Global franchising company FAT Brands Inc. sees its third-quarter acquisition of Johnny Rockets as a long-term investment as the retro-diner concept faces immediate challenges because of the COVID-19 pandemic, the CEO said Tuesday.
The Los Angeles-based FAT Brands, in releasing third-quarter earnings, said more than 20% of its restaurants, or 141 of 682 units across nine brands, remain temporarily closed because of restrictions and other pandemic-related reasons.
FAT Brands also owns steakhouses Bonanza and Ponderosa, which were deeply impacted by the pandemic because of their buffet formats. Other brands in its portfolio include Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger and Yalla Mediterranean.
Andy Wiederhorn, FAT Brands CEO and president, said the company has identified growth potential for the Johnny Rockets retro diner brand, which it acquired Sept. 21 in a $25 million deal.
“We intend to accelerate the brand's growth through a number of initiatives such as the introduction of plant-based proteins, opening of virtual restaurants, utilization of our significant purchasing muscle, expansion of marketing and advertising programs and the implementation of additional delivery technology,” Wiederhorn said.
About half of the Johnny Rockets locations are international, he added, and they face “very different issues country-by-country or market-by-market.”
About 70 of Johnny Rockets’ 322 units remain temporarily closed, Wiederhorn said. Many of the closed locations are in amusement parks, movie theaters, shopping malls, casinos and cruise ships, which have been seen broad impact from COVID-19.
“It's important that we get as many of those restaurants back open as possible,” he said.
“As we get through COVID-19 over the next, let's say, six months or so and the vaccine is out, we anticipate a very strong recovery there,” Wiederhorn noted, adding that he was not projecting Q$ revenues because of coronavirus uncertainties.
“The demand is there. The partnerships are there, with the movie theater operators, the cruise ships, the theme parks,” he said. “That will all come back to us.”
For example, he said, Johnny Rockets has units in about 15 Six Flags locations and the theme-park operator is focused on reopening in the second half of 2021 or in 2022. “They think it's going to be a really tough first half of the year for them,” Wiederhorn said.
FAT Brand’s Ponderosa and Bonanza buffet steakhouse concepts“have been beaten up the most,” he said, and are what he called a “pain point.”
“There have been some closures year-to-date from the steakhouses that are permanent, some older operators that have just shown in the towel and said I'm done. I don't really want to ride through the winter, which is always the tough time in the Midwest and the Northeast, for example,” Wiederhorn said. “We did go to an attendant type of serving at the buffet.” Additional labor was likely offset by lower food cost because of reduced waste, he said.
About 45 Ponderosa and Bonanza are still temporarily closed, 31 outside of the contiguous U.S. states and 14 domestically, he said. Among the other FAT Brands concepts, about 14 of the 177 Fatburgers are temporarily closed and nine of 42 Elevation Burger units are temporarily closed (eight of those international). Three Buffalo’s Café units are temporarily closed, but all the Hurricane Grill and Wings and Yalla Mediterranean units are open, he said.
Wiederhorn said the company is offering its nine different brands as virtual restaurant concept options for existing franchisees as well.
“It just means bringing in product,” he said. “There's not really a lot of waste because most of it is frozen. … I think it's a big opportunity.”
For the third quarter ended Sept. 27, FAT Brands swung to a net loss of $568,000, or 5 cents a share, from a profit of $1.2 million, or 10 cents a share, in the same period last year. Revenues fell 36.9% to $4.1 million from $6.5 million in the prior-year quarter.
Wiederhorn said FAT Brands concepts saw an average 1% increase in sales each week of the third quarter as shelter-in-place orders were eased and delivery ramped up.
FAT Brands franchises Fatburger, Johnny Rockets, Buffalo’s Cafe, Buffalo’s Express, Hurricane Grill & Wings, Elevation Burger, Yalla Mediterranean and Ponderosa and Bonanza steakhouses.
Contact Ron Ruggless at Ronald.Ruggless@Informa.com
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