-based Ancora holds a 4.4% stake in Potbelly and has asked the company to consider refranchising at least part of its 413 company-owned locations and improve margins through the use of technology. The firm has said that if Potbelly did not enact these changes it would push for a sale. Potbelly has provided no update on the review since August.

Activist funds often push restaurant chains to franchise more stores and use the proceeds for stock buybacks or dividends as a mechanism to boost total shareholder returns. That’s part of what Ancora, which owns a 4% Potbelly stake, is after at the sandwich chain. Marcato Capital Management LLC employed the strategy at Buffalo Wild Wings Inc. (BWLD – Get Report) , and it’s also possible that activist Glenn Welling could soon push Ruby Tuesday Inc. (RT) to franchise some of the hundreds of stores it operates. In addition, activists could push for further franchising and M&A at Jack in the Box Inc. (JACK – Get Report) .

As for Potbelly, the company has seen sales lag recently and it operates in the over crowded fast casual vertical where more tantalizing targets may be on the market.

John Gordon of Pacific Management Consulting Group suggests that a strategic acquirer would be the best fit for Potbelly as the company could benefit from a parent with greater scale and infrastructure that could help implement company-wide changes to help improve the company’s operations. Pizza Hut owner National Pizza & Wing Co. as well as Jimmy Johns, which is backed by Roark Capital, would be logical suitors as would JAB Holding Co., which recently took Panera private. However he notes that the Panera deal likely rules out JAB and that the Pizza Hut franchisee already branched out by acquiring a significant chunk of Wendy’s locations.

Privately held Firehouse Subs owner, Firehouse of America LLC, may also be a logical depending on the overlap of its store footprint with that of Potbelly.

 Gordon seconded Anderson of Maxim’s assertion that nothing significant will get done at Potbelly until a CEO is named.

Despite the potential lack of suitors, a sale may be the best bet, seeing as Potbelly recently took a number of steps incentivizing executives to do so, including bonuses if the company is sold before a new CEO is found.

 Analysts currently carry a wide range of price targets for Potbelly spanning $11 per share to $17 per share, meaning Potbelly could be worth as much as $426 million based on its 25.1 million shares outstanding. The company has no debt and cash of about $21 million as of June 25.

Potbelly shares shot up 4.12% to $12.65 apiece on Friday.

Maxim’s Anderson holds an $11 price target on Potbelly, representing a enterprise value to 2018 Ebitda ratio of about 6.4 times.

“We believe continued near-term sales softness, as highlighted by our downwardly revised 3Q17 (September) comp estimate … is likely to limit near-term upside potential,” Anderson wrote, adding that the sale prospects also limit downside, for now.

Potbelly and Ancora did not respond to requests seeking comment.

Restaurant Business – Subway Franchisees Push Back Against New Footlong Deal

Subway plans to resurrect its $5 Footlong next month in a bid to recapture traffic lost in recent years—but franchisees aren’t happy about it.Hundreds of operators representing thousands of locations have petitioned the Milford, Conn.-based giant to hold off on a $4.99 Footlong plan, fearing the impact the discounts could have on struggling franchisees in many markets, several sources told Restaurant Business.The company’s primary shareholders, working to assuage operators’ concerns, are offering to invest $25 million in the brand in January, according to a memo obtained by Restaurant Business. That memo makes the case for offering select Footlong sandwiches at $4.99 in part by explaining that traffic has fallen 24.5% over the past five years.The company acknowledged that its shareholders “have made an unprecedented investment in the Subway business.”

The shareholders include the family of the chain’s late founder, Fred DeLuca, and his co-founder, Peter Buck.

“Our franchisees are actively involved in many aspects of our decision-making process, and we welcome and encourage their feedback,” Subway said in an emailed statement. “We have support from the majority of franchisees on this program and many others we are testing. However, we typically do have a number of restaurants that don’t participate in our national promotions. It is always optional.”

“Subway is in the midst of a massive transformation, and change of this size takes time,” the statement said.

The petition underscores the challenges that large, franchise-heavy quick-service brands have in pushing value in the current environment. Many systems feel they have little choice, given intense competition and offers from major competitors.

Indeed, news of the petition comes just days after McDonald’s revealed its own upcoming value offering: a $1 $2 $3 Dollar Menu with several items and a planned Jan. 4 start date. Several other quick-service chains have their own value offerings, or are planning them.

Subway grew for years in part because of its value, driven by the ultra popular $5 Footlong promotion, which helped it establish its credentials as the value player in the growing sandwich business—while also helping the chain grow into the largest single restaurant chain in the U.S. by unit count.

But rising costs led the company to move away from that promotion in 2012. Subway has since struggled to come up with an adequate successor—similar to McDonald’s own struggles finding an adequate successor to its popular Dollar Menu.

According to the memo, the end of that deal and increasing check averages at the chain have hurt Subway’s perceived value, particularly when compared with McDonald’s.

That memo also blames growing competition from the likes of Arby’s, which has seen same-store sales increase for six straight years, as well as other sub chains Jimmy John’s and Jersey Mike’s.

In 2016, Subway’s U.S. system sales declined by 1.7% to $11.3 billion, and unit count declined by 1.3% to 26,744, according to the Technomic Top 500 Chain Restaurant Report.

“The shareholders do understand the magnitude of this situation,” the memo quotes Subway CEO Suzanne Greco as saying in discussing the $25 million investment. “However, the shareholders’ commitment to provide these significant additional resources is contingent on solidarity. The U.S. franchisees must be committed to a unified plan with solid execution and an outstanding guest experience.”

John Gordon, a restaurant consultant in San Diego, said that Subway was “stuck” in pushing value, given that it spent so much time pushing value.

“The $5 Footlong, they worked it too long,” he said. “It was the perfect thing during the Great Recession. Subway garnered a lot of market share during that time and their sales went up. Their problem is they didn’t turn it off.”

The $4.99 Footlong offer would largely resurrect that $5 deal, and has been tested in some markets.

Operators are concerned about the Footlong offer largely because establishing that price point nationwide would hurt operators in more expensive markets where labor, rent and other costs are higher. Labor costs in particular are rising annually amid competition for workers and rising minimum wages.

While other chains have used $5 price points to lure customers—like Yum Brands’ KFC and CKE Restaurants’ Hardee’s and Carl’s Jr.—Subway’s small, $420,000 average unit volumes, according to data from Technomic, make such discounts more difficult to swallow, operators said.

The discounts come as the chain seeks to improve its use of technology and convince operators to remodel locations.

“Our goal is to strengthen the Subway brand in every market around the world to give Subway franchisees the greatest opportunity to successfully grow their business,” Subway said in its statement. The company said that it is “realigning markets to ensure the right Subway restaurants are in the right locations.” And the company said that remodeled restaurants “are already reporting significant lifts in sales.”

“We have built Subway into the largest restaurant chain in the world,” the company said, “and we are confident that these changes will position the brand for long-term growth.”

The Street – Pizza Hut Wants You to Enjoy a Cold One With Your Slice

 Name a more iconic duo than pizza and beer.

Yum! Brands, Inc. (YUM – Get Report) knows it’s a winning combination and that’s why the Pizza Hut owner is piloting a new beer and wine delivery program in Phoenix, Ariz. The program debuts Tuesday, Dec. 5 with beer offerings. Wine will be available in that market in January and then the company hopes to expand the service to other metro areas.

“Beer and wine are the perfect combination to pizza, and we can serve as a one-stop shop because we can do that all in-house, no added fees, no extended time.” said Yum! Brands spokeswoman Stacy Lynn Bourgeois.

Customers will be able to order alcohol with or without pizza, she told TheStreet. In Phoenix, the first four offerings are Budlight, Budweiser, Shock Top and local favorite Kilt Lifter for $10.99 each for a six-pack. All four brands are owned by Anheuser Busch Inbev NV (BUD) .

Pizza Hut will use its existing delivery program to support the service, Bourgeois said. Delivery fees will depend on the restaurant, usually varying between $2 and $3. The pizza chain will be the first fast casual franchise to offer booze for delivery, but it will not extend its alcohol selection beyond beer and wine, the company said.

Delivery workers in Arizona have been trained to ask for IDs during delivery. Prices will vary depending on the market.

“I’m really excited about the fact that they’re doing it themselves,” said John Gordon, a restaurant analyst at Pacific Management Consulting Group. “The restaurant industry is still grappling with delivery.”

Adding beer and wine to the mix of offerings, he told TheStreet, will drive the average ticket higher while the cost of delivery remains the same per order. For Jimmy John’s Franchise, LLC, for instance, the cost of delivery per order is about $10.

While chain restaurants at large have struggled in recent years, Yum! has done considerably well under a highly franchised model and the leadership of a new CEO, Greg Creed. Its most notable success story is Taco Bell, whose brand strongly resonates with Millennials. Pizza Hut and KFC, meanwhile, are in earlier stages of a turnaround.

In the third quarter, Yum! posted same-store sales growth in all three chains. Pizza Hut saw a 1% uptick in same-store sales while boasting a new delivery algorithm that improves timing by six to seven minutes.

Pizza Hut beer will be delivered in specially designed coolers, Bourgeois said, similar to its new heat retaining pizza delivery bags unveiled in September.

CNN Money – The world’s biggest Starbucks just opened in China

  @SherisseDecember 5, 2017: 10:02 PM ET

 Starbucks is going venti in China.

The Seattle-based coffee company opened a 30,000-square-foot store in Shanghai on Tuesday. It’s the first Starbucks Reserve Roastery — the company’s new retail offering — outside the U.S.

It’s also the largest Starbucks in the world, spanning an area nearly twice as large as the next biggest, a Roastery in Seattle that opened three years ago.

Executive Chairman Howard Schultz said the store would blend the company’s 46-year history in the coffee shop business with “China’s rich, diverse culture.”

Starbucks Reserve Roastery Shanghai
The Starbucks Reserve Roastery opened Tuesday in Shanghai, China’s most populous city.

China is a vital market for Starbucks (SBUX), according to John Gordon, a restaurant analyst at Pacific Management Consulting.

The company’s latest quarterly earnings were pretty gloomy, showing disappointing sales growth in a tough retail environment.

The one bright spot was China, which stood out as Starbucks’ fastest growing market. Sales there were up 8% compared with the same quarter last year.

The company is riding that wave and expanding aggressively in China, opening a new Starbucks store every 15 hours on average.

Even though Chinese are traditionally tea guzzlers and less hooked on coffee than Americans, the country’s growing ranks of upwardly mobile consumers still view Starbucks as an attractive, aspirational brand.

The company is playing to that perception with its new Shanghai shop.

“This is a show store,” Gordon said. “The point is to be in a highly, highly visible, touristy [area] where there’s foot traffic, offices and urban housing in order to promote the brand.”

The store features massive copper casks for storing coffee beans, although the actual roasting will take place elsewhere on the premises. There is also a special emphasis on tea, with a dedicated bar offering items like nitrogen cold brew tea.

Starbucks Reserve Roastery Shanghai coffee

In a sign of the times, Starbucks partnered with Chinese tech giant Alibaba (BABA) to aggressively promote the Shanghai store opening online. Customers can book coffee tasting experiences on Alibaba’s e-commerce site and also buy special Starbucks Reserve coffee and related products tied to the store’s launch.

But the Shanghai roastery won’t hold the title of largest Starbucks for too long. The company has already inked a deal for an enormous 43,000-square-foot Reserve Roastery in Chicago that’s set to open in 2019.

The Street – Could McDonald’s or Arby’s Buy Bumbling Chipotle?

Last week, Chipotle Mexican Grill Inc. (CMG – Get Report) announced its co-founder, Steve Ells, will be relinquishing his position as CEO, as the beleaguered fast-casual chain began a process to search for a new chief executive.

However, the move raises questions about whether Chipotle might instead put itself on the auction block in the hopes of escaping the volatility of the public markets – it has been a rocky ride for the chain in the public markets over the past few months, capped by third-quarter earnings in October that missed Wall Street estimates by nearly $1.

Specifically, on Nov. 29, Chipotle said Ells would step down but remain as executive chairman at the firm. Governance experts argue that it may be hard for Chipotle to find a CEO, in part, because whoever is chosen will have to deal with Ells, who observers insist will still be effectively in charge despite relinquishing the chief executive role.

Also, Chipotle has four directors on its board who were brought in by activist fund manager Bill Ackman, including Ali Namvar, a member of the insurgent investor’s investing team. Ackman said he fully supports Ells decision. Nevertheless, activist-pressured companies often sell themselves when they are pushed to improve results and have no full-time CEO. Consider activist Mick McGuire’s success at installing three dissident directors onto the board of Buffalo Wild Wings (BWLD – Get Reportearlier this year in a move that also drove the wing and beer chain’s CEO, Sally Smith, to announce her resignation. But instead of finding a new CEO, BWLD agreed to sell itself to Arby’s Restaurant Group owner Roark Capital for $2.9 billion.

John Gordon, a restaurant analyst at Pacific Management Consulting Group, argues that it will be difficult for a new CEO to come in and have full control with Ells overseeing the board. As a result, he contends, it was possible that Chipotle may seek to sell itself at the same time as it seeks out a permanent CEO, especially given all the volatility in the company’s shares in recent months. Chipotle has experienced problems with its new Queso sauce and a string of bad news in recent months, including rodent sightings at one location and sick customers at another.

Pull the trigger.
Pull the trigger.

“The publicly-traded world is driving brands like Chipotle crazy,” Gordon said. “Strategically it makes sense for Chipotle to recover outside of the public eye. And there is no doubt that the worldwide bandwidth for money and underwriting exists for a consortium of PE firms to acquire Chipotle. There is a lot of cheap money at reasonable interest rates available to buy restaurant chains.”

A buyer or group of buyers would need to pay roughly $400 a share to buy Chipotle, considering a 30% premium, putting a price tag of roughly $11.3 billion on Chipotle, which also would assume current liabilities and deferred rent, Gordon estimates.

Nevertheless, he argued that it was more likely that a consortium of buyout shops would be interested rather than a publicly-traded restaurant chain, partly because of a large amount of capital available for take-private deals.

Roark Capital, the PE shop that acquired Buffalo Wild Wings, is seeking to raise $2 billion to buy additional restaurant chains, according to an Axios report. However, Roark Capital wouldn’t be able to acquire Chipotle on its own, Gordon notes. However, he added that the fund could find partners to help with an acquisition.

According to Axios, Roark would like to make further acquisitions with the goal of taking its entire restaurant platform public. However, Gordon said didn’t believe the markets would recognize the underlying value of such a wide variety of different kinds of restaurant and coffee brands. “One combined restaurant entity offering is not going to work because Roark already has a grab bag of brands,” Gordon said. “Investors get confused when there are too many restaurant chains in one company.”

Gordon suggested that Roark could seek to break up its restaurant chains into categories, such as fast-casual or quick-service chains, and take those public separately.

When it comes to a Chipotle acquisition, strategic operating rivals may also have a difficult time. Gordon said he did not believe McDonald’s Corp., (MCD – Get Report) which spun off Chipotle in 2006, would ever be interested in rebuying the company. “The McDonalds demographic is more blue collar at the same time Chipotle is still very expensive and would require taking on a lot of debt,” he said.

One additional caveat is Pershing Square’s Chipotle investment. The Deal has learned that Ackman’s fund has a cost basis of about $404 or $405 a share on its Chipotle investment, well below its current $315.56 a share trading price. Ackman may see more value in the chain and could oppose an acquisition. Alternatively, he may be willing to take the cash and liquidate his position in the hopes that it could be allocated to a more favorable investment elsewhere

The Columbus Dispatch – Proposed purchase of Buffalo Wild Wings by parent of Arby’s has implications for Wendy’s

The value of Wendy’s stake in Arby’s may rocket higher thanks to the latter’s parent’s acquisition of Buffalo Wild Wings.

Arby’s owner, Roark Capital, plans to buy Buffalo Wild Wings for $2.4 billion and fold the chicken wing restaurant company under Arby’s management.

Wendy’s owns an 18.5 percent stake in Arby’s, a relic of when Wendy’s merged with Arby’s before Arby’s was sold to Roark in 2011. Wendy’s stake in Arby’s was valued at $325.8 million as of Oct. 1, according to a filing with the U.S. Securities and Exchange Commission.

How much that investment grows with the purchase of Buffalo Wild Wings is unknown, but Wendy’s approves of the purchase.

“Given our investment position in Arby’s, we are supportive of the proposed transaction,” Wendy’s said in a statement. “As has been our practice, we will provide periodic updates on the value of our ownership stake during our regular financial reporting.”

Wendy’s added that it is too early to know what impact the deal will have on the value of its investment in Arby’s.

One analyst, Chris O’Cull of Stifel, said in a research note that if Arby’s plan to merge with Buffalo Wild Wings goes through, Wendy’s stake in the new entity will likely increase in value, but the exact amount is unknown. When Arby’s was sold to Roark in 2011, Wendy’s 18.5 percent stake was worth about $30 million.

Arby’s fortunes have soared since splitting with Wendy’s. Roark paid Wendy’s a special dividend of $54.5 million in 2015 after a particularly good quarter.

It isn’t well understood, though, just how Buffalo Wild Wings and Arby’s will be consolidated.

Roark is a private-equity firm, which doesn’t make financial disclosures. Arby’s and Buffalo Wild Wings will share a CEO, which makes it look like Arby’s might just swallow the wings chain whole, according to John Gordon, principal of Pacific Management Consulting Group, and a restaurant industry analyst.

“This would imply Arby’s would get the value upside, and thus, Wendy’s,” Gordon said.

Roark said in announcing the deal that Buffalo Wild Wings will operate as an independent brand. Roark also owns Hardees, which is a separate investment from Arby’s.

Gordon thinks more will come out next year as the deal is finalized and Wendy’s divulges the value of its stake in Arby’s. The deal is expected to close during the first few months of 2018. It still needs the approval of Buffalo Wild Wings’ shareholders. If the value rises a lot, investors will want to know what Wendy’s plans are for their stake, he said.

“When and why would they sell it?” Gordon said.

Information from the Associated Press was included in this story.

jmalone@dispatch.com

@j_d_malone

Crain’s Chicago Business – What’s likely to happen to Potbelly now

August 09, 2017

Bloomberg

Photo by Bloomberg

 

Now that Potbelly has hired J.P. Morgan Securities to develop “strategic alternatives” to business as usual in the tough restaurant marketplace, it’s easy to assume the 40-year-old Chicago sandwich brand is putting itself on the auction block. While a sale is a likely outcome, experts say Potbelly has other options despite a lackluster performance since its 2013 IPO.

“Everything is up for grabs at this point,” says Stephen Anderson, an analyst at Maxim Group, a New York-based investment bank. “The most likely event that will occur is a refranchising,” or selling company-owned restaurants to franchisees. The advantage: It’s more profitable to sell the right to operate Potbelly stores, and then collect annual fees, than it is to sell Wreck sandwiches and oatmeal chocolate-chip cookies (no matter how delicious they may be).

At the end of last year, Potbelly owned 411 of its restaurants and franchised just 43.

Selling franchising rights is also an easy way to pull in cash that can then be handed over to shareholders via dividends or stock buybacks, thus mollifying activist shareholders. Potbelly’s own activist, Cleveland-based Ancora Advisors, is clamoring for the move. In a June letter to Potbelly, Ancora CEO Fred DiSanto blasted the chain for delivering “nothing but losses” to investors over the last four years and recommended “dramatically increasing the franchise mix of its store base.”

DiSanto wrote that franchisees would be interested in buying because of Potbelly’s strong store-level sales, high-quality product and strong brand. The company, which reported $407.1 million in 2016 revenue, averages about $900,000 in sales per store—more than twice as much as the $424,300 that QSR Magazine estimates an average Subway location pulls in.

Restaurant industry experts aren’t so sure, however, that refranchising would work at Potbelly. “The problem is that when Potbelly began franchising, they went after small, one-person owners,” says John Gordon, principal of Pacific Management Consulting Group, a San Diego-based firm that focuses on chain restaurants. “It’s always easier for a chain to grow with existing franchisees because they already understand the business. But Potbelly’s small franchisees don’t have the wherewithal to buy stores quickly.”

“I think we certainly need to be open to larger deals,” Potbelly interim CEO Michael Coyne acknowledged on an Aug. 4 conference call with investors. That could include sales to “master” franchisees who would control an entire territory instead of a location or two. But finding big partners may take longer than executives or investors would like.

That brings the conversation back to a sale. J.P. Morgan will spend a few months assembling a pitch book and another few months shopping it around to the usual suspects—a wide range of private-equity firms.

“I think there are a lot of people interested in the brand,” says Howard Penney, managing director at Hedgeye Risk Management, an investment research firm in Stamford, Conn. “It’s a good brand that doesn’t have too many units. It’s not Applebees with 2,000 stores. The food travels well, which is important as people increasingly want food delivered.”

Penney points out another reason that Potbelly makes an attractive acquisition: It can use “dark kitchens.” The term refers to a restaurant that serves only delivery and catering customers and has no seats. Chains love the idea because they don’t have to pay for prime real estate or build out an attractive restaurant, and on-demand food delivery is continuing to explode.

Potbelly already is nodding to these forces by exploring smaller store formats under a project called “Shop 2020.” The effort, still in its planning phases, was presented at investor conferences in June. While discussing the idea at one conference in New York, Coyne pointed to a 600-square-foot Potbelly inside Lurie Children’s Hospital in Streeterville.

“It is doing phenomenally well, better than even our average revenue” at a 2,000-square-foot store, said Coyne, who took over from Aylwin Lewis earlier this summer. “We actually have the ability, we think, to go even smaller as long as we have some nearby space for commissary to store some things.” Potbelly executives think the model could work in high-traffic areas including hospitals, office tower lobbies, airports and universities.

(The company did not respond to requests for comment.)

Despite the harder time even some of the biggest chains have had lately at maintaining traffic and sales, private-equity investors have been increasingly interested in restaurants. Earlier this year, former McDonald’s CEO Don Thompson, through his new Chicago private-equity firm, Cleveland Avenue, bought a majority stake in PizzaRev, a 40-site chain that started in Los Angeles. And Portillo’s Hot Dogs sold itself to Berkshire Partners in mid-2014 (less than three months after the Oak Brook company hired an investment firm to explore its options).

Maxim’s Anderson says its impossible to say which private-equity firms would make a Potbelly bid, but he namechecks Sun Capital Partners of Boca Raton, Fla., which owns Boston Market, Friendly’s and Johnny Rockets; San Francisco’s Golden Gate Capital, which bought Red Lobster; and JAB Holdings of Luxembourg, which, with minority investor BDT Capital Partners of Chicago, has been rolling up premium coffee chains including Chicago-based Intelligentsia and recently snapped up Panera Bread, too.

Others say Potbelly’s small size puts it below those firms’ strike zones. But macroeconomic forces may push would-be buyers to act fast. “I would say with interest rates rising and access to capital starting to be a concern, the clock is running,” Anderson says.

Wray Executive Search – Pressure Points: Focus on Labor

By John A. Gordon, principal and founder of Pacific Management Consulting Group

There are several large restaurant pressure points right now: That restaurants aren’t getting their fair share of the pretty healthy economy and employment/spending base is one, too many restaurants is another and that labor market conditions are difficult is a third. Read more

Wray Executive Search – Restaurants: Repeating Errors Seen

By John A. Gordon, principal and founder of Pacific Management Consulting Group

Just about everyone reading this newsletter either knows the restaurant business or want to know a lot more about it. Many of us love the space, hence why we are still engaged in it via differing roles over the decades. The industry is stressed right now, for all kinds of reasons. Read more

Wray Executive Search – Restaurant Traffic versus Transactions: Which is Best to Count and Report?

By John A. Gordon, principal and founder of Pacific Management Consulting Group

As restaurants reach out to more sales channels out of necessity, counting restaurant activity levels becomes more complicated. Defining the “traffic” metric is especially important in this current time of low or negative traffic counts, and business models adding catering and delivery options. Read more

USA Today – Lucky Charms and ligers: Summer drinks try to quench a thirst for profit

, USA TODAY Published 7:55 a.m. ET June 30, 2017 | Updated 8:04 a.m. ET June 30, 2017

As the country wilts under summer heat, the nation’s largest fast-food chains are increasingly rolling out ever-more elaborate — sometimes outright crazy — drinks both to drive profits and draw attention.

These hand-crafted beverages bring in customers who want to quench their thirst, try something new or snap a photo to post on social media. Something chilled and sweet and often creamy is enough to make anyone nostalgic for childhood summers. And they’re a relative inexpensive pleasure, though the markup is high enough that the chains adore the easy profits in an era of struggling sales.

From Starbucks to McDonald’s to Panera, more and more chains are rounding out their menus with these drinks — cool in both temperature and style. Some are part of restaurants’ year-round rosters, while others are as fleeting as a summer rain shower, They’re named for the make-believe (unicorn, Lucky Charms), Mother Nature’s offerings (shamrock, liger) or ingredients (frozen coffee, matcha lemonade)

For restaurants, they’re a lure for customers at a time when the industry trying to overcome declining foot traffic and customer loyalty and an evermore competitive landscape; the overall chain restaurant industry hasn’t had a month of positive sales since February 2016, according to TDn2K, an industry analytics firm based in Dallas.. For customers, the treats are a novelty, but they also carry risks. Like anything packed with lots of sugar, calories and food coloring, consuming too much can lead to weight gains and other health problems.

For beverage-centric chains, like Dunkin’ Donuts and Starbucks, these drinks are a way to inspire customers to branch into baked goods. For more traditional chains, like Panera or Arby’s, they’re a way to add to the tabs of customers who come in for something other than a drink, said John Gordon, restaurant analyst with Pacific Management Consulting Group. In all cases, a limited-time offer draws anyone who wants to try a now-or-never beverage.

Mitch Cooper is a big fan of cool drinks and he’s usually the first among his friends to head out and sample them. If he’s really gaga over a new one, he’ll talk about it on social media.

“I love those things,” said the 29-year-old marketing specialist from Stow, Ohio. “If I try it and I like it, I’ll definitely get it again.”

Regardless of what pulls in customers, the markups are huge. The margins for these often high-sugar, high-calorie drinks can be as high as 80% to 90%, Gordon said. Beverages are 20% to 25% of the average order.

“Their motive is to decrease the amount of customers who only get water when they come in,” Gordon said, noting that soda sales in the United States have plummeted over the last several years. “To the degree they can invent a new drink, they have the potential (to motivate) a water consumer to go to a $1.95 blended drink.”

If the drinks are unique or shticky enough, they’ll explode on social media, where they’ll get much bigger promotion than they would through traditional advertising; customers will try one and post photos to show how hip they are to the latest food trends. While that is true of almost every demographics, the most sought-offer segment, Millennials, are particularly predisposed to do this. These hand-crafted beverages are usually photogenic — due to an unusual color or a whipped cream crown, say — which also ups their play on Instagram, Twitter and Facebook.

And if the drink is offered for a limited time, expect posting to jump up exponentially.

Currently, the hot cool drink is Burger King’s Lucky Charms shake, which came out this month and is made from the children’s cereal. It was inspired by the popularity of the chain’s other breakfast-inspired shake, the Froot Loops shake, which it offered in April. The “magically delicious” version is available for eight weeks, though Alex Macedo, president of Burger King North America, said the drink is proving so popular that they might run out “much sooner.”

That doesn’t mean Burger King OKs every shake it dreams up; the s’mores one, for example, wasn’t green-lighted, because it was “commonplace.”

“There’s a growing need for interesting ideas that people can’t readily make by themselves and the more creative you are, the more successful you’ll be in attracting people to your restaurants,” he said.

Macedo explained that these drinks have high margins and that 30% to 40% of people walk into a Burger King specifically to get them.

Arby’s also grabbed some attention in June with its Liger Shake, a lion and tiger hybrid mix popularized by the movie “Napoleon Dynamite.” The orange-with-brown-striped beverage isn’t the chain’s first foray into specialty drinks; its Jamocha shake was introduced 50 years ago. Today, shakes make up nearly 6% of the Arby’s sales mix, according to the company.

“They’re conversation pieces and they’re also nods to cultural happenings,” explained Neville Craw, Arby’s brand executive chef.

Other chains riding the wave of new drinks include McDonald’s, with its Chocolate Shamrock Shake, inspired by its popular seasonal Shamrock Shake; Dunkin Donuts, with its Frozen Dunkin Coffee, a coffee-based drink that replaced the water-based Coffee Coolatta; and Panera, with a new line of fruit and tea drinks made with artificial preservatives, sweeteners, flavors or colors.

Starbucks’ Unicorn Frappuccino was a blockbuster in April, spawning a rush to the stores, lots of social media chatter and plenty of non-social-media think pieces.

Imbibing these calorie- and sugar-packed drinks too often could cause customers’ waistlines to expand as their wallets shrink. A person taking in an extra 100 calories a day can add 10 pounds of weight a year — and most of these drinks have high calorie counts, like the Lucky Charms shake with 740 and 107 grams of sugar. Or the Chocolate Shamrock Shake with 510 calories and 70 grams of sugar for a small.

“Americans, in general, consume too much sugar and sugar-sweetened beverages are a big culprit,” Mitzi Dulan,.  a Kansas-based registered dietitian, said. “Good old water is free and sugar free,” she added. “A twice-a-year indulgence or once a month? That’d be fine,” she said. “When you’re getting into the daily habit or even several times a week, it’s just adding calories and it can make people really struggle to maintain their weight.”

Cooper, the marketing specialist, estimates that he buys one or two of these drinks a week, spending about $10.

“They’re not something I can easily justify buying every day. It’s definitely something if my wife and I are going out, we’ll swing by and grab a drink like that,” he said.

Follow USA TODAY reporter Zlati Meyer on Twitter: @ZlatiMeyer

The Street – Buffalo Wild Wings Shares Spike on McGuire’s Director Battle

Buffalo Wild Wings (BWLD – Get Report) shares jumped early Monday after activist investor Marcato Capital’s Mick McGuire escalated his insurgency and announced plans to nominate a minority slate of four dissident director candidates to the wing and beer restaurant company’s nine-person board.

The contest shouldn’t be a surprise as the insurgent fund manager in August sent a letter to Buffalo Wild Wings board urging the company to bring on “fresh talent” to its board and management team.

Marcato has been pushing Buffalo Wild Wings to franchise more of its company-owned stores, fix what it sees as business failures and capital allocation problems, all key parts of the activist playbook when it comes to pushing up the stock prices of public restaurant chain targets.

To drive his campaign McGuire is seeking to nominate himself, Scott Bergren, formerly CEO of YUM! Brands’ Pizza Hut, Sam Rovit, president and CEO of CTI Foods and Lee Sanders, managing director of Rocket Chicks LP.

The fund has a 5.2% equity stake, according to FactSet, and is the fourth largest Buffalo Wild Wings shareholder.

Buffalo Wild Wings share price spiked on the launch of the contest, up roughly 1.5% to $152.15 a share in mid-day trading. Nevertheless, the company’s share price is down from the $165.25 a share it was trading at in August after Marcato issued a critical letter to the company’s board.

McGuire launched his public campaign at Buffalo Wild Wings in July, suggesting that the company should consider strategic alternatives to improve shareholder value and the fund has been escalating his efforts ever since.

Buffalo Wild Wings has taken a few steps in recent months as part of an effort to appease disgruntled investors in an ultimately unsuccessful effort to head off a Marcato contest.  In August, the company announced a $300 million share repurchase authorization, a key tactic of companies targeted by activists. In October, hoping to head off a proxy contest, the restaurant chain installed three new directors, Andre Fernandez, president of CBS RADIO, Hal Lawton, senior vice president of North America at eBay, Inc., and Harmit Singh, executive vice president and chief financial officer of Levi Strauss & Co. McGuire said Monday that the three new directors “don’t go far enough” to address what he sees as a skill deficiency at Buffalo Wild Wings.

Activists often pressure restaurant chains to reduce the number of their company-owned stores by franchising more locations, as part of an effort to raise capital for stock buybacks. This may be a  key goal for Marcato, which has said it wants to see the company move to a predominantly franchised business model. The fund even wrote a letter in December to the company’s franchise owners, noting that based on its approach, franchising will be the top priority and franchisees will receive “equal and immediate” access to new systems, tools and market initiatives.

However, John Gordon, restaurant analyst at Pacific Management Consulting Group, argues that moving to an overly franchised model puts the brand at risk, particularly, with more complicated restaurant chains like Buffalo Wild Wings, which have guest table service and an alcohol component. Gordon notes that Buffalo Wild Wings is currently 51% company-owned and 49% franchisee-owned, with almost no locations outside the U.S.

Marcato chides Buffalo Wild Wings for buying into franchisee units recently at “excessive valuations.” Gordon acknowledges that the company bought some struggling locations from franchisees recently at high multiples. However, he argued that the purchases were made to help improve the company’s overall image and brand and to help revitalize those locations and that they put a spotlight on problems where too much control is ceded to franchise owners.

“You [Marcato] criticizes them for buying back struggling franchise locations and investing a lot of money to bring them back up to par but at the same time recommend that they dump the rest of the company owned stores to other franchisees?” asked Gordon.

He pointed out that Buffalo Wild Wings could receive roughly $1.5 million to $2.2 million per store, depending on each store’s EBITDA, if it were to sell company-owned locations to franchise owners. However, he argued that such spending, which could raise funds in the short-term for stock buybacks, could hurt the overall business and brand over the long term. Gordon suggests that, instead, Buffalo Wild Wings should consider expanding outside the U.S., as means of driving growth.

“Are you making the overall brand and system stronger or weaker?” asked Gordon.

And one of Marcato’s director candidates experience appears to put a spotlight on the franchising goal. Marcato nominee Sanders is described as a “seasoned restaurant and franchise industry executive” who has an “intimate knowledge of the Buffalo Wild Wings franchise system.”

The majority of proxy contests typically settle, with the activist getting one or two director candidate to their target’s board. Nevertheless, it is possible that this proxy contest could go the distance all the way to the annual meeting, which is expected to take place in July.

Marcato has launched 21 campaigns since 2011 but only one director-election proxy contest before this one, according to FactSet. That was at Lear Corp. in 2013 and Marcato’s proxy contest for three of eight board seats was settled for the appointment of one mutually acceptable director and a commitment to hike buybacks. On Thursday, Marcato did reach a deal with Terex Corp. (TEX – Get Report) to add one Marcato recommended nominee to its board. Nevertheless, the lack of a stronger track record when it comes to director election contests suggests that Buffalo Wild Wings might not want to settle early.

The San Diego Union Tribune – Good news for Jack in the Box customers: deeper discounts

In what should be good news for its patrons, Jack in the Box is planning to offer later this year deep discounts on lower priced menu items in the face of growing competition from its fast food rivals.

In an earnings call Wednesday, CEO Lenny Comma said that it has no choice but to start discounting more heavily than has been their practice over the years.

Where the San Diego chain has normally promoted value for budget-conscious customers by offering bundles of sandwiches, fries and soft drinks, it will now start lowering prices on individual menu items, he said.

“I think that you’ll see us pivot to at least some single item promotions in the back half of the year, simply because we’re sort of being dragged into that space by all the competitors, including those that have a higher average check in our space,” Comma said. “Even they are delving into the single item discounts. So I think we’re not going to be able to prevent that from happening.”

He cautioned, though, that Jack in the Box has to be careful to not discount too much and for too long a time or it runs the risk of damaging the brand.

“We don’t want to put ourselves in a position where we simply devalue our brand by essentially turning ourselves in to a perpetual discounter and training the consumer that they should no longer come to us for mid- and top-tier product,” he said. “That’s been our bread and butter over the long term and we will continue to invest there.”

Comma didn’t mention what menu items in particular would be targeted for lower pricing. He noted that recent examples of the company’s more conventional promotional offerings was its Jumbo Meal, which bundled a Jumbo Jack burger with two tacos, fries and a soft drink for $3.99.

The company also is struggling to overcome declining sales at its fast casual chain of Mexican restaurants and is looking at the possibility of unloading the once high-performing Qdoba brand.

Jack in the Box announced this week it has hired the investment banking firm Morgan Stanley to evaluate options for the under-performing Mexican food brand. Although Comma has not specifically stated that spinning off the Qdoba brand is an option being weighed, analysts say it’s clear that is a very real possibility.

“At our investor meeting last May we said that one of the factors that would cause us to reconsider our strategy with respect to Qdoba was valuation,” Comma told analysts during a Wednesday earnings call. “It has become more apparent since then that the overall valuation of the company is being impacted by having two different business models. As a result we have retained Morgan Stanley to assist the board in its evaluation of potential alternatives with respect to Qdoba as well as other ways to enhance shareholder value.”

While Qdoba has a very limited presence in Southern California, including just one outlet in San Diego — at the airport — the brand has grown to 700 locations in 47 states and Canada since Jack in the Box acquired it in 2003.

In recent quarters, it became clearer that Qdoba, once the financial darling of the company, was starting to be a drag on the overall financial performance of Jack in the Box.

During the second quarter ending April 16, same-store sales at Qdoba restaurants fell 3.2 percent, including a decline of 5.9 percent at company-owned locations, a sharp reversal from an overall 2.1 percent gain just a year earlier. By comparison, Jack in the Box same-store sales fell just 0.8 percent during the second quarter.

Looking ahead, company executives are forecasting a 1 percent growth in same-store sales within the Jack in the Box system restaurants but a decrease of as much as 2 percent at Qdoba outlets.

Given the company’s decision to reach out to Morgan Stanley for help, a sale is no doubt one route Jack in the Box could take to address investor concerns, said San Diego restaurant consultant John Gordon.

“Morgan Stanley is strictly an advisory firm that doesn’t make operational recommendations but essentially says if you want to sell it’s worth this and if you want to sell it, we can go out to our network and find a potential buyer,” Gordon said. “There is the potential no one may buy the brand.”

A little less than a year ago, Jack in the Box announced plans to relocate Qdoba offices from the Denver area to San Diego, where it could share space at its parent firm’s Kearny Mesa headquarters. Despite lagging sales, there are plans to open as many as 60 new Qdoba restaurants this fiscal year, the company noted in its current earnings release.

The move to reevaluate Qdoba comes at a time when the bloom is starting to come off the rose of a very successful fast casual market. In the fourth quarter last year, fast-casual chains’ same-store sales fell 1.1 percent on average, according to research by Nation’s Restaurant News.

The New York Post – Fast food sales are growing faster than US economy

By Lisa Fickenscher

The burger is baaack.

For the first time in five quarters, the big three fast food giants — McDonald’s, Burger King and Wendy’s — posted same-store sales increases of greater than 3 percent.

Put another way, burger sales are growing faster than the US economy, which rose by a meager 2.6 percent in the second quarter.

The GDP in the US hasn’t produced an annual uptick of 3 percent or greater in the last 10 years.

The burger chains are producing strong results because diners are eating at fast food joints more than at other restaurants, say industry experts.

“When people spend less at higher-priced restaurants and more at fast food, it means that they are spending their money more cautiously,” said Nomura Instinet analyst Mark Kalinowski, adding that “on the whole, the restaurant industry is going through hard times.”

Wendy’s said on Wednesday that its same-store sales rose by 3.2 percent in the second quarter compared with a 0.6 percent bump a year ago.

McDonald’s and Burger King both posted same-store sales in the US of 3.9 percent in the most recent quarter. A year ago, Burger King’s same-store sales rose by just 0.6 percent.

“Usually, when one of the big three gets stronger, the other two get a little weaker, but what’s unusual now is that they all grew together and they all had positive foot traffic,” said John Gordon, principal of Pacific Management Consulting Group.

Diners were lured by value meal promotions like McDonald’s McPick 2 for $5 menu and Wendy’s 4 for $4 Meals, said Kalinowski.

Americans’ love affair with burgers doesn’t apply to everyone.

Shake Shack, which sells premium-priced burgers, took a hit in the most recent quarter as it raised prices, driving away customers.

Same-store Shake Shack sales dipped 1.8 percent, compared with 4.3 percent growth a year ago, the company said last week.

The New York Post – Chain restaurants struggle to attract CEOs

By Lisa Fickenscher

 Chain restaurants struggle to attract CEOs

As casual restaurant chains like Applebee’s and Ruby Tuesday see traffic erode, their C-Suites are looking as empty as their parking lots.

Five national chains, which operate about 6,300 restaurants, are rudderless — without a CEO as the board has let go its former boss but can’t recruit a new leader.

The latest CEO exit came Friday when DineEquity — which runs Applebee’s Neighborhood Grill & Bar and IHOP — said longtime Chief Executive Julia Stewart resigned.

Stewart, a former waitress at the pancake chain who worked her way up to the corner office, stepped down amid a steep decline in the company’s financial performance.

Same-store sales at the company’s 3,700 restaurants declined 5 percent last year, and its stock plummeted 9.6 percent Friday, to $60.14 on the news of the 16-year veteran’s departure.

DineEquity will begin a CEO search but will have lots of company looking for talent.

Ruby Tuesday, Papa Murphy’s, Fiesta Restaurant Group and Noodles & Co., which this week announced the closure of 55 locations, are each searching for a permanent CEO.

All but Papa Murphy’s have been rudderless since last year.

The problem facing many CEOs of casual family restaurant chains is that their concept is getting old and the menu no longer resonates with diners, industry experts say.

Ruby Tuesdays, founded in 1972, has never been worse off.

“The desperation in that dining space is getting deeper and deeper,” said John Gordon, principal of Pacific Management Consulting Group. “The problem is who do you get to go into these troubled companies.”

Bob Gershberg, CEO of Wray Executive Search, said the casual chains “just doesn’t appeal to the millennial consumer. They have zero interest in sitting down for 90 minutes to get mediocre food.”

Colorado-based Noodles’ problem was that it grew too fast after its 2013 IPO.

The pain in the casual segment extends beyond those without leadership: Ignite Restaurant Group, which operates about 130 Joe’s Crab Shack’s and Brick House Tavern & Tap eateries, is fighting to have its stock not get delisted; Bloomin’ Brands, which owns Outback Steakhouse and other brands, on Friday closed 43 underperforming restaurants.

“You can walk into an Outback today and it looks nearly the same as it did in the 1980s,” when it was founded, Gordon said.

Some Applebee’s franchisees are hopeful that the CEO turnover at DineEquity will shake up the status quo.

It was a “great move toward Applebee’s march back to profitability in a difficult market,” said Zane Tankel, who runs 39 Applebee’s in the New York metro area.

Nation’s Restaurant News – The 6 worst restaurant deals of all time

Jonathan Maze 1 | Jan 18, 2017

Blog: Overaggressive deals lead to disaster

This post is part of the On the Margin blog.

The restaurant industry is a difficult one. The country is saturated with restaurants. Consumers are fickle. It cost a lot of money to build units, which often results in heavy indebtedness and questionable financial deals.

Add to this the pressure on company executives to expand, and you have a recipe for disaster when it comes to acquisitions.

The past 15 years have seen a lot of very bad restaurant deals — so much so, that we struggled to limit this list to just five, gave up and listed six.

We focused on larger deals, because smaller investments are inherently riskier and thus some problems can be expected. And some people might perceive a deal to be a bad one, when it really isn’t — you’d be shocked, for instance, how much money a private-equity group can make off of a seemingly bad restaurant deal.

Now for the big deals.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter: @jonathanmaze

The Dallas Business Journal – Pollo Tropical closing 30 more stores; parent company plans brand relaunch

By   –  Digital editor, Dallas Business Journal

The parent company of Taco Cabana and Pollo Tropical is shuttering 30 company-owned restaurants as it prepares to “relaunch” both brands.

Fiesta Restaurant Group (Nasdaq: FRGI) announced Monday that it plans to close 30 Pollo Tropical restaurants in North Texas, Austin and Nashville. The closures will happen Monday, and where possible, impacted employees will be offered jobs at nearby Fiesta restaurants.

Five of the locations in Texas could be rebranded as Taco Cabana units. With the closures, Fiesta will own 19 Pollo Tropicals outside of Florida, including 13 in Atlanta and six in South Texas.

“(These restaurants will be used) to apply and prove successful regional strategies for future Pollo Tropical expansion beyond Florida,” Fiesta said in a prepared statement.

Closing the restaurants is expected to incur non-cash impairment charges between $33 million and $37 million during the first quarter, and another $9 million to $12 million in lease and other charges during the second quarter.

“Fiesta’s recent growth initiatives diverted resources from our core markets and some amount of renewal is required to restore momentum in these markets,” Fiesta’s president and CEO Richard Stockinger said in a prepared statement. “While the decision to close restaurants is never easy, we believe it is vital to focus the company’s resources and efforts on markets and locations that have proven successful for our brands.”

This isn’t Pollo Tropical’s first round of closures in the past year. In November, the brand announced plans to shutter 10 units in Texas, Georgia and Tennessee,expecting to incur total charges between $20 million and $24 million.

As a result, the company’s stock tumbled, and Craig Weichmann, founder of Fort Worth-based Weichmann & Associates, an investment banking consultancy specializing in restaurants, said Fiesta had landed itself in what he terms Wall Street’s “penalty box.” He predicted it would be a hard slog for the company to regain investor confidence and share price.

“They set the bar too high, so Wall Street came back with a resounding selling off of the stock,” Weichmann added. “It takes a long time of getting back to the basics of performance, performance, performance before Wall Street will trust you again.”

Shares of opened at $22.90 on Monday, down more than 34 percent over the past 12 months.

John Gordon, principal and founder of restaurant consulting firm Pacific Management Consulting Group , attributed Pollo’s latest round of closings to overexpansion and misaligning with customers’ tastes.

“Pollo’s challenge in DFW isn’t confined to just that brand,” Gordon said. “DFW has become the chain restaurant headquarters focal point in the U.S., and DFW is a major US market for chains moving either west or east. As a result, too many restaurants, especially fast casual brands have been built over the last ten years, and the demand is simply spread around too many stores, making the store sales levels too low.”

“In addition, restaurants that have a unique flavor profile like Pollo that work in some home markets have to be carefully introduced to new, expansion markets,” he added. “While the U.S. is becoming more diverse culturally, consumer’s buying circles and economic activity tend to cluster in influence groups. It is really important for restaurants to tap into the right clusters from a site selection standpoint.”

But the company also announced Monday a “renewal plan” it says will aim to drive long-term value for both concepts. Among its initiatives will be relaunching the Pollo Tropical brand in September and the Taco Cabana brand later in the year.

The relaunches will include differentiating the brands with new positioning, marketing and digital strategies; improving catering, delivery and online ordering capabilities; enhancing food quality and service; repositioning each brand for future growth outside core markets; and refining restaurant prototypes to maximize cash returns and appeal to more customers.

Also in the plan are initiatives like implementing operational efficiencies and digital platforms, looking at pricing across Fiesta’s restaurant portfolio and curtailing new restaurant development until after the relaunch.

“Our strategic renewal plan is based on our comprehensive review of all aspects of our business to improve the guest experience and drive our results,” Stockinger added. “We are … concentrating on being a leader in comp store transaction growth and margins, growing intelligently both organically and through other avenues while enhancing shareholder value.”

In its Monday announcement, Fiesta reported comparable restaurant sales declined 6.7 percent at Pollo Tropical and 4.5 percent at Taco Cabana during first quarter 2017. The company blamed industrywide headwinds and sales cannibalization.

Full first quarter results will be released May 8, with a conference call at 3:30 p.m.

News of Fiesta’s renewal plan comes after the company has been urged to look at options to increase value. In February, concerned by Fiesta’s “massive decline in value,” activist investor JCP Investment Management nominated three candidates to shake up the company’s board of directors.

At the time, JCP, which owns 8.7 percent of Fiesta stock and is its third-largest institutional shareholder, said the company “refused to engage meaningfully” on the composition of its board and other corporate governance matters, adding that Fiesta’s current board has minimal ownership int he company and little restaurant experience.

 JCP strongly believes that the board must be reconstituted with direct stockholder representatives and experienced restaurant operators,” the firm stated in documents filed with the U.S. Securities and Exchange Commission. “JCP’s director candidates collectively bring not only significant operating experience in the restaurant industry, but a strong track record of creating shareholder value.”

JCP has also criticized the board for allocating $70 million to expand Pollo Tropical in Texas, an effort that was suspended in September.

And the firm said Fiesta has failed to recognize, or at least capitalize on, the value of Taco Cabana. In September, Fiesta scrapped plans to spin off Taco Cabana into its own publicly-traded company.

Since then, Fiesta has added Paul Twohig to its board. Twohig, who joined in February, currently serves as president of Dunkin’ Donuts U.S. and Canada, and has experience at Starbucks and Panera Bread.

The company has also said it will consider adding one of JCP’s board candidates and another member to be chosen by the board at a later date.

However, JCP continues to push for the addition of two “highly-qualified director candidates,” it said in a letter to the board.

“W e believe adding such individuals to the board would remedy the board’s apparent lack of restaurant expertise and avoid a seemingly unnecessary election contest, which we believe could only benefit the entrenched directors who we do not believe belong on the board,” the letter states.

Fiesta declined to give further comment and said it would provide additional details in its quarterly earnings call.

The Columbus Dispatch – Bob Evans sells restaurants; food division buys potato company

Like one of its iconic biscuits, Bob Evans Farms has been split in two.

The New Albany-based company sold its restaurant division, which runs 523 stores in 18 states, to private equity firm Golden Gate Capital for $565 million. Bob Evans Farms’ packaged foods division, which makes mashed potatoes, sausage and other side dishes, will continue as a stand-alone, publicly traded company.

Both companies will remain in New Albany at the recently built headquarters, where 400 work.

“This is really a great day,” said Saed Mohseni, Bob Evans CEO, who will remain chief executive of the restaurant company. “We have had a lot of conversations. We looked at many, many options. The conclusion was that both businesses were better off (split up) due to where they are in their life cycle.”

The restaurants continue to see a drop in sales as a slide in customer traffic and profitability has plagued the chain — and many like it in the causal dining segment — for years. The food division is on a different path, though. Bob Evans’ refrigerated side dishes, sold in grocery stores, are the national market leader, and double-digit sales growth has been the norm of late.

Analysts have speculated about Bob Evans’ two divisions for a long time, with many believing the company would sell or spin off the packaged foods to focus on the restaurants.

“It is not the way it was expected to go,” said John Gordon, principal of the Pacific Management Consulting Group. “I would have thought the easiest route was to sell (the food division), but the restaurants were so devalued because of general problems of casual dining that they got swallowed instead.”

The switch to private ownership might give Bob Evans restaurants time to heal and find a way forward, Gordon said. Mohseni agreed.

“Private is much better than being public right now and having to live through quarter after quarter,” Mohseni said. “We can make longer-term decisions instead of looking at every 12 weeks.”

For instance, on March 4, 2015, investors whacked 22 percent off the value of Bob Evans’ stock after a poor quarterly earnings report. The stock has been almost stagnant since.

Mohseni does not believe there will be layoffs or mass store closings in the wake of the deal. Bob Evans has closed dozens of stores in the past year or so and lopped millions from its budget through cost-cutting the past few years. There might even be some hiring, Mohseni said. As part of the restaurant-sale news, Bob Evans also announced the purchase of Pineland Farms Potato Co., based in Maine.

Pineland Farms was a supplier to Bob Evans, and it helped to meet demand for its side dishes on the East Coast. The purchase will help the company grow in Northeast markets such as Boston and New York, Mohseni said. Pineland also comes with a 900-acre farm. Bob Evans Farms will continue management of its farm property in Gallia County.

Golden Gate Capital is based in San Francisco and has some restaurant history. The firm owns Red Lobster and California Pizza Kitchen. It also once owned Romano’s Macaroni Grill. Golden Gate’s record, however, is spotty, Gordon said.

“They are a collector of restaurant brands,” Gordon said. “They bought Macaroni Grill and it just totally hit the pavement right after that.”

While Mohseni follows Bob Evans restaurants to Golden Gate, Bob Evans Farms will be led by a new chief executive, Mike Townsley, who is currently president of the food division. Townsley has been with Bob Evans since 2003.

The proceeds of the sale of the restaurants will be at least $475 million and will be used to pay down debt and issue a special dividend of $7.50 for every share of stock. Activist investor Thomas Sandell, who holds about 8 percent of Bob Evans shares, will receive more than $12 million with the special dividend. Sandell lobbied the company for more than two years to sell its real estate, cut costs and find a way to split up the company for maximum value.

Sandell was not available for comment.

Mohseni said the two companies will continue to work closely given that each is integral to the other. The food division sells sausage and mashed potatoes to the restaurants. The split isn’t unprecedented, though history has not been kind to restaurants in such deals, Gordon said.

“There is precedent,” he said. “Stouffers ran a restaurant chain once.”

jmalone@dispatch.com

@j_d_malone

The Chicago Tribune – Judge says blind man can sue McDonald’s over drive-thru-only ordering

Ally MarottiContact Reporter  Chicago Tribune

To the many who succumb to late-night cravings, McDonald’s drive-thru can be a beacon of fast-food hope. But without a car, the dreams of indulging in that burger desire are dashed.

A blind man from Louisiana wants the fast-food giant to come up with another solution for those who physically can’t drive through a drive-thru.

Scott Magee, who is blind, filed a lawsuit in May alleging that only offering service to customers in cars at drive-thru windows when the interior of the store is closed is a violation of the Americans with Disabilities Act. A federal judge in Chicago ruled Wednesday that despite McDonald’s attempts to have the case dismissed, Magee can go forward with the suit, which seeks class-action status.

“Most Americans have the experience of driving through a drive-thru and ordering for themselves,” said Roberto Luis Costales, the New Orleans-based lawyer representing Magee in the case. “That’s an experience Mr. Magee doesn’t have.”

Many McDonald’s locations operate only as drive-thrus late at night as a security measure. The suit says that cuts off service to disabled customers, like Magee, who don’t drive.

The suit isn’t asking McDonald’s to allow people to start walking through drive-thrus. That’s unsafe, said Costales, who also has an office in Chicago. It asks the fast-food chain to find some other way to serve customers without cars when only the drive-thru is open.

McDonald’s representatives did not respond to requests for comment, and attorneys representing the company declined to comment.

A possible solution, Costales said, would be allowing people to order ahead and have an employee bring the food out to them. McDonald’s could do that with its app, he said.

The company, which is planning to move its headquarters from suburban Oak Brook to Chicago’s West Town neighborhood, rolled out a mobile app in 2015 and is expected to launch a mobile order-and-pay function sometime this year.

But McDonald’s has been behind on its app compared with a slew of fast-food competitors. Taco Bell launched a mobile order-and-pay option in 2014. Kentucky Fried Chicken and Chick-fil-A announced mobile-pay apps last summer.

“From a corporate standpoint, they are the ultimate battleship that just takes forever to turn,” said John A. Gordon, founding principal of San Diego-based chain restaurant consultant Pacific Management Consulting Group.

McDonald’s is working on it, but it works with thousands of franchisees, and there are logistics to contend with surrounding mobile order-and-pay options, among other issues, Gordon said.

In the complaint, filed in U.S. District Court in Chicago, Magee called out a McDonald’s near his home in Metairie, La., as well as two locations he visited in San Francisco and Oakland, Calif.

The court ruled Wednesday that Magee had standing under the Americans with Disabilities Act to sue regarding the Louisiana restaurant since he is likely to visit again. It also ruled that he could seek damages related to the two other locations under a California law.

amarotti@chicagotribune.com

Twitter @AllyMarotti