Casual Diner Cheddar’s Scratch Kitchen Absorbs Largest Franchisee
In this era dominated by refranchising, Cheddar’s Scratch Kitchen is bucking the trend.
The casual diner known for its from-scratch cooking acquired 44 restaurants from the Kentucky-based Greer Companies, it’s largest franchisee. The acquisition puts company stores at 139 out of 164 units.
Greer, a family-owned real estate development and hospitality company, operated locations are in seven states, across the Southeast, including Kentucky, Ohio, Indiana, Tennessee, Virginia, West Virginia and North Carolina. They will all continue to operate under the Cheddar’s Casual Café nameplate.
CFO Donald Breen said it was an acquisition that brought some very strong restaurants onto the corporate side of the brand.
“It’s a great addition to the brand, and a franchisee that has been in the system for over 20 years,” said Breen.
He said it’s not a cut-and-run transaction either. As a part of the transaction, Greer made a “modest investment” in the brand and will continue to grow the company.
“I think it was a difficult decision for Greer to decide that they were going sell, bringing them into our corporate family was a logical next step,” said Breen. “They run great operations, and we felt it was a good opportunity for us to fold them in and to continue to build a great brand.”
Cheddar’s brought in a new senior VP to help oversee the acquired locations, but many of the key players from top to bottom continue to run the restaurants.
To finance the deal, Breen said it meant a recapitalization for the business in a large syndicate led by Morgan Stanley, with joint lead arrangers Societe Generale and Wells Fargo, with a large syndicate behind them. The terms of the deal were not disclosed.
Private equity partners L Catterton and Oak Investment Partners were also key players in the acquisition.
“They’ve been great private equity partners for the company for quite a while, I’ve worked with one the other or both for the better part of the last 17 years,” said Breen. “They were both instrumental in helping us think through the best way to evaluate this opportunity.”
How a casual diner has weathered the ugly trends among close peers and made an acquisition like this from a place of strength, Breen said it’s differentiation at the core of the brand.
“I think you have to be differentiated, that’s clearly the number one thing,” said Breen. “Over the last couple years, is we have rebranded ourselves and really started to take credit for something we’ve been doing for the last 27 years, which is scratch cooking.”
He said that means they have an easier time on the purchasing side since they can get scratch ingredients everywhere. But it does mean higher investment in labor with about twice as many cooks as competitors and 50% larger kitchens. The balancing act, however, has been a proven traffic driver.
“The scratch cooking platform comes through in a couple of different ways,” said Breen. “It’s authentic, it’s something we’ve always done and hopefully it comes through—and we’ve seen it in our research—once people know and understand that, they understand why the food is different perhaps than some of our competitors.”
The food quality also helped them secure the 2016 Technomic Consumer Choice Award for “intent to return” based on consumer ratings, beating out national players with many more locations.
As for future growth, Breen said they would slow things down as they integrate the new restaurants. He said the company is looking at about two company restaurants and one franchised location, down from the 10-restaurant average seen since 2006 when L Catterton and Oak Investment Partners came into the picture. He said he expects a return to that average in 2018 as the company builds out current markets further.