March 22, 2010

Focus Brands Franchising

Tex-Mex Heads to Turkey as Credit Thaw Fuels Restaurant Growth
March 19, 2010, 11:24 AM EDT
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March 19 (Bloomberg) — FOCUS Brands Inc., the owner of Carvel ice cream and Cinnabon, will add 50 locations this year to its fastest growing chain, Moe’s Southwest Grill, and expand into Turkey as the global recession recedes.

Atlanta-based FOCUS has signed a franchise agreement to add 40 Moe’s restaurants in Turkey over seven years, marking the brand’s first foray outside the U.S. and Canada, Mike Shattuck, president of FOCUS Brands International, said this week in an interview. The first of the Turkey locations will open in Istanbul’s Sapphire Tower in September, he said.

Moe’s, which serves “Homewrecker” burritos and quesadillas made to order with hand-chopped pico de gallo, will sell more franchise agreements in the first quarter of 2010 than it did all of last year, President Paul Damico said in an interview. Renewed access to financing and a rebound in same- store sales have helped fuel deals, he said.

“When the credit markets freeze up it’s very difficult to fund any kind of expansion if you’re a franchise owner,” Michael Schaefer, a consumer foodservice analyst for Chicago- based researcher Euromonitor Plc, said in an interview. “We’ve definitely seen that easing.”

Planning to Double

FOCUS Brands, with more than 2,200 outlets worldwide, plans to double that count within 5 years, Shattuck said. The company is owned by Roark Capital Group, an Atlanta-based private equity company named for Ayn Rand’s protagonist in “The Fountainhead.” Roark, whose backers including Goldman Sachs, has about $1.55 billion in assets, it said.

Moe’s will close 33 franchise deals in the first quarter after signing 22 in all of 2009, Damico said. The chain recently signed a deal with foodservice developer Sodexo USA to open 50 stores in universities, train stations and medical centers within five years.

Sales at freestanding consumer foodservice establishments globally fell 1.5 percent to $1.68 trillion in 2009 and are expected to rebound by 0.2 percent this year, Euromonitor estimated. Sales at foodservice outlets in travel centers, such as airports and train stations, grew an estimated 1.1 percent to $138 billion in 2009 and may grow 3.3 percent this year.

Moe’s, which operates 409 locations in 34 states and Canada, is seeing customers return. Sales in stores open at least 14 months have grown about 4.5 percent this year over the same period last year, Damico said. Same-store sales fell 2.3 percent in 2009, he said. Moe’s predicts total sales will grow 3.5 percent to $334 million in 2010 after about a 1 percent gain last year.

International restaurant expansion in the next 6 to 12 months in emerging markets including Brazil and India may return to the growth seen prior to the recession as disposable incomes rise, Schaefer said. More established markets, such as the U.S., will take longer, he said.

Real-Estate Developer

Moe’s choice of Turkey for its first overseas expansion wasn’t planned. Turkish-born businessman David Ergisi, a Florida real estate developer who previously owned Domino’s Pizza Inc. franchises in Long Island, New York, pitched the idea after deciding to move to Istanbul to reconnect with his homeland.

The 2008 real estate collapse effectively put Ergisi’s Jacksonville-based retail development business, Dots & Co., on hold. He had sold some of his key properties in 2007 before the crash, he said. So, he decided to wait out the recession in Turkey with his wife and young children. Pretty soon he was looking around for business opportunities.

Hotbed of Growth

“It guess the workaholic nature of me, after a few months I started to itch,” Ergisi, 44, said. “There’s a lot going on here. Leaving a market that’s really down and coming here, it was exciting.”

Turkey has become a hotbed of fast-food growth, Ergisi and Shattuck said. McDonald’s Corp., Burger King Holdings Inc. and Yum! Brands Inc.’s Pizza Hut are among chains that have expanded into the country of about 73 million residents.

Ergisi said he was encouraged by the emergence of southwestern menu items at full-service restaurants in Turkey. He also said the fast-casual dining concept that Moe’s offers is new to Turkey. The concept blends the higher food quality of casual sit-down dining restaurants, such as T.G.I. Friday’s; with the quick counter service of fast-food restaurants. Prices fall between the two formats, as well.

Ergisi’s contract calls for 2 more Moe’s locations in 2011, four in 2012 and the balance of 40 by 2016. Ergisi can sub- franchise stores after he opens at least five, Damico said. A key goal early on will be establishing consistent local suppliers that can meet Moe’s standards, Damico said. The first store, at least, will be supplied by container shipments from the U.S.

— Editors: Anita Sharpe, Andrew Dunn

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