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Hooters franchisees find willing buyer

A North Carolina private equity fund that until this year operated with a single, $5 million asset is buying up Hooters franchisees, which is making the franchisor nervous.

The private equity fund, Chanticleer Holdings, agreed in March to buy Hooters Inc., the 22-unit franchisee that originated the company and still operated under a unique licensing deal. The cost: $55.1 million. In July, it announced a second purchase, the 45-unit Texas Wings, the system's largest franchisee, for $106 million.

That led the franchisor, Hooters of America, to issue an unusual press release opposing the Texas Wings purchase, indicating that it threatens the health of the system. "Although I am pleased that our franchisees may be in a position to monetize the equity they have build under years of HOA leadership," said Colby Brooks, Hooters of America's CEO, "I do not want anyone to distract our system with promises that may not be fulfilled." Nevertheless, the purchases may have given Chanticleer something few franchisees ever get: control.

The fund did little until this year and operated as a development company under federal securities law. Its main asset was a $5 million promissory note from Hooters of America that came with 6-percent interest, which was either invested or paid to shareholders. Last year it started making investments, sold stock and had a deal to build Hooters restaurants in South Africa. But it burst onto the scene in March with the Hooters Inc. purchase.

Chanticleer planned to use a combination of debt and equity to fund the Hooters purchase, which was to close July 31. That deal gave Chanticleer 22 stores, making it a major franchisee. But perhaps the key to the deal was two benefits included in the purchase: reduced royalties and the ability to buy other franchisees without the franchisor's OK.

Chanticleer bought these rights when it bought the franchisee. Perhaps not surprisingly, the private equity fund didn't wait until it closed its purchase of Hooters Inc. before it made its next purchase, of Texas Wings.

Officials with both Hooters and Chanticleer didn't return repeated phone calls seeking comment.

 

AAFD suspends Cuppy's accreditation

A clearly frustrated American Association of Franchisees and Dealers has suspended its accreditation of Cuppy's Coffee's franchise agreement, pending a vote on the accreditation's full withdrawal this month. AAFD Chairman Bob Purvin made the move amid allegations that the chain hasn't started construction on some stores, after his effort to get Cuppy's to cooperate with his investigation failed.

In an e-mail to Cuppy's CEO Dale Nabors, Purvin said, "Due to the serious allegations that have been raised (regarding Cuppy's failure to honor various contractual commitments), and your apparent decision to cease our communications, I have determined to suspend your Accredited status with the AAFD pending consideration and action of the AAFD Board of Directors."

That board will vote on a withdrawal this month, a decision that could bring to an end to what has been one of the more controversial moments in the group's history. The association accredited Cuppy's franchise agreement in May 2007, calling it one of the most franchisee-friendly deals it had reviewed.

Critics lambasted the move, pointing to Cuppy's history of poor relations with franchisees. Reports surfaced of the company's failure to make refunds of some promised construction deposits and they didn't stop when Nabors bought the company in April. The AAFD began investigating the company in February, and then this summer heard allegations that some franchisees have been waiting several months for Cuppy's and Elite Manufacturing to begin work on their stores.

Purvin tried investigating the new claims, but said that Cuppy's had stopped cooperating with the organization and had not responded to requests for a response since June.

 

Macaroni Grill sale close

Macaroni Grill's yearlong uncertainty appears ready to end. Brinker International announced  last month that it is nearing completion of a deal to sell the chain of 226 Italian-style restaurants.

Brinker, which specializes in casual dining, operates the Chili's brand, as well as On the Border and Maggiano's. Macaroni Grill has been a drag on the company, even before the announcement of a sale – comparable store sales in its recently completed 2008 fiscal year fell 4.4 percent. For the rest of the company, comp sales were relatively flat, at 0.3 percent.

Comp sales fell 3.2 percent last year at Macaroni, higher than the 2.5 percent decline for the rest of the company.

The private investment firm Sun Capital Partners has been said to be the finalist to purchase Macaroni Grill. That would hardly be a surprise – Sun has been buying up several restaurant chains in recent years, including the non-franchised Boston Market and the Friendly's franchise chain.

 

New management at Wendy's

Triarc Companies plans to insert Wendy's franchisee David Karam into the president's office and Stephen Farrar into the role of chief operating officer. Ken Calwell will take over as chief marketing officer.

Karam will succeed Kerrii Anderson, Wendy's president and CEO. Roland Smith, Triarc's CEO, is assuming the duties as Wendy's chief executive. Farrar will take over for Dave Near, who will resume his old job as a top Wendy's franchisee.

Karam is currently a minority shareholder and is president of Cedar Enterprises, which owns 135 Wendy's restaurants in Indianapolis, Las Vegas, San Antonio, Hartford and Seattle.

Cedar is also the parent company of Syrus, which provides information-processing services. Karam will relinquish management of the day-to-day operations of Cedar once he takes over as president. Farrar returned to Wendy's in April as chief of North American Operations – he had retired in 2006. His job will be to improve restaurant operations at company and franchise units. Calwell, was previously the chief marketing officer for Domino's Pizza.

 

Tattersfield takes over at Caribou

Michael Tattersfield is taking the helm of the Minnesota-based Caribou Coffee chain as its new chief executive. He succeeds Rosalyn Mallet, who was appointed interim CEO in November 2007. Tattersfield has 20 years of restaurant and retail experience, including 13 years with Yum! Brands and two years as chief operating office and executive vice president at lululemon athletica, a yoga-inspired clothier. His job at Caribou: Reverse its unprofitable ways.

The 490-unit coffee chain, the nation's second largest – which includes 75 franchises – has been losing money for years. In the second quarter of this year, the company reported a $2.8 million loss. That's less than the same period a year ago. Yet Caribou has seen a decline in coffee house sales during that quarter.

 

Elliot institute adds sponsors, board members

The Elliot Leadership Institute has added four new sponsors as well as a new board member and two members to its Leadership Advisory Council. The changes come as more companies use the institute's tools to develop leaders.

Franchise Times magazine is one sponsor. Yum! Brands, Schrieber Foods and Heinz Foodservice are also joining as sponsors. Steve Romaniello, CEO of Focus Brands, was elected to the institute's board of directors. Focus is a franchisor of brands, which include Cinnabon, Carvel Ice Cream and Moe's Southwest Grill.

Joan Ray, executive vice president of Elliot Associates, will move from the institute's board to the advisory council – she has been on the board since the group's inception in 2004. Rick Van Warner, a longtime consultant to the institute and president of the Parquet Group, will also join the council.

 

Franchisees file for bankruptcy

One of the country's largest Pizza Hut franchisees filed for bankruptcy protection last month. Midland Food Services, which owns 92 units, mostly in Ohio and West Virginia, sought protection from creditors, reportedly after failing to make a $27.5 million debt payment.

Midland filed for Chapter 11 bankruptcy protection and declared it had $10 million to $50 million in liabilities, but less than $10 million in assets. It's not the first time the franchise has filed for bankruptcy – the 12-year-old franchisee declared bankruptcy in 2000. Midland is not alone. A Michigan franchisee of Minneapolis-based barbecue chain Famous Dave's filed for bankruptcy in July.

The franchisee, 3 Little Pigs of PA, had opened two units near Pittsburgh since 2005. It filed for bankruptcy weeks after Famous Dave's terminated its franchise agreements because of the franchisee's failure to make nearly $329,000 in royalty, marketing fund and other payments. Famous Dave's then filed suit against 3 'Lil Pigs.

 

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