The Subway sale is not a done deal. And it may not be done for Months

The U.S. Federal Trade Commission has apparently opened an investigation into Roark Capital’s acquisition of the sandwich giant, the publication Politico reported on Tuesday, citing multiple sources.

The agency is apparently concerned about the level of dominance Roark would have in acquiring Subway. Roark also owns Subway rival Jimmy John’s, through its Inspire Brands arm, along with McAlister’s Deli and Schlotzsky’s, through Focus Brands.

The investigation, which Politico said started earlier this month, is in its early stages, and “any resolution is likely months away.” And such investigations can drag on for some time. The agency could either work out an agreement between the two companies, sue to block the merger, or do nothing.

The Sysco-US Foods merger, for instance, would ultimately take 18 months to be resolved, and in that case, Sysco backed out after the FTC sued to block the deal.

The question is whether Roark Capital would have too much dominance in a market in which it operates two of the largest sandwich chains in the country.

The Atlanta-based private equity firm is a massive owner of U.S. restaurant chains. If the deal were to go through, it would operate chains with nearly $49 billion in total system sales, more than McDonald’s in the U.S., based on 2022 sales.

The combination of Subway and Jimmy John’s, however, would only have a similar level of dominance in that market as McDonald’s, Chick-fil-A, and Taco Bell have in their respective markets, according to a Restaurant Business analysis.

It’s possible that the FTC could use the process to win concessions from Subway over its treatment of franchisees, one of the agency’s areas of concern. The agency at least in theory could also prompt Roark to offload one of its holdings—there has long been speculation that the private equity firm would take Inspire Brands public, for instance.

Representatives for Subway did not respond to a request for comment Tuesday.

Regardless, the apparent investigation adds another layer of uncertainty to what has been a year-long sale process. An FTC investigation could take more than a year and if it lands in court the process can go even longer.

The FTC’s objection to the proposed Sysco-US Foods merger, for instance, would not be resolved until 18 months after that deal was first announced. And the resolution involved Sysco backing out of the deal.

Subway put itself on the market in January, nearly two years after the death of Peter Buck, the last of the chain’s two founders. The process took several months amid concerns about the financial health of the brand’s franchisees.

But Roark agreed to acquire the firm for $9.6 billion, though that apparently includes an earn-out provision, meaning the company would have to make certain financial targets for the sellers to get the full price.

Operators have closed about 7,000 of the chain’s restaurants over the past eight years, taking the company from nearly 27,000 U.S. restaurants to just over 20,000. Worldwide, the chain operates nearly 37,000 units, but that decline cost the company its title as the world’s biggest restaurant chain by unit count.

Source: Nation’s Restaurant News

Lower grocery inflation is pulling consumers away from restaurants, study finds

About 1 in 4 consumers replaced restaurant meals with foodservice options from grocery stores in 2023, an increase of 17% from last year, according to new research from the retail trade association FMI.

Shoppers are also cooking at home more often and creating hybrid meals that combine premade items with those made from scratch, according to a report from the group, The Food Industry Association’s Power of Foodservice at Retail report.

“For years, we’ve found that shoppers simply did not think of the grocery foodservice department when planning their meals. But, as shoppers continue to prepare more meals at home, that trend is changing,” said Rick Stein, vice president of fresh foods at FMI, in a statement. “Shoppers are creating hybrid meals, which include some scratch cooking with some pre-prepared items. This hybrid meal approach means shoppers want convenience and experience and they are finding it in the foodservice, deli and bakery departments.”

The research showing increased purchases of foodservice fare from grocery stores is backed by NIQ (NielsenIQ) data that shows spending at deli counters grew 4.2% to $49.9 billion year over year for the week ended Oct. 7. Meanwhile, deli traffic declined 1.7% during the same period.

The NIQ report added that over 70% of households purchased deli foodservice products, with shoppers making an average of 9.8 purchases per year. That trend is expected to continue, as more than two-thirds of consumers (68%) plan to continue purchasing restaurant-like products from groceries, while 1 in 5 intend to increase such purchases.

Sales of foodservice and prepared items also increased to $18.5 billion for the year, up 4.7%. Foodservice/prepared orders fell 1.8% over the same period. The situation mirrors what’s happening in the restaurant market, where sales are up because of price inflation, while traffic has slipped.

Nearly half (47%) of shoppers told FMI that cost was the top reason for purchasing restaurant-like fare from supermarkets. That was followed by taste at 43%; cravings for a particular dish, cuisine or taste at 42%; value at 37%; time and effort involved at 35%; availability of options (such as the proximity to a restaurant) at 33%; how soon the meal can be eaten at 26%; and healthy eating considerations at 25%.

The report also noted that there is room for growth in the healthy options offered at grocery stores’ foodservice counters. Only a third of consumers were satisfied with the healthy options available, while 65% expressed interest in healthy and nutritional options. Similarly, two-thirds said that they also consider at least one nutritional claim while shopping in the specialty bakery department.

“Retailers need to adopt a restaurant-like mentality for foodservice and deli. Present features that shoppers appreciate, including online ordering, easy pick-up and delivery, to boost the convenience factor,” Stein said. “For the bakery, freshness is still a top priority for shoppers as is the ability to round out their meals with items like bread rolls or dessert options.

“Adding technology features that offer convenience is also part of delivering in-store bakery shoppers value,” he said.

Retailers should highlight the comparative value of foodservice relative to restaurants because shoppers already see it as a good deal, Stein wrote Friday in a blog post co-authored with Steve Markenson, VP of research and insights at FMI.

Retail foodservice providers should follow the lead of restaurants by offering restaurant-like amenities. “Topping the list are having a menu available online, enabling advance ordering through apps, and offering drive-throughs for pickup,” Stein and Markenson wrote.

The blog post added that 40% of shoppers expressed the need for help with meal planning, opening opportunities for retailers to offer “meal bundles, in-store displays that bring together the ingredients for a meal, providing ideas through retailer apps and more heat-and-eat choices.”

Source: NRN

Foxtrot and Dom’s Kitchen & Market to Merge

Chicago-based grocery startups Foxtrot and Dom’s Kitchen & Market, which looked to carve a niche in Chicago’s competitive grocery market with upscale, small-format stores, will merge.

The merged companies will be helmed by Foxtrot CEO Liz Williams under a new entity, Outfox Hospitality. The deal is expected to close in the fourth quarter, the companies said in a news release Monday. Financial terms of the transaction were not disclosed.

Foxtrot has 15 stores in Chicago and another 17 across D.C., Dallas and Austin. Dom’s, which is also known for its upscale, downsized concept, has two Chicago stores, one in Lincoln Park and one in Old Town. The company announced plans in September to open a third location in River North next summer.

Foxtrot stores straddle the line between upscale convenience store and cafe, while Dom’s, launched in 2021 by Chicago grocery scion Bob Mariano and former Dominick’s executives, is known for fuller grocery offerings and a wide range of prepared meal options.

In an interview, Williams said the merger was an opportunity to create “a modern food retailer that is going to disrupt this category.”

Dom’s co-founder and board Chairman Jay Owen said the two brands have similar customer bases.

“We think one of the real great powers of bringing these two companies together is that we can serve that customer in so many different ways,” he said. “Whether it’s more of a full shop, whether it’s something more oriented toward grab and go.”

Amanda Lai, director of food industry practice at retail consultancy McMillan Doolittle, said grocery and convenience operators such as Foxtrot and Dom’s are facing high operating expenses from elevated food prices to the rising cost of labor.

“We’re seeing a lot of independents and regional companies — retailers and grocers — banding together to be able to have more leverage to create efficiencies to drive cost savings to compete against the national players,” she said.

“There’s market overlap between the two,” Lai said. “I think both of them, fundamentally, are looking to become more efficient.”

Dom’s is likely to benefit from Foxtrot’s private label program, Lai said, while Foxtrot could benefit from the strong experience in grocery and retail operations at Dom’s. Chicago shoppers will likely see some blending of offerings at both brands post-merger, Lai said.

Williams said she expected some of Foxtrot’s private label offerings would be available at Dom’s, and that some of Dom’s prepared foods would be sold at Foxtrot stores.

Both companies have previously discussed ambitious growth plans. Dom’s said in September it had a working plan to open 15 stores by 2025. In 2021, Foxtrot said it planned to have more than 60 locations by the end of 2022, about double the number of stores it currently has open.

Foxtrot launched as an online delivery startup in 2014 but later expanded to open bricks-and-mortar retail locations. The company grew during the COVID-19 pandemic, finding opportunities in empty storefronts left vacant by struggling retailers, co-founder and then-CEO Mike LaVitola told the Tribune in 2021.

Williams said the companies would be putting together a long-term growth plan over the next couple of months. That could include the growth of the Dom’s brand outside of the Chicago area, she said.

“I think there’s a day that that will happen,” Williams said. “We’re going to look really carefully at where would be the right markets for Dom’s.”

Owen, along with Mariano and LaVitola, will hold adviser and board roles at the new company. Dom’s CEO Don Fitzgerald will serve as Dom’s president and chief operating officer during a transition period, the companies said.

How Restaurants Performed in Q4

Q4 restaurant sales and traffic trends revealed a “positive trajectory” for the industry, according to GuestXM by Black Box Intelligence’s Nov. 27 report.

The firm says performance rebounded in October, offering some relief that September’s results were more inconsistent than a sign of a downturn for the industry. Overall, October saw same-store sales growth of 1.4%, similar to August’s 1.5%, and same-store traffic growth of -2.1%, which is actually the strongest posted by the industry since March.

Other highlights from the report:

Consumers continue to offer signs of resilience despite economic challenges, GuestXM states. They want to maintain their restaurant visits and orders. The firm says more conservative menu-price increases have helped alleviate some pressures.
In October, the best-performing region was New England, the best-performing segment was QSR and the best-performing cuisine was Italian. The worst performing was Florida, fine dining, and Asian.
Limited-service restaurants continue to perform better than full-service. QSR and fast-casual were among the top three segments based on same-store sales and traffic growth. Two segments experienced negative same-store sales growth during October: upscale casual and fine dining.

GuestXM also is watching the impact of the recent bill signed in California that will significantly increase the state’s minimum wage for fast-food workers, from $15.50 to $20. It will go into effect in April 2024. Pay attention, it states, as California often sets the tone for other regions.  Source: FER

NAKS acquires Stainless Specialties

North American Kitchen Solutions—a manufacturer of ventilation systems and custom-fabricated workspaces—has announced its acquisition of the custom stainless fabricator Stainless Specialties Inc.

Founded in 1993, SSI produces NSF-listed stainless countertops, tabletops, worktables, sinks, and other work surfaces for restaurants and foodservice facilities.

The addition of SSI expands NAKS’ operating footprint to include three production facilities.

“SSI’s production facility in Eastlake, Ohio, will increase our custom fabrication capacity and create a best-in-class ‘purpose-built’ manufacturing organization of stainless-steel commercial restaurant equipment,” says Sacha Polakoff, NAKS president & CEO, in a press release.

“We’re just as excited to welcome the team from SSI into the NAKS family,” adds Polakoff. “SSI’s team, along with the team from our 2021 acquisition of Lane Mechanical, brings together the best talent in the custom fabrication segment and furthers the goal of bringing the entirety of our product offering closer to our valued customers.”

North American Kitchen Solutions was founded in 1987 and is headquartered in Elyria, Ohio.  Source: FER

Parts Town Doubles Down on Distribution Centers

Parts Town—a distributor of OEM foodservice equipment parts, residential appliance parts, HVAC parts, consumer electronic parts and more—sees big things ahead.

Late next year, the company expects to open a 420,000-square-foot distribution center in Glendale, Ariz. It will be the second distribution center for Parts Town, whose flagship center is in Addison, Ill. As is the case in Addison, the new building will feature high-tech automation and robotics solutions throughout.

The facility also will operate with sustainability in mind. Parts Town says it intends to purchase renewable energy certificates and carbon offsets to reduce emissions associated with the distribution center. Further, the facility will have high-efficiency LED lighting throughout.

The forthcoming center is set to unlock several benefits, including product expansion (particularly of HVAC and residential appliance part), and job growth to the tune of 100 new team members, to start.

“Our organic growth continues to be very strong and has exceeded expectations in 2023,” states Parts Town Unlimited CEO Steve Snower. “We are investing ahead of expected accelerated growth and product expansion in 2024 and beyond.

“Our emphasis on centralized, high-tech distribution allows customers to access more products, less split shipments, faster delivery and higher quality,” he adds. “This distribution center will carry products across several mission-critical parts categories. We look forward to being a part of the Glendale and Phoenix Metropolitan Area communities and expanding the accessibility of OEM equipment replacement parts for our customers and manufacturer partners.”

Parts Town Unlimited says it is performing ahead of expectations in 2023 and expects another year of 20%+ organic growth in its core foodservice parts distribution business. The company also has seen growth in residential appliance parts and an early surge in HVAC parts since the launch of this category earlier in the year, the release notes. The company expects to exceed $2.4 billion in revenue for the full year, compared to $1.8 billion in 2022 and $1 billion the year prior.

Parts Town Unlimited has nearly 50 brands and more than 5,300 team members worldwide. Source: FER

How Customized Paper Goods Programs can Meet Operator Goals

Since the pandemic, carryout, delivery, and off-premises food consumption has expanded among many verticals and not just fast casual and quick-service restaurants food, Attman says. “We’ve seen a growth in the use of paper goods in all verticals, including educational institutions, country clubs, hotels, sports and entertainment venues, and even full-service and fine-dining segments.”

When crafting their off-premises dining experiences, operators have varying goals and objectives depending on the nature of their customers and how they interact with them. “We believe everyone has some point of differentiation and want that to be expressed in packaging programs,” Attman says. Here are some ways he sees operators in all segments leverage paper goods to achieve certain goals and objectives.

Expanding Revenue Streams
Offering takeout is just another way restaurants can maximize revenue and profits as margins and competition get tougher.

“One of our clients years ago said, ‘I can continue to expand my business by opening new locations but that’s a costly proposition and takes a lot of capital resources at the same time,’” Attman says. “’ Or I can continue to grow my business by increasing carryout and third-party food deliveries by just delivering a great product that people want to return to.’ That client in Washington D.C., said to me, ‘I have a competitor to the left and right of me and sometimes above and below; I have to find a way to differentiate my packaging program so that when people continue to choose us for their take-out needs.’”

Creating Memorable Experiences
Packaging and paper good choices should not and cannot be an afterthought, for several reasons. “You’re still Image courtesy of Acme Paper
Image courtesy of Acme Paper
creating first impressions with takeout; there’s no difference in serving a guest in the restaurant and serving a guest outside of it,” Attman says. “You want them to have the best experience every time they interact with your [concept].”

For Attman, that typically involves studying the menu and determining the right packaging for quality control and freshness. “For many clients, the primary objective is keeping the food hot and ensuring a high level of appearance and presentation,” he says. For hospitals it might be slightly different; operators might prioritize ease of use. “[These clients] might be looking for containers that are easier to open and straws that are flexible and bendable.”

Country clubs, on the other hand, might look to paper goods and packaging to fulfill family dinners and other larger-scale meals to-go. Some prioritize functionality and appearance; for others, sustainability is important.

Packaging choices impact kitchen design, too, Attman says. The process of opening a restaurant or other foodservice operation these days takes into account allocating a defined space of storage for packaging goods if offering take-out. “These pieces need somewhere to land, but not all restaurants can be small warehouses,” he says.

Achieving Sustainability Goals
Before the pandemic, sustainability was a huge consideration in paper goods choices, but during the height of it, many operators put those goals on the back burner just to get by. “We’re coming back to those original conversations about sustainability and understanding the goals of operators today,” Attman says. “Many are very conscious of their carbon footprint because it’s becoming more important to their customers as well.”

Colleges/universities tend to be the most invested in sustainability goals right now but so are increasing numbers of sports and entertainment venues and hospitals. Available packaging products meet those goals, such as salad bowls made from PET, which Attman says is highly recycled because there is a lot of demand for that product.

There’s also recyclable aluminum, favored by many steakhouses, clubs, and grocers offering hot food to-go. Compostables run the gamut, from boxes and hinged containers made with everything from “bamboo to sugar cane to wheat,” Attman says. “Rectangular containers tend to work the best in most size bags; large squares can be bulky or require more bagging to fit, which is wasteful in terms of money, space, and resources.”

An added benefit of a well-thought-out branded packaging program includes the marketing it generates. Attman points to Ben’s Chili Bowl in Washington, D.C., as an example “Their bags are really loudly designed, so loud that you can see them from across the street. These bags work really well in an urban environment where many people are walking with their food to-go.”

Of course, at sports venues, there are the ubiquitous souvenir cups. “But you can also play with branding on deli sheets, popcorn buckets, napkins, and single-use cups like branded aluminum cups,” Attman says.

Packaging has come a long way since 1946 when Attman’s grandfather started Acme Paper. “We do shop with our eyes; the perceived value of putting food in the right packaging has an impact,” he says. “It’s amazing if you just give a few extra moments of thought when making those decisions about what kind of emotions you can bring out in the guest and the memorable experiences you can create. You can create whimsical experiences or simply ensure hot food stays hot and cold food stays cold.”

Not to mention, with the advent of social media, “everything now is for public consumption,” Attman says. “If someone posts a picture of your [takeout] food in its specialized containers, that gets in front of a lot of eyeballs; and customers will post things they don’t like also.”

Gone are the days of last-minute, less thoughtful choices when it comes to food packaging supplies.  Source: FE&SS

How Remy Robotics is combining humans and robots in its new café

At this point in time, robot-run restaurants are nothing new: from flipping burgers to frying tortilla chips and preparing French fries, robotic arm assembly lines have been making headlines and taking up space on conference show floors for years now. But Remy Robotics — a Spanish foodservice robotics company — claims to take a new approach to AI-powered restaurants by enlisting robots to accomplish what they’re good at and letting humans take care of the rest.

Remy Robotics just debuted Better Days: a health-focused, fast-fine restaurant in New York City that uses the company’s robotics platform to power the delivery-focused restaurant. The result is a human-free storefront where humans prep the menu off-site and then deliver it to the automated restaurants for robot arms to finish the job in a spin on the hub and spoke operations model. Better Days is just the start of the company’s plans to expand in the United States, with the long-term goal of opening more robot-run eateries throughout North America.

Related: Remy Robotics debuts a new type of robot-run restaurant in New York City called Better Days

“If you need to produce different types of food and multiple different iterations, robotics is not quite there yet,” Yegor Traiman, founder and CEO of Remy Robotics, said. “The level of robotics is still far away from the dexterity of what humans have… It ends up being much easier [for most companies] to build high-tech vending machines… you won’t see our restaurants chopping, flipping, cutting because the quality of the technology is just not quite there yet.”

So if Remy’s robots won’t flip, cut or chop, then what will they do? Traiman said that even though humans have better dexterity than robots, robots are much better at precision. In this way, they are able to share the tasks between the human prep chefs and robot chefs on-site to produce a working co-bot model.  Source: NRN

QDOBA Refinanced with $305MM

QDOBA Restaurant Corporation (“QDOBA”), the leading fast-casual Mexican restaurant franchisor and portfolio company of Butterfly Equity (“Butterfly”), announced the closing of its inaugural $305 million whole business securitization through Qdoba Funding LLC.

The transaction optimizes QDOBA’s capital structure for ongoing growth and provides meaningful interest expense savings. Proceeds from the transaction will be used primarily to refinance QDOBA’s existing senior debt facilities and provide liquidity to invest meaningfully in general corporate initiatives, such as remodeling more than 80 corporate restaurants and adding digital menu boards to 150 restaurants.

QDOBA was acquired by Butterfly in 2022 and has achieved an asset-light business model in the last year by undergoing a large refranchising of over 120 of its 750 restaurants – shifting its franchise mix to nearly 80%. Despite industry headwinds, QDOBA was also able to achieve 6% positive systemwide same store sales growth in fiscal year 2023, ending October 1st. Earlier this year, the firm appointed Applebee’s veteran John Cywinski as Chief Executive Officer and former SONIC Drive-In Head of Technology Prashant Budhale as Chief Technology Officer.

“We’ve experienced immense transformation over the past year and are proud to announce this transaction as we look to further QDOBA’s status as the #2 Mexican fast-casual brand in the U.S.,” says Mr. Cywinski. “This deal positions QDOBA for accelerated investment and growth in what I believe to be the most attractive category in the restaurant industry.”

Under Cywinski, QDOBA plans to approximately double its unit count to a long-term target of roughly 1,500 restaurants.

“Under Butterfly’s ownership, QDOBA has continued to accelerate and emerge as the leading Mexican franchisor uniquely suited for this transaction,” states Francesco D’Arcangelo, Principal at Butterfly. “This is more than a financial milestone; it’s a testament to our conviction in QDOBA’s capacity to propel the fast-casual Mexican sector, and we are thrilled to be a part of its remarkable growth and evolution.”

Barclays Capital Inc. (“Barclays”) acted as sole structuring advisor and sole bookrunner, Kirkland & Ellis LLP served as special counsel to QDOBA, and Milbank LLP served as special counsel to Barclays.  Source: QSR

Inspire Brands Reorganizes around three key Segments

Inspire Brands announced Thursday an organizational realignment that will focus the business around three key segments—brands, commercial and company restaurants, and growth.

As part of the first pillar, Scott Murphy—who previously served as head of beverage & snacking and Dunkin’s president—is now chief brand officer. The industry veteran is tasked with overseeing all of Inspire’s chains (Arby’s, Buffalo Wild Wings, Dunkin’, Jimmy John’s, Sonic, and Baskin-Robbins). Inspire believes the restructure will maintain each brand’s distinctive positioning, but also facilitate better coordination among the concepts and the company’s overall shared services platform. All individual brand presidents will report to Murphy.

READ MORE: Inspire Brands and the Making of a Restaurant Group Unlike Any Other

Dan Lynn, who’s worked as chief commercial officer since August 2022, was promoted to chief commercial and restaurant officer. His role now includes directly overseeing Inspire’s nearly 2,200-unit corporately owned footprint and communications. Inspire said a key benefit to its operating model “is that as one of the largest owner-operators of company restaurants in the U.S., the company thinks and operates like an owner, ultimately making Inspire a better franchisor.”

“Aligning Company Restaurants with the Commercial Group accelerates the company’s ability to lead from the front by using company restaurants as a testbed for innovation,” Inspire said in a statement. “This translates to faster progress and operational improvements for the benefit of the entire brand in both company and franchise-owned restaurants.”

Lynn’s responsibilities as chief commercial officer, such as leading demand generation, insights and analytics, brand loyalty, revenue management, and digital experience, remain intact after the change. He will report directly to Inspire CEO Paul Brown.

The third segment, growth, will fall under Christian Charnaux, who continues as chief growth officer. His goals remain the same—helping Inspire expand globally and “further unlocking benefits of business integration across the Inspire portfolio,” Inspire said. The international, development, and supply chain teams will continue to report to Charnaux.

All changes went into effect in mid-November.

With this leadership shift, Inspire hopes to take advantage of its “core strategic capabilities provided by Inspire’s data and technology-enabled platform.”

“This revised organizational structure positions us for accelerated growth and will further enhance the advantages of our tightly integrated shared services platform,” Brown said in a statement. “Ultimately, we believe Inspire’s combination of strong, differentiated brands and its highly innovative business model will continue to drive enhanced value for our franchisees and other stakeholders.”

Inspire, at a recent count, totaled roughly 31,700 restaurants and $30 billion in system sales, making it the second-largest restaurant conglomerate in the U.S. behind Taco Bell, KFC, Pizza Hut, and Habit Burger owner Yum! Brands. All of its quick-service chains are listed in the QSR 50, an annual ranking of the top 50 quick-service chains in terms of U.S. systemwide sales.

Even at that figure, Charnaux told QSR earlier in the year Inspire believes each one of its brands has room to double in size. He added the company saw a “record number of commitments” in 2022.

Danone the first corporation to join Global Methane Hub to reduce Emissions

Danone SA is the first corporation to join the Global Methane Hub’s Enteric Fermentation R&D Accelerator, a research project to create practical solutions for dairy farmers to reduce methane emissions.
The globally coordinated research effort on enteric methane is coordinated by GMH and supported by an alliance of philanthropic organizations and governments. It’s already raised $200 million in funding.

The project will invest in research looking for scalable and practical solutions for livestock farmers that can mitigate enteric fermentation, which is the digestive process of ruminant livestock. Research will include mitigation of methane via feed additives, plant and animal genetics, methane vaccines, as well as accessible and affordable measurement technologies.

Danone will work with academic experts and technology providers to test solutions that support dossier building for regulatory approvals. Dairy production makes up an estimated 8% of total human-caused methane emissions worldwide, and overall agriculture and livestock activities represent approximately 40% of global methane emissions, according to Danone’s news release.