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Family-style restaurants like Cincinnati-based Frisch’s Restaurants Inc., which announced a planned sale to a private equity fund Friday, have been in decline for years. But an industry watcher says that segment is starting to turn around.
Chains like Frisch’s (NYSE: FRS) have been losing customers for 15 years to everything from fast casual concepts to fine dining to the growing a.m. eateries segment – restaurants like First Watch that stay open only for breakfast and lunch – Darren Tristano, executive vice president at Chicago food industry research firm Technomic, told me.
“Overall this segment has seen competition across the board,” he said. “Older consumers who are more traditional and grew up with these brands have shifted to other types of restaurants and aged out of spending. Younger consumers have seen the brands they grew up with, the fast casuals, become more of a preferred destination.”
That’s not to say it’s all bad news for the family-style restaurant segment. It has been growing as of late.
“The lower-middle income groups have been helped by improved employment, lower gas prices and higher disposable income,” Tristano said. “Because of that, this segment has done a little bit better.”
The segment grew 3 percent last year, up from no growth the previous year. However, that still pales in comparison to the 10 percent growth seen by the fast casual segment.
That slow growth or lack thereof put Frisch’s in a pickle, as outlined in the Courier’s Feb. 6 cover story.
In 2012, Frisch’s agreed to sell its 29 Golden Corral franchise restaurants in Cincinnati and six other cities to NRD Holdings LLC, which was led by Aziz Hashim. Golden Corral corporate exercised its right of refusal and purchased the restaurants itself. Hashim’s NRD Partners is set up to acquire Frisch’s for $175 million, or $34 per share, if shareholders approve the acquisition.
“At that point in time, the board started to say, ‘Where do we go from here in terms of creating shareholder value?'” recalled Mark Lanning, Frisch’s chief financial officer. “The board looked at various alternatives and finally looked upon the sale of the company. That process had been ongoing.”
The acquisition could be the shot in the arm Frisch’s needs, at least in terms of profitability. Private equity firms don’t try to revive brands but come in and try to make them profitable at the headquarters and corporate levels as well as more effective in advertising, Tristano said.
“When we look at Big Boy, it’s a very iconic brand,” he said. “It has strong opportunity to not only remain but increase relevance. I think with the right plan and right people, if they’re willing to invest into the brand to grow it, they could be on track.”