Friendly's CEO Talks About Ch. 11 Filing
Harsha Agadi, chairman and chief executive of Friendly Ice Cream Corp., has had a busy Thursday morning.
Beginning at 6 a.m., Agadi separately contacted the company’s factory workers, support and field employees, franchisees, and suppliers and vendors. Each received news that the Wilbraham, Mass.-based Friendly Ice Cream, parent of the Friendly’s once-500-unit family-dining chain, has filed for Chapter 11 bankruptcy protection and closed 63 restaurants.
Employees also found out Thursday that the company has secured about $70 million in debtor-in-possession financing to begin restructuring and has 424 restaurants still operating. Agadi said Friendly will undertake a sale process and its current owner, private-equity firm Sun Capital Partners, is the lead bidder.
“We needed to address this aggressively and effectively,” Agadi said in an exclusive interview with Nation’s Restaurant News. “A Chapter 11 filing is one of the smoothest and most predictable methods.”
Friendly said there will be no impact on manufacturing and distribution operations, it will continue paying employee salaries and benefits, serving guests and retail customers, and honoring all gift cards.
Agadi said the company fell victim to the current economic downturn, increased commodity costs, and rents that he felt exceeded market rates. Sources also have noted that Friendly took on significant debt when it was purchased by Sun Capital in 2007, after a contentious battle with investors and Friendly’s co-founder, S. Priestly Blake.
“Being in the [restaurant] industry for the last 25 years, I’m quick to read a situation,” Agadi said. “When I came here recently, I knew with our shareholders, with Sun Capital — and I’m an investor — what had to happen … I’m here to stay. I’m here to make this thing turn.”
Agadi joined Friendly Ice Cream in August, after a five-year stint as the chief executive at Church’s Chicken. His career includes roles at Little Caesars and Domino’s Pizza.
Sun Capital Partners Inc., which is based in Boca Raton, Fla., acquired Friendly’s for about $337.2 million. The firm also owns about 12 restaurants brands, including Boston Market, Souplantation, Sweet Tomatoes, Fazoli’s, Smokey Bones, and Bar Louie.
An additional holding, Real Mex Restaurants, also filed for Chapter 11 bankruptcy protection this week.
Friendly’s said it booked about $700 million in systemwide sales in 2010.
Agadi said the exit from Chapter 11 is expected to be swift, between 75 and 100 days. Sun Capital is committed to the brand, he noted, with its financing and offer to purchase the company, all pending court approval.
“The executive team is here to stay, and we are focused,” he said. “The commitment from Sun Capital gives us a lot of strength.”
For Friendly’s the brand, next steps include continued improvements to menu and service, as well as new prototypes expected to open in March 2012. The chain is focused on fresh, more healthful food, service with a smile and new marketing campaigns, like its latest $5 menu offerings and the related “High 5” social media efforts.
According to Agadi, the strategies already have begun to pay dividends. The chain booked flat same-store sales in September, which Agadi said was above casual- and family-dining segment trends, and saw sales lift just as news of the pending Chapter 11 filing hit the news last week.
“I’ll tell you, what is truly astounding is the New England loyalty,” Agadi said. “I have not seen it this strong anywhere.”
Friendly’s is a 76-year-old brand that once boasted 800 restaurants, mostly in the Northeast. Sources say trouble began even before the recession hit, as it failed to upgrade menus, restaurant décor, and maintain customer satisfaction levels. In Nation’s Restaurant News exclusive Consumer Picks report from earlier this year, Friendly’s customer ranking was No. 10 out of 12 family-dining brands, garnering its lowest scores for atmosphere and value.
“Many of these restaurant companies have lost their customer proposition,” Gene Baldwin, a turnaround executive at CRG Partners, said.
Baldwin, who just finished a 21-month assignment as interim chief financial officer at Benihaha Inc., where CRG Partners was retained as a consulting firm, outlined three imperative steps to exit bankruptcy successfully: close unprofitable units; cut overhead; and put money back into food, labor, and strengthening quality.
A use of a brand’s history and customer connection also can be very important when working through a bankruptcy, according to Tom Kelley, principal at Concept Branding Group, a restaurant and hospitality marketing and consulting firm based in San Diego.
“It all starts with leadership and what the leader says and does in resurrecting the roots of the company and what made it great,” Kelley said. “Reaffirming that brand promise and delivering it to the guests is imperative.”
“I only believe in iconic American brands,” he said. “This is what I love doing, breathing life into brand that might have gone sideways.”
— Sarah Lockyer