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TPG Growth acquires majority stake in Mendocino Farms Photos courtesy of Mendocino Farms

TPG Growth acquires majority stake in Mendocino Farms

Former Darden Restaurants exec Harald Herrmann named CEO

The Mendocino Farms sandwich chain has been acquired by private-equity firm TPG Growth, a middle-market fund with plans to expand the concept outside California, the company said Monday.

In addition, former Darden Restaurants executive and Yard House co-founder Harald Herrmann (left) has been named CEO of Mendocino Farms, which is based in Los Angeles.

Founders Mario Del Pero and Ellen Chen, the husband-and-wife team who launched the fast-casual Mendocino Farms in 2005, remain the largest individual shareholders and will also continue to be involved in day-to-day operations, but with more focus on their respective roles, they said.

Terms of the deal were not disclosed. But TPG Growth has acquired the majority stake previously held by private-equity firm L Catterton, which invested in Mendocino Farms in 2012.

Whole Foods Market Inc., which also invested in the sandwich chain two years ago, has kept its minority stake as part of the deal with TPG Growth. Whole Foods was recently acquired by ecommerce giant Amazon.

With 16 units and two more scheduled to open in Northern California in December, Mendocino Farms is planning another 10 units in 2018. The chain expects to make its first move outside California — into Texas —in 2019.

With an average check of $11.50, the concept is known for its chef-created sandwiches and salads using sustainably sourced ingredients from local farmers and artisans. The restaurants are also known for their playful-but-polished design. Each restaurant has its own look.

Units are typically around 3,000-square-feet, and the chain has an average unit volume of about $3.5 million.

Del Pero said he and Chen had been looking for an operating partner — or “third amigo” — to run the company for about two years and the decision to bring on Herrmann was not tied to TPG Growth’s investment.

“It was fortuitous timing and we found each other,” said Del Pero.

Courtesy of Mendocino Farms

Mendocino Farms founders Mario Del Pero and Ellen Chen

“Mendocino Farms from the onset had ambitious goals in taking a paradigm-breaking approach to the supply chain and toward training, as well as an innovative approach to hospitality and the experience that can be provided in fast casual,” he added. “We know Harald is that perfect partner to help us scale those ambitions without watering them down.”

Herrmann was co-founder, president and CEO of the casual-dining Yard House chain, which was acquired in 2012 by Orlando, Fla.-based Darden Restaurants as part of its Specialty Restaurant Group. Herrmann later was named president of that Specialty Restaurant Group, but he stepped down from that role in 2016 to move back home to Southern California to be closer to family.

His first day as CEO of Mendocino Farms is Nov. 15. Herrmann said his move into the fast-casual world is intentional, and that he has long been a fan of Mendocino Farms as a representative of the segment.

“It’s an industry comment I’m making, but I just feel that the consumer is moving in two directions, and they don’t include casual dining,” said Herrmann. “One is more aspirational higher-check experiences, and the other is fast casual.

“While there certainly is a place for casual concepts, we have more seats than guests, and I just felt like fast casual, for me, made good sense and that it’s where consumers are going,” he added.

Herrmann said he sees Mendocino Farms as a compelling growth brand with purpose and authenticity, working closely with local farmers. The investment by Whole Foods, for example, is a tremendous brand endorsement, he said.

The strategy ahead will include mapping out growth over the next five years, growing the brand on a national stage, and building the supply chain and the internal infrastructure to make that possible, said Herrmann.

Courtesy of Mendocino Farms

Chen said she and Del Pero, meanwhile, will spend more time focusing on aspects of the brand about which they are passionate.

Del Pero will focus on the culinary side and training, for example.

“For myself, over the past 12 or 13 years, it’s been marketing and branding that I truly love — and technology — but I haven’t been able to focus solely on that,” Chen said. “Now we’ll be part of the day to day, but overseeing areas where we have expertise and value.”

The couple has also been named by Los Angeles Mayor Eric Garcetti as Entrepreneurs in Residence, helping to shape city policy and foster business growth.

For TPG Growth, the San Francisco-based middle-market investment platform for global private-equity firm TPG, the investment adds to a consumer-focused portfolio that includes restaurant brands like Taco Bueno Restaurants LP, Philz Coffee and large Papa John’s Pizza franchisee P.J. United. Outside the industry, the company has invested in brands like Airbnb, Gelson’s Markets and Spotify.

Sanjay Banker, partner at TPG Growth, said the fund was attracted to Mendocino Farms because it’s in a high-frequency category offering elevated sandwiches and salads that meet consumer demand for higher quality, fresh and sustainable sourcing and inventive flavor profiles.

“We do a lot of proprietary consumer research and consumer receptivity and enthusiasm for Mendo was off the charts,” said Banker.

“This is something that will be around for a very long time,” he added. “Whether it’s the menu, the interiors, the guest experience, they have really thought about what all the essential elements are of making a neighborhood gathering place that people will come back to over and over again.”

Contact Lisa Jennings at [email protected]

Follow her on Twitter: @livetodineout

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