Fazoli’s named Carl Howard CEO in 2008, when the worst recession in 80 years was ramping up.
It was perhaps not the best timing, but the recession had its benefits for a chain in need of a turnaround.
“As soon as we got started, we got caught in the Great Recession,” Howard said. “We got a little relief in commodities. We were able to put money back in the core product. And it was a good time to be a value brand. We were able to position Fazoli’s back in the value Italian market.”
Today, the 213-unit chain, based in Lexington, Ky., is coming off nearly five years of monthly same-store sales increases. The performance attracted interest from numerous private-equity groups in recent months, after owner Sun Capital Partners put Fazoli’s on the block. Sun Capital ultimately sold the chain to Sentinel Capital Partners in a deal announced Tuesday.
Howard said the sale could help Fazoli’s reach the next level. Sentinel has quickly become one of the biggest owners of restaurant companies in the country, following a string of acquisitions that includes Checkers Drive-in Restaurants, Newk’s Eatery and TGI Fridays.
Under Sentinel, Howard said, Fazoli’s will have more funds to fuel growth.
“This provides a whole new avenue of fresh capital to see what this brand could be,” he said.
The financing deal under Sun Capital left Fazoli’s somewhat limited in what it could do, Howard said. Sentinel is refinancing the brand with a better loan structure that should provide it with more liquidity.
“They’re able to bring in fresh capital into the business,” Howard said. “That will allow us to reinvest in Fazoli’s to reposition the brand and make the brand stronger.”
Howard said Fazoli’s management is working with Sentinel on a five-year plan to speed growth.
The sale to Sentinel comes at a time when acquisition prices for restaurant chains are mostly rising, as long as the chain is performing well and has growth potential.
Low-cost debt and interest from buyers, such as private-equity groups, are backstopping the market and providing fuel for those higher multiples.
In Fazoli’s case, the brand has been on a long road toward relevance to get to a point at which it could be sold. Sun Capital bought the chain in 2006, when it had 319 units. But as Fazoli’s struggled, it shifted toward lower-cost items and took away popular menu items like free breadsticks.
Fazoli’s shed a third of its locations. And after Howard took over, the chain started repositioning itself as fast casual, where most of the restaurant industry’s growth is coming from.
“In 2008, they were trying to be fast food,” Howard said. “They were working on the Dollar Menu and snacks. We’ve repositioned the organization to compete on food and service and the experience.”
Fazoli’s has overhauled its marketing and operations staff and added service, bringing food out to customers. The chain also overhauled its menu with improved Italian dishes.
“There are very few brands providing the experience we provide today at a $7 check average,” Howard said. “People can come in on Friday and Saturday night and get an experience. They can get items like tortellini with cream sauce. And they don’t have to spend $10 on a plate of pasta. They don’t have to leave a tip. We can give you a $15 experience for $7.”
Fazoli’s sales have responded. Same-store sales have risen in 60 of the past 63 months, Howard said. In its most recent quarter, franchisees’ sales have risen 9.9 percent. Franchisees own 124 of Fazoli’s 213 units.
Customers are coming from different types of concepts than they once did. Fazoli’s surveys its customers on which restaurant they would visit if not Fazoli’s. In 2008, the most popular response was McDonald’s. Recently, the company started surveying customers again. This time, the top answer was Olive Garden, followed by Panera.
“We’re looked at completely different,” Howard said. “We’ve created and found our own white space.”
“We did lose some guests who only came to us for the dollar meal,” Howard added. “If you had $1 you could sit there and get your dollar food and eat endless breadsticks and water. It was totally baffling.”
Contact Jonathan Maze at [email protected].
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