P.F. Chang's Gets Back into the Emerging Chains Business
P.F. Chang's China Bistro has loaned $10 million to Fox Restaurant Concepts. The capital will be used to develop True Food Kitchen, a wellness concept featuring local, organic produce and natural meats.
By David Farkas, Senior Editor -- Chain Leader, 8/14/2009 10:18:00 AM
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Dishes at True Food Kitchen, such as Sashimi Tuna Salad, have been developed in conjunction with best-selling author Dr. Andrew Weil, a health expert. |
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| A $10 million loan from P.F. Chang's will fund Fox Restaurant Concepts' effort to open four or five True Food Kitchens. |
Fox Restaurant Concepts, which describes itself as "a collection of original, thriving boutique restaurants," is $10 million richer thanks to P.F. Chang's China Bistro.
Scottsdale, Ariz.-based Chang's is providing the capital in the form a loan for the "early-stage development" of Fox concept True Food Kitchen, a one-off restaurant that emphasizes wellness. The menu, developed in conjunction with best-selling author Dr. Andrew Weil, features locally grown, organic produce, wild or sustainably harvested fish, and hormone and antibiotic-free chicken, turkey and beef.
The loan is to be used over a five-year period to build four or five True Food Kitchen restaurants and is convertible at P.F. Chang's option into a majority equity stake, Bank of America Merrill Lynch analyst Joseph Buckley notes in a "Company Update."
Funding Strategy
Financial strategist and former Brinker International chief financial officer Jim Parish wonders what type of loan protection is in place until then. "I wouldn't be surprised if it's a covenant-free loan for a couple of years," he says. "Then come the classic covenants."
Parish speculates that P.F. Chang's board of directors did not want to create the impression it is funding a new restaurant brand. Hence, it offered debt.
It has been difficult for restaurant companies with cash to burn to incubate multiple concepts. Dallas-based Brinker International, for example, has been selling brands for the past several years. Last year, the casual-dining company sold an 80.1 percent stake in Romano's Macaroni Grill to San Francisco-based Golden Gate Capital for about $88 million. Tampa, Fla.-based OSI Restaurant Partners, which operates Outback Steakhouse, Carrabba's Italian Grill and Bonefish Grill among others, this spring parted ways with the 39-store Cheeseburger in Paradise concept. It sold barbecue chain Leroy Selman's late last year.
Not to Worry
"A series of such investments might be more worrisome, but a single one is relatively inconsequential," reasons Buckley. Two years ago, P.F. Chang's developed one Taneko Japanese Tavern, a concept based on a casual style of Japanese restaurants. In January, the company announced it sold the eatery to Jack Baum, a longtime Dallas restaurateur.
P.F. Chang's co-CEO Bert Vivian describes the loan as "a small bet on our part," adding that he and co-CEO Rick Federico have admired True Food Kitchen and other restaurants in the group for a long time. "Sam [Fox] has tons of talent," Vivian says.
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Fox, president and CEO of Fox Restaurant Concepts, notes the loan is just that--a loan. "Fox Restaurant Concepts has pretty good bandwidth, so we have not established any additional relationship with P.F. Chang's at this time," he says. "They believe in the concept and are leaving it up to us to figure things out as we move forward."
He is looking for sites in Santa Monica and Newport Beach, Calif.
Fox began with a single restaurant, Wildflower in 1998, and since then created 11 concepts totaling 27 restaurants with more than 1,300 employees. Fox Restaurant Concepts is based in Scottsdale, Ariz.
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