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Cheddar’s buys out largest franchisee

Greer Companies ran a quarter of casual-dining chain’s locations

Cheddar’s Scratch Kitchen on Thursday said it has acquired 44 locations from its largest franchisee, Greer Companies, turning the Irving, Tex.-based casual-dining chain into a predominantly company-run operation in a single deal.

Terms of the deal were not disclosed. But, as a result of the 44-unit deal, Cheddar’s now operates 139 of the chain’s 164 locations — or about 84 percent, up from less than 60 percent company owned before the deal was complete.

“They’ve been a part of the Cheddar’s family for over 20 years,” CEO Ian Baines told Nation’s Restaurant News. “This opportunity became available to us. It’s just perfect.”

The locations Greer operated are in Kentucky, Ohio, Indiana, Tennessee, Virginia, West Virginia and North Carolina.

Cheddar’s has quietly grown into a large-scale, casual-dining business since Aubrey Good and Doug Rogers founded the chain in 1979. The brand has unit volumes of nearly $4.5 million per location, according to NRN’s estimates.

The company was the 67th largest restaurant chain in the country, according to last year’s NRN Top 100 list, with system sales of $714.2 million in the 2015 fiscal year. The private equity groups L Catterton and Oak Investment Partners currently own the company.

Deals in which franchisors buy up large-scale franchisees go against industry trends, in which franchisors are more likely to sell units to franchisees. But it’s not unprecedented: Growing, profitable brands that prefer operating restaurants will frequently buy up franchisees as they mature. In 2015, for instance, Buffalo Wild Wings bought a 41-unit operator, Alamowing Development, for $160 million.

Baines said that Cheddar’s long ago decided to be a company-run operation, focusing growth only on company units. “We haven’t introduced any new franchisees into the organization for a long time,” he said. “Strategically, we’re not looking to do that at all.”

With large unit volumes and a business that makes food from scratch, Baines said operations are more complex than your typical franchise business. Even the franchisees the company does have are either former executives or they’re longtime operators who grow slowly.

“You cannot grow too quickly,” Baines said. “You need to be able to develop at the appropriate level.” Indeed, that goes for Cheddar’s itself: The company had plans to develop five locations this year but reduced that to three so it could focus on integrating the acquired restaurants. And Baines conducted the interview while on the road to visit those locations.

“That’s the strength of the business,” he said. “For us, we have an average of 170 team members per location and typically five to six managers per location. It’s just not your typical franchise model.”

This deal, Baines said, enables the company to gain a quarter of its locations and market back into its corporate portfolio.

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

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