Broad Street Licensing Group Food News

P.F. Chang’s China Bistro has been one of the bright spots in restaurant brand licensing. Now it is going private.

Food giant Unilever has amped up over $100MM in sales of licensed P.F. Chang’s frozen bagged skillet meals, largely with a mixture of a decent product and a lot of TV ads and promotional dealing. The retail products have significantly outperformed the restaurant chain, which had hoped to capture some luster with its 170-door Pei Wei Asian Diner & Asian Market. The most-recent results showed same-store sales down at both concepts, with profits off as well. Industry analysts have pointed out how Chang’s is lagging behind other casual dining chains that have seen a rebound recently.

This article in Nation’s Restaurant News describes how private equity company Centerbridge Partners L. P. will pay $1.1bn for the chain. Chang’s is joining other restaurant concepts that are being bought up by private equity money.

Centerbridge had already waded into the foodservice category by purchasing Rock Bottom Restaurants and Gordon Bierisch Brewery Restaurant Group in 2010.

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Mexican fast casual concept Baja Fresh Mexican Grill has switched CEOs.

The company has announced that 0wner David Kim will be leaving to pursue “other interests” and has been replaced by Chuck Rink, president and COO.

Apparently those interests include selling the chain, which Kim bought from Wendy’s for ten cents on the dollar in 2006 ($31MM). Wendy’s had purchased the chain in 2002 for $275MM, another example of a disastrously wrong acquisition strategy. Baja Fresh, as the name implies, focuses on freshly-prepared items, as opposed to Wendy’s usual fast food menu. Results declined annually even after the sale to Kim’s group, though analysts now think the worst is behind the chain.

Broad Street Licensing Group has some experience with Baja Fresh’s attempts to go to retail: determined to enter the fresh-prepared/chilled space, we brought them a client noted for its retail products. The conversations went nowhere because Baja Fresh insisted on exact replicas of its burritos and other wrap-type entrees. Unfortunately, wraps and other grain-based items fare poorly in the modified atmosphere packaging of fresh-prepared foods, and so the discussions went nowhere. To our knowledge, Baja Fresh’s products are not at retail in any meaningful presence.

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While other restaurants struggle to keep their heads above the red ink or seek buyers (or even Chapter 11 protection), the Golden Arches seem impervious to the Recession, category blurring or consumer fatigue with the QSR concept.

McDonald’s Corp.’s numbers show income up around 9% per quarter. No bookkeeping sleight of hand, either: net income topped $4.9bn on revenues of $16.233bn.[1] A strong fourth quarter in 2011 accounted for 2% of that as the McCafe coffee concept and sales of the McRib sandwich propelled results. But some analysts see the good times threatened by rising commodities prices, fewer opportunities to expand menu offerings, and increasingly restive franchisees concerned about selling coffee over burgers, along with refurnishing costs demanded by corporate.

While the company receives most of its income from franchising fees & royalties, franchisees likely will see their profits eroded by increases in food prices and spikes in oil that could send gas above $4 per gallon before Summer.[2] New beverage offerings have padded everyone’s bottom line, yet the number of specialty beverage operators competing against the Golden Arches is exploding, cutting into that sector. Finally an internal email leaked to The Wall Street Journalreveals McDonald’s lunchtime daypart has been flat for the past five years, a dangerous development at a time when the supper daypart is already shrinking for fast food chains.

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It’s an old saw in the restaurant biz that you keep two sets of books: one for yourself and one for the IRS.

It now seems a third one is required: for Wall Street. The number of chains announcing good news in their quarterly reports continues to surge, but if you look closely, the bottom line is padded. The latest example is Brinker International, owner of the Chili’s and Maggiano’s Italian Grill chains, who reported a whopping 104% increase in its second quarter income despite a drop in revenue. Income was $37.5MM on revenue of $671.9MM, off 5% from the same period a year ago. The success was attributed to a favorable lunar eclipse—no? Sorry, it was the usual double talk about “margin expansion,” “top-line growth” and investments “designed to generate profitable and sustainable long-term sales growth.” That used to mean attracting more customers and making money.

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Another restaurant chain has gone into the private equity holdings fold.

Family dining concept Huddle House with 393 doors has been purchased by New York-based Sentinel Capital. Sentinel already owns a sheaf of franchising companies, including Border Foods (Taco Bell), Falcon Holdings (Church’s Chicken‘s largest franchisee), and Southern California Pizza Company (223 units of Pizza Hut outlets).

All but 17 Huddle House restaurants are franchised, making the purchase a good fit with Sentinel’s restaurant portfolio.

Sales at Huddle House were $225MM in 2011, with Nation’s Restaurant News reporting gain of 7.9% in Q4 2011, and 7.2% in Q1 2012.

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