Web Exclusive: Sizzler for Sale
The family steakhouse chain believes it has set the foundation for a sale.
By Maya Norris, Managing Editor -- Chain Leader, 2/19/2008 9:14:00 AM
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| Less than three years since purchasing Sizzler, Australia-based Pacific Equity Partners announced this month that it will put the family steakhouse chain up for sale. |
On Feb. 8, Sydney, Australia-based Pacific Equity Partners announced it was putting Sizzler up for sale. But is the timing right to sell the 305-unit family steakhouse chain?
The private-equity firm had purchased Worldwide Restaurant Concepts, parent company of Sizzler, Pat & Oscar's and 112 KFC franchises, in 2005 for $210 million. That transaction took Sizzler private and allowed Ken Cole, president and CEO of Sizzler USA, to focus on turning around the struggling brand with a new menu and prototype. The company has since seen modest gains from the initiatives.
However, Sizzler is still in the midst of its turnaround while operating in a difficult macroeconomic environment. In addition, Cole just announced that he is leaving the company at the end of the month to take the top spot at Sharon, Pa.-based Quaker Steak & Lube, a sports-themed casual-dining chain with 29 units in 10 states. Kevin Perkins, former president and CEO of Sizzler and CEO of Queensland, Australia-based Collins Foods Group, which PEP also owns, will serve as interim CEO when Cole leaves. Chain Leader spoke to Cole and Perkins about why Sizzler will be able to fetch a good price at an awkward time.
What prompted Pacific Equity Partners to sell now?
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| Kevin Perkins, CEO of Queensland, Australia-based Collins Foods Group, which operates 113 KFC and 28 Sizzler restaurants in Australia, will serve as interim CEO of Sizzler USA when President and CEO Ken Cole leaves the company at the end of the month. |
Perkins: It's always been on the schedule. We've owned it about three years. The time frame was typically three to five. And Ken and the team here had done a good job of getting the business in pretty good shape. And they felt that they couldn't add much more value from their perspective, and it was time to put it in the hands of someone that could take it to the next level.
In the September 2006 issue of Chain Leader, we talked to Ken about the reimaging program at Sizzler USA with the new menu and prototype. How is the turnaround going?
Cole: It's going well. We've got 90 plus percent of the system rebranded and remodeled. And actually we're looking at the next level of the remodel now because some of that process started three plus years ago, and so some of those are getting a little tired. But now it's more an evolution, not a revolution. When we first started it three or four years ago, a lot of the restaurants were really tired. Now it's just taking it to the next level. What I mean by taking it to the next level is the next round of color schemes-the way the restaurants look and feel.
Have you seen an increase in comps, unit counts and systemwide sales since the last time we talked?
Cole: We have. We've opened several new restaurants since we talked last. And with any remodel, depending on how long it had been since the restaurant had been remodeled depended on the level of increased volume.
Because Sizzler has been in turnaround mode for the last 10 years, one industry observer has said he wasn't going to deem it a successful turnaround unless it had five years of consecutive quarters of comp-store increases. Have you seen 20 consecutive quarters of comp-store increases?
Cole: We had seen a couple of years of consecutive comps up until this summer when the sub-prime mortgages hit California probably the worst. And we saw negative comps starting in about May in California. But outside California we're still seeing positive comps in every market that we operate in, even in Florida, which is probably the second hardest state that was hit. We're strong comps in all other parts of the country. So we would consider that a success.
Given that restaurant valuations are lower now, there's talk of a possible recession and Sizzler's comps in certain areas of the country are a little lower, wouldn't it be better to hold off on the sale until the economic environment improved?
Perkins: We still think there are plenty of buyers out there. Obviously it's not as ideal as it was six months ago. But we've had a fair amount of interest already anecdotally, people calling in, asking to make
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| Ken Cole, president and CEO of Sizzler USA, launched the turnaround at Sizzler with a new menu and prototype. His proudest accomplishment? "Working with the franchisees," he says. "Everybody came together for one common goal." |
sure that they get on the list-both strategic and financial buyers. So we're encouraged by the early response.
Cole: Also Sizzler is such an iconic brand, I think during even these times, it still has a great shot at getting a great buyer.
What are Sizzler's competitive advantages that make it a great acquisition for another private-equity firm or restaurant company?
Perkins: I think the positioning you could pretty much argue is 50 years of history. But it really is the first of the fast-casual concepts. Our food quality has been elevated fairly dramatically. And why would you go spend $4 to $5 more at another restaurant when you could come to Sizzler for the same quality food and be more in control of your experience?
We're finding that the research is coming back fairly strongly that people really like the simpler system. They like the fact that they can come and go as they please, that they're in control of the dining experience. They can eat as little or as much as they like-as healthy or not. The whole combination of having a great grill restaurant and salad bar seems to be resonating. Plus the fact we're a really good value. That's really the fast-casual positioning, even though we don't really get called that.
When the new owners take over, what will be vital for them to continue Sizzler's turnaround and taking it to the next level?
Perkins: It's continuing with the strategy that Ken and his team have put in place: focus on being rooted in the basics, executing, and blocking and tackling every day. Continuing with the facility upgrade program, and continuing to bring new franchisees into the system and new markets, and also backfill certain [markets] with expansion from existing franchise networks.
What are some areas that Sizzler is struggling with that the new buyer will have to address?
Perkins: Just the same that everybody is struggling with, really. The whole industry is down. Our read of it is, there is certain pent-up demand. People want to go out to restaurants, but they don't have the cash at the moment. Once the economy starts returning again, they'll be back in droves. So it's not a branding [problem], it's more an affordability thing for the consumer. That's the biggest challenge in California.
As Ken was saying, all other markets are still strong. We can almost trace it to the week of the mortgage resets; you see sales drop. And about six weeks later, they drag themselves back up, and then they get hit again. So it's really more of a value play at this stage and very much a market-share play. People go to restaurants in times like this that they can trust. They don't want to spend their hard-earned money and be disappointed. So it makes operations even more key in terms of making sure we're consistent and we do an outstanding job at the restaurant level.
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Snapshot Concept Sizzler Parent Company Pacific Equity Partners, Sydney, Australia Units 223 in the United States and Puerto Rico; 82 in Australia, Japan, Korea, Taiwan, Thailand, Singapore and China 2007 Systemwide Sales $363 million Sizzler USA, $158 million Sizzler International Average Unit Volume $1.8 million Sizzler USA, $1.9 million Sizzler International Average Check $11.82 Sizzler USA, $12.35 Sizzler International Expansion Plans 5 to 8 in the United States in 2008 |
Is the Sizzler USA management, which owns a stake in Sizzler, going to continue with the company when it’s sold?
Perkins: We hope so. That would be the aim. We would like to think that they would participate with the new owners in a beneficial equity participation as well. Likely they would roll the equity they have in the big group into the new entity and continue along that basis with a piece of the action.
How have the employees and franchisees reacted to news of the sale?
Perkins: I think they were less surprised about the sale because they knew the timing. We were upfront originally and said PEP’s timeframe was three to five years. It’s probably a few months earlier than what they would have thought, but it’s within the realm of what they’re expecting.
I’m more surprised about Ken leaving us than anything. I know how much he’s put into the brand and how much he loves Sizzler. So I’m more surprised at that than the sale.
Ken, did your decision to leave have anything to do with the sale?
Cole: Not at all. It was clearly to get back home, close to my family.
How does the sale and Ken’s announcement that he will be resigning affect the turnaround and operations at Sizzler?
Perkins: The team in place is very good. And I’m going to be spending a lot more time up here to keep a gentle hand on the pillar. We’re not going to change any major strategic direction, just implementing the plan that’s in place. And it’s more execution at this point.
