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The Pipeline

Par Mar likes Fazoli's; LBA picks Del Taco; Bennigan's tries Dubai


David Farkas

The high price of gasoline is good news for travel plaza specialist Par Mar Oil Co. “Today, when a gallon is $3.99, the independent marketer who operates one or two locations is having trouble cash-flowing those numbers. That represents opportunity for us,” declares President Sandra Morgenstern. For the past 10 years, she adds, the company has grown chiefly through acquisitions in small-town Ohio and West Virginia.

Par Mar does more than fill gas tanks. It also fills stomachs inside its 4,000-square-foot convenience stores. Until April, sandwiches and pizza made up the menu throughout the 51-unit system. That month, Morgenstern oversaw the opening of a rare ground-up outlet in Fairmont, West Virginia, off I-79. Inside was a 44-seat Fazoli’s restaurant with a drive-thru window. The Italian QSR, which offers a variety of pasta dishes, was the first unit of a three-store deal with the Lexington, Kentucky-based franchisor.

Par Mar now has a dinner daypart. But it also has a larger and substantially more complex operation than its Subways and Quiznos pairings. “We had to learn how to operate like a restaurant did because we had so many more pieces of equipment and a lot more employees,” Morgenstern recalls, adding the 2,000-square-foot Fazoli’s requires 18 to 20 workers vs. the seven to nine for the 800-square-foot sub shops. She dispatched a couple of managers to Fazoli’s headquarters for training.

Morgenstern claims the higher labor cost is made up for by new dinner traffic. The new store is surrounded by Italian-American families—the reason she opened Fazoli’s there in the first place, she adds.  In the future, however, she intends to retrofit existing stores—most of them in rural areas—with a smaller, 22-seat Fazoli’s. She’s not worried about making less money with fewer seats.

After all, foodservice operations, no matter the size, have considerably better margins than packaged foods like cookies or chips. To boot, Morgenstern expects the retrofits to attract lots of locals given there are few competitors nearby.

“Fazoli’s offers speed, convenience, quality food and affordable pricing,” Morgenstern says. “This is a huge opportunity.”

The bigger the better

“Huge” opportunities appear to remain the domain of well-funded franchisees that have long and fruitful ties to lenders, like closely held Par Mar, which finances acquisitions with bank debt. Smaller players still have trouble securing leverage, according to a September report by the International Franchise Association, which (citing an FDIC report) noted small-business loan balances inched up only marginally in the second quarter. The trade group trimmed its projection for the growth rate for new franchise businesses this year from 1.7 percent to 1.5 percent.

Enter Larry Blumberg & Associates, a 39-year-old company that manages 68 hotel properties in 11 states. It recently announced plans to open 20 Del Taco restaurants over the next several years in northern Alabama and Jacksonville and Tallahassee, Florida. It’s part of the Lake Forest, California-based franchisor’s effort to reignite the fast-food concept in the Southeast, a region it once plied in the ‘80s and early ‘90s.

That’s slightly inaccurate. Those Del Taco outposts were owned and operated by W.R. Grace & Co., which sold the units in 1992. Their memory yet lingers, however, notes Bill Davis, LBA’s senior vice president for commercial development, who’s in charge of the Del Taco arm. He says his lawyer spotted a post from an excited alum on a Crimson Tide forum hoping Del Taco would open soon.  

That poster, alas, will have to wait for his or her Macho Taco until early next year when the first unit debuts in Dothan, Alabama, near LBA headquarters. Davis meanwhile has hired an experienced fast-food executive to handle expansion. It wasn’t easy. Davis expected to receive hundreds of resumes after spending “thousands” searching online. Instead, he got a few dozen, many from far-flung cities. “I was surprised at the lack of response,” he says. 

The company wanted to diversify its assets and foodservice seemed a natural extension. Davis and other officials liked fast food because no alcohol is involved and there’s a market for a Mexican quick-service restaurant in the South. Davis says he also considered Taco Time, Taco John, Taco Cabana and Taco Bueno.

While the new director of operations’ expertise is critical (LBA has never operated restaurants), the job should be made easier with real estate, construction, marketing, accounting and graphics departments already in place. “We have everything we need to run a large group of restaurants except the operational division,” he says

LBA’s second Del Taco is scheduled to open in late 2013, in Montgomery, Alabama. “We want  to validate the numbers and our lenders want us to validate those numbers, as well,” says Davis. 

Bennigan’s redux

Normally, I don’t interview franchisors in this column, because they’re selling franchises versus justifying why they’re buying them. But the irrepressible Paul Mangiamele is always fun to talk to. Today, the veteran operator is heading up Dallas-based Bennigan’s Franchising, whose 34 stateside eateries are attempting to reestablish the brand with a new prototype after a 2008 bankruptcy protection filing led to 240 closings. 

The concept’s 50 franchised units abroad are another story, Mangiamele boasts—especially the 25 in Korea, which offer local dishes like kimchi and noodles. “We’re looking at as many as 30 to 40 Bennigan’s in South Korea, and even the possibility of expanding into China,” he says.

But Mangiamele, who had just returned from Dubai, was particularly enthusiastic about the United Arab Emirates. Three restaurants are scheduled to open soon, the first in early November and the second shortly thereafter. “In the Dubai Mall, the mall of malls globally!” he declares. The 250-seat restaurant will generate—ready for this?—upwards of $10 million a year in sales. 

“I don’t want you to think I’m guaranteeing that number,” he quickly adds, “but I have re-primed and re-tooled the new prototype and it will be the jewel of Bennigan’s.” 

David Farkas has covered the restaurant industry for 25 years. Submit your company’s development agreements to him at dfarkas99@gmail.com.

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