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Wendy's sells Baja Fresh chain for $31 million(Ventura County Star (CA) (KRT) Via Thomson Dialog NewsEdge) Oct. 13--Barely four years after paying $275 million in cash to buy it, Wendy's International Inc. said Thursday that it is selling its underperforming Baja Fresh Mexican grill restaurant chain for $31 million. In a strategy aimed at reviving its brand by concentrating on its core business, Wendy's said a consortium of investment groups headed by retailer and restaurant operator David Kim of Anaheim will buy the Thousand Oaks-based chain, which was launched in 1990 as a fast-food alternative by Jim and Linda Magglos of Malibu. Once the country's No. 1 "quick-casual" Mexican restaurant, Baja Fresh lost customers in recent years to aggressive competitors such as the Chipotle Mexican Grill chain. Although Baja Fresh had achieved 29 consecutive quarters of sales growth when Wendy's bought it in 2002, the fast-food giant wrote off $199 million of Baja Fresh's value in 2004 and an additional $93 million in the second quarter this year. Wendy's officials decided that the chain was not worth what they paid for it. "They sold it for a song," said Sherri Daye Scott, editor of QSR magazine, which covers the fast-food industry. Wendy's, which also spun off its Tim Hortons coffee and doughnut chain last month, has been under pressure from investors to shed its extra businesses and return to its hamburger roots. "This transaction, as well as our Sept. 29th spinoff of Tim Hortons, will allow us to sharpen our focus on the Wendy's brand," Kerrii Anderson, Wendy's interim president and chief executive officer, said in a prepared statement. "We wish all the best to the employees and franchisees of Baja Fresh." Wendy's officials described buyer Kim and his team as experienced restaurant operators and retailers with more then 3,000 employees in 400 company-owned and franchise locations. The team's national brands include Sweet Factory, Cinnabon, KaBloom and Denny's. Last year, Kim partnered with St. Cloud Capital LLC, a Westwood private equity fund, to buy 86 Cinnabon shops in 22 states. The shops, mostly located in malls, sell cinnamon buns. Kim did not return two calls from The Star on Thursday. The Baja Fresh sale is expected to close by the end of the year. The chain had 169 locations when Wendy's bought it. Although it had 300 on Thursday, that was three fewer than it had last year and far short of the 700 that Wendy's once predicted it would have by the beginning of 2007. An assistant to Baja Fresh President and CEO Brion Grube referred a reporter to Wendy's International's corporate offices in Dublin, Ohio. Grube, a 16-year Wendy's veteran, was named to head Baja Fresh in April 2005. He is the chain's third CEO since the hamburger giant acquired it. In an interview with The Star last year, he said Wendy's had expected Baja Fresh's fast growth to continue, but a spate of aggressive competitors emerged after the acquisition. The industry and its customers were also changing. "We haven't been able to grow the concept quite as quickly as what we would like," Grube said at the time. "This is also a very, very competitive market sector just in terms of the number of players that have come into this fast-casual, but also the Mexican food segment. Right now, it is more of a challenge to operate in that highly competitive marketplace." Besides Chipotle, which McDonald's Corp. spun off and took public earlier this year, Baja Fresh saw Jack in the Box Inc.'s Qdoba Mexican Grill and other chains, including Sharkey's, Rubio's Fresh Mexican Grill and Moe's Southwest Grill, take a share of the market. All are similar to Baja Fresh in terms of what they do and how they do it. Besides competing for customers, the chains also vie for locations, driving rents higher at choice shopping centers. Last year, Baja Fresh increased advertising, added menu items, changed its decor and replaced its high tables and bar stools with booths to attract families, but sales continued to decline. The Maggloses, who lived in Thousand Oaks at the time, started with a single restaurant in Newbury Park after operating Wax Masters, an auto detailing and window-tinting business, for 11 years. Their concept was to provide quality dishes served amid squeaky clean surroundings. Baja Fresh pioneered the quick-casual restaurant model and grew into one of the country's fastest-growing chains. There were 37 locations by 1997. The Maggloses, private people who rarely give interviews, did not return a call from The Star on Thursday. To gain capital, they sold stock in their company to two equity funding firms and several members of their management team in the late 1990s, then decided early in 2002 to take Baja Fresh public. Officials at Wendy's, the nation's third-biggest fast-food company with 6,300 restaurants in North America, saw the notice the Maggloses filed with the Securities and Exchange Commission and offered to buy the company. A deal was negotiated in less than two weeks and closed one month later in June 2002. The Maggloses owned an 11.8 percent stake in the company at the time. Wendy's, known for its square, made-to-order burgers, is trying to keep recent momentum after a tough 2005. Sales at locations open more than a year fell for the first time in 18 years after a customer falsely claimed that she had found part of a finger in her chili. "Over time, we have kind of not focused on what business we're in, and we're in the core hamburger business," interim CEO Anderson told the Associated Press in a telephone interview. The stock has reached record levels recently. On Thursday, it rose $1.39, or 4.1 percent, to close at $35.11 on the New York Stock Exchange. The company said it expects same-store sales, one of the best indicators of a company's strength, to continue to increase by 3 percent to 4 percent over last year, but it warned that third-quarter profits due out Oct. 26 would be affected by several factors, including the cost of closing 30 to 40 restaurants. The company previously announced plans to cut costs by $100 million by reducing corporate jobs. Analysts say one of Wendy's strengths is the quality of its products, which was a focus of founder Dave Thomas. He was a big part of Wendy's marketing before he died in 2002. "It's struggled for brand image," said QSR editor Scott. "Most people will tell you that after the passing of Dave Thomas, the company didn't have an anchor." The Associated Press contributed to this report. ON THE NET: --http://www.wendys.com http://www.bajafresh.com To see more of the Ventura County Star, or to subscribe to the newspaper, go to http://www.venturacountystar.com. Copyright (c) 2006, Ventura County Star, Calif. Distributed by McClatchy-Tribune Business News. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |