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Romaniello of Roark Capital on navigating the credit crunch

Firm's brands try franchisee incentives, express stores to spur growth

With lending still hard to come by, the restaurant brands owned by Roark Capital Group have implemented several strategies to facilitate franchise growth, said Steve Romaniello, managing director of the private-equity firm.

In an interview with Nation's Restaurant News, Romaniello noted that while credit opportunities are beginning to open up, the lending terms are often too prohibitive for many franchisees.

“We’re seeing lenders slowly trickling back, and there is more acquisition and refinancing activity, but we’re still not seeing a great deal of financing for new restaurants with reasonable terms,” he said.

Romaniello said the firm's brands are trying a number of strategies to help franchisees open stores, including reduced franchise fees and express stores that are cheaper to build.

Atlanta-based Roark's restaurant portfolio includes Focus Brands, the parent of the Schlotzsky’s, Cinnabon, Moe’s Southwest Grill and Carvel brands, as well as McAlister's Deli and its newest acquisition, Wingstop.

“Some of our brands have hired people to work with franchisees to find lenders and help [them] secure financing," he said. "In some cases, our brands have done things to make it easier, such as offering incentives that would reduce equity requirements.”

Those incentives, Romaniello said, included charging a smaller upfront franchise fee or reducing royalty payments so that the franchisee’s credit would seem more secure to the lender. So far, he noted, those strategies have been paying off.

“It actually has had good response,” he said. “Many have been signing up; the rate of franchise sales has increased meaningfully over last year.”

Romaniello said Roark’s restaurant brands also are looking at developing express units that require more modest financing. For example, Cinnabon has opened 100 express stores inside Schlotzsky’s units.

He added that Roark would continue to seek out additional locations for its brands in nontraditional venues, and that all of the chains would continue to focus on improving the general quality of their food and hospitality.

“It’s a common theme,” he said. “We’re upgrading food, service and delivery to make a better product for consumers that will resonate with them and increase sales.”

Romaniello noted that while finding financing is still a challenge, the credit crunch for restaurants is starting to slowly improve.

“The biggest difference we’ve started to see is more lenders are trickling in, particularly [Small Business Association] lenders," he said. "Last year there virtually was no activity, much less than there is today. Hopefully [at this time] next year, we’ll say that new restaurants were financed at a more rapid rate.”

An earlier version of this story incorrectly reported growth plans for McAlister's Deli. There are no plans for McAlister’s express units at this time. Roark has opened 100 Cinnabon Express units within its Schlotzsky’s chain.

Contact Elissa Elan at [email protected].

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