A Perkins buy in bankruptcy court
Illustration by Jonathan Hankin
Bill Kane wasn’t afraid to warn bidders in an Erie, Pennsylvania, bankruptcy court in January that he was taking home the prize. Like Kane, they wanted the franchise rights for 28 Perkins restaurants in Ohio, Pennsylvania and New York. “I turned around and said, ‘You might as well leave now because you’re not going to outbid me.’ I am a very substantial person. I stand 6-foot-10 and weigh 420 pounds, and I’m missing a leg. When I set my mind to doing something, I do it!”
Kane, 54, now a multi-unit franchisee, did it. His $7.8-million bid bought him the group. Separately, an additional $22 million landed him the real estate. The businessman, part owner of a tiny eatery in Rankin, Pennsylvania, plans to devote $12 million to sprucing up the units, nearly all in small, rural towns. “They’re a piece of the community fabric, one of the few places a family can go and have a sit-down meal,” he opined.
He added that while he can buy new chairs and equipment, “I can’t buy devotion and goodwill these employees have for the facilities they’ve watched continue to go down rapidly over the last five years.”
He pinned blame on prior franchisee Unique Ventures. The Pittsburgh-based outfit filed for bankruptcy last year. Court documents show Unique paid $38 million for the 28 restaurants in 2007.
Kane, in addition to his own capital, raised money for the acquisition from his brother (“a Harvard MBA”) and Chrissy Kochin, daughter of the founder of Emil’s, the restaurant in Rankin.
Kane wanted to be a Perkins franchisee even before Unique Ventures filed for bankruptcy. His company, 5171 Campbells Land Co., in Monroeville, Pennsylvania, had planned to buy land in a Pittsburgh suburb to open a Perkins with a drive-thru window. It costs from $1.57 million to $2.35 million to build a new restaurant, according to the franchisor’s website.
“We had it designed,” Kane recalled. But word of the bankruptcy turned his attention to the acquisition opportunity. He visited the units. “We knew we had a diamond in the rough,” he said.
Kane claimed he didn’t want to shutter any, though some outposts aren’t profitable. “What it comes down to is,” he declared, “we want to preserve jobs, improve operations and increase revenue.”
It’s not unusual these days to discover a multi-unit franchisee whose business is backed by a family office. Because the restaurant industry avoided disintermediation by e-commence, restaurants (as opposed to, say, retail) look like a relatively safe investment. But it is somewhat unusual to find a multi-unit franchisee who also oversees a family office.
Meet Drew Smith, who in addition to franchising 23 Five Guys recently signed an agreement to open 18 Melt Shops in Greater Philadelphia, and oversees his own family’s investments. “The family office owns about 10 percent of my Five Guys operation,” he says, declining to detail other investments.
Smith, by the way, didn’t grow up rich. “I grew up very middle-class,” he claimed — adding it wasn’t until he attended college that his father, who ran a company, began doing “very well.”
After earning an MBA at Duke University, Smith worked for early-stage investment funds in Washington, D.C. He frequently ate at Five Guys, noticing the brand appeared very popular with all types of customers.
When he learned Five Guys had finally launched franchising, he ran its business model against hundreds of other businesses he’d looked at over the years. “This is a real business,” he recalled thinking at the time. He quit his job despite warnings from friends not to go into the restaurant business.
Meanwhile, Smith had formed a friendship with Andy Stern, CEO of Aurify Brands, the Five Guys franchisee in Manhattan. Aurify also has a handful of its own concepts: Melt Shop, The Little Beet and Fields Good Chicken.
Last year, Stern asked Smith if he knew anyone who might like to franchise Melt Shop.
Smith, who was looking to diversify, wanted to eat there first. He and the friends he took with him liked the innovative grilled cheese sandwiches and salads; Smith then decided to franchise Melt Shop himself. His territory is nearly “a direct overlay” of his Five Guys development area, which also includes counties in south New Jersey and northern Delaware. A big advantage: He wouldn’t have to develop an area outside of his home base.
Smith noted, however, that because Melt Shop skews female, the brand requires a “softer” shopping center — with a TJ Maxx, say, or a Home Goods — than the male-oriented Five Guys. In Langhorne, Pennsylvania, “I’m putting one near a Sesame Place,” Smith said. He’ll open a Five Guys a half-mile away.
He’s self-funding the venture (build-out and lease payments). Long-term, like many franchisees, he envisions owning the property he operates in.
Becoming trendy, finally
Gold’s Gym is a valuable brand name, one that’s helped brothers Willy and Angel Banos open 18 outlets in southern California since 1988. Their most recent outpost opened in Glendale last month.
But Gold’s has had to shift emphasis lately to compete with on-trend fitness studios like SoulCycle, PureBarre, Orangetheory and CrossFit, Willy explained in a recent interview. It’s not that Gold’s doesn’t offer body-weight training, HIIT workouts or pilates, he insisted; it’s that Gold’s didn’t feature a studio format and now it does — called,
appropriately enough, Gold’s Studio.
The Banos have installed turf flooring, battle ropes and sprint areas, for instance, in their gyms.
“We’re having to change,” he explained. “We’ve started to evolve, and Gold’s Studio is a fixture in all of ours.”
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at firstname.lastname@example.org.