MTY Invests Further in US Market with Baja Fresh Acquisition
Big brands have so much trouble crossing international borders. It’s exceptionally clear in Target’s catastrophic Canadian expansion, but there are plenty of cross-border failures in the restaurant industry.
With those failures in mind, when Montreal-based MTY Food Group wanted to expand into the U.S. in a big way, it wasn’t going to go it alone.
“We’ve seen a lot of Canadian companies try to go into the U.S. and copy and paste what they’re doing in Canada and most of them have failed,” said MTY Food Group CFO Eric Lefebvre.
Their first foothold into the U.S. came in 2013 with the purchase of Extreme Brandz, another Canadian company with some 40 locations of Extreme Pita, PurBlendz and Mucho Burrito.
But for a stronger U.S. position, MTY hunted for a larger, American-based restaurant company. So, in July, it finalized an acquisition of Kahala Brands, the franchisor of 18 brands including Cold Stone, Blimpie, Pinkberry, NrGize and others. The $310 million deal gave them a deep bench of U.S. franchising, marketing and branding experts. The maintained the Scottsdale, Arizona, office and continued growing the brands.
Lefebvre said it was exactly what MTY needed as it began looking for better growth opportunities outside of Canada.
“We’d been looking for a sizable platform in the U.S. that would give us good local knowledge of the market,” said Lefebvre. “The depth of the U.S. is nothing compared to what we have in Canada. We’re a very small market. The density of population is not great, so for restaurant operations, you’re a little more limited. In the U.S., there’s almost no end to it.”
Their most recent $27 million acquisition of 162-unit Baja Fresh brought another brand under the Kahala group umbrella.
It’s not the most resonant brand nationally, but Lefebvre said MTY got a reasonable price for the brand with $145 million in annual sales. He said he hopes the capital of MTY and the synergies of a large development team via the Kahala acquisition will help turn around the brand’s downward trajectory.
“Baja we felt that it’s maybe not an iconic brand, but close to it, especially for people based in California they know Baja very well, there’s a lot of love for the brand,” said Lefebvre. “We’re going to leverage the platform that we have and the good development team that we have in Kahala to really accelerate the growth of Baja. It’s lost a few stores in the past few years and we hope we can reverse that trend.”
MTY is also using that local insight to expand its Canadian brands without becoming yet another international blunder. Their first original brand expansion will be Thai Express, which is already under construction at Minneapolis’ Mall of America.
From there, he said it’s just a matter of what the “acquisitive” MTY finds next at home or abroad in the U.S. market, where MTY sees many opportunities to grow atop its new Scottsdale satellite.
“If you go into a different country you have to accept that the rules might be different, the consumer behavior might be different, the preferences might be different and the way you do marketing might be different,” said Lefebvre. “You really have to let local people manage it, it’s not going to work otherwise.”