SCOTTSDALE ARIZ. Cold Stone Creamery consolidated to form a “world-class brand-building company,” the $1.2 billion entity wasted little time making its first strategic purchase. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
The newly named Kahala-Cold Stone strengthened its Blimpie Subs & Salads chain by acquiring the assets of Metropolitan Blimpie Inc. and Blimpie Associates Ltd., a wholly independent New York-based franchisor and operator of the Blimpie concept. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Metropolitan Blimpie, which previously was separate from Kahala-Cold Stone’s nearly 1,300-unit Blimpie International Inc. business based here, owns the rights to operate and franchise the Blimpie brand in New York City, Maryland, Pennsylvania and parts of New Jersey. It has about 295 company-owned and franchised outlets under its corporate umbrella. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Terms of the deal were not disclosed, although Kahala-Cold Stone said no liabilities of Metropolitan Blimpie or Blimpie Associates were assumed in the deal. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Michael Reagan, executive vice president and general counsel of Scottsdale-based Kahala-Cold Stone, said the “unification” of the two companies after more than 30 years of operating independently will enable Blimpie to compete more effectively in the crowded sandwich segment. He said the consolidation of the two Blimpie entities would allow the chain to improve purchasing and distribution contracts. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“Once the current contracts expire and we can negotiate new ones, it should mean either lower prices or additional support from vendors or both,” he said. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
The Blimpie consolidation also would allow the company to meld such areas as marketing and training. In addition, having the entire Blimpie brand reporting to a single owner will help the expansion of the concept, Kahala-Cold Stone officials said. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“Not being the sole owner of the [trade]marks became a stumbling block to close some deals,” Reagan said. “We really needed to own 100 percent of the marks.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
The Blimpie concept was founded in 1964 in New Jersey, and then divided into the two independent entities with jurisdictions over different territories in the mid-1970s. Kahala purchased Blimpie International early in 2006 for an undisclosed sum and moved the chain’s headquarters from Atlanta to Scottsdale. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“When we did the original deal with Blimpie [in 2006], the plan was always to do this second piece,” Reagan said. “Talks were very slow in the beginning, but accelerated in the first quarter of this year.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
The acquisition will place some of the Blimpie brand’s highest-grossing outlets under the control of Kahala-Cold Stone. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“Because of the geography, Blimpie Associates and Metropolitan Blimpie outlets have some of the highest volumes in the system,” Reagan said. “New York units can run from $600,000 to $800,000 each.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
By comparison, Nation’s Restaurant News’ Top 100 Census of Chains and Companies estimates that average sales per unit for the chain ran about $206,000 in 2005. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Kahala-Cold Stone also intends to jump-start the chain’s expansion, particularly in the international arena. Previously, not owning the brand outright also proved to be problematic in that area, Reagan said. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“It was challenging when an overseas company would conduct its due diligence,” he said. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Reagan said Kahala-Cold Stone, which already operates several of its 13 brands in some 15 countries, has held talks about expanding Blimpie with potential franchisees in Canada, Germany and Australia, although nothing has been finalized. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Kahala-Cold Stone also hopes to step up domestic expansion of the Blimpie brand once it has completed the consolidation process. Earlier, Reagan had said he envisions opening 10 to 12 outlets each month and eventually building the brand into a 5,000- to 10,000-unit chain. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“We’re the No. 3 sandwich chain behind Subway and Quiznos,” he said. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Over the past several years, however, Blimpie has struggled with growth that has largely been flat or declining. Reagan said the combined Blimpie companies generated systemwide sales of about $318 million in 2006, which is down about 2.75 percent from $327 million a year earlier. The number of company-owned and franchised units for both Blimpies also has declined, from 1,637 in 2005 to 1,583 in 2006. At one time the Blimpie system had more than 3,000 outlets. Many, however, were closed because of declining sales. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Before the Kahala purchase in 2006, Blimpie International had experienced internal problems when franchisees accused former officials of taking kickbacks, misusing marketing funds and withholding royalties from area developers. The situation eventually led to the resignation of chairman Jeffrey Endervelt, who also held the titles of chief executive and president. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Roger Lipton, president of New York-based Lipton Financial Services Inc., a managed and investment partnership that specializes in restaurants and retailers, called Blimpie “a well-established brand that never developed into what it could have been.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“Blimpie is an old-time concept that has been good, not so good, had its ups and downs, been private, been public,” Lipton said. “They’ve got a base, and if they can build on it with a quality image and service they can probably expand. But the sandwich segment is extremely competitive, and it’s not like anybody else is sitting around making room for them.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
“The Blimpie chain has gone through a lot,” Reagan said. “But we’ve been digesting it for 15 or 16 months, and we think we’re getting our arms around it. We understand the issues, and feel that every month we’re making strides. We’ll get the brand going in the right direction and make it more attractive for franchisees.” —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
While he said there would be a consolidation period for the new Kahala-Cold Stone company, he also acknowledged that the company expected to acquire new brands as a mid- to long-term goal. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Earlier this month, Cold Stone signed a deal with Soup Kitchen International, the New York-based parent of the Original Soupman concept made famous in the “Soup Nazi” episode of the television show “Seinfeld.” Cold Stone said it would franchise two co-branded outlets. The company, however, declined to say whether it would attempt to acquire the expanding soup chain. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Kahala-Cold Stone, which operates and franchises more than 4,600 retail locations, also includes such brands as the 35-unit Ranch 1, 300-unit Taco Time, 200-unit Surf City, 40-unit Great Steak & Potato Co. and 80-unit Frullati Café & Bakery. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
Last year, Kahala Corp.’s brands generated some $650 million in sales, while Cold Stone’s sales for 2006 were about $500 million. —Barely a week after multibrand franchisor Kahala Corp. and ice cream chain
