Blackwell: At Kahala, we’re looking for brands that would fit well in the portfolio and don’t overlap with what we currently have. Potential companies are those that measure in the 100- to 300-[unit] size range but simply don’t have the infrastructure to triple or quadruple in size. We’re looking for things that have a lot of growth potential, not mature companies.
Rutkauskas: You’ve got to have a great team of talented people, and you have to be well funded. And a good starting point means having a strong brand. We’ve got all three of those components with Camille’s. We’re fortunate that we have funded this thing ourselves. We’re completely debt free because we’ve been really careful all these years. That has allowed us the kind of growth other companies don’t have.
Describe the strategy behind the acquisitions of some of your current brands?
LaMastra: When we acquired Flying Biscuit last year, we liked it because it is in a category with breakfast, with a lot of good growth ahead of it. It came with a strong, loyal following among Atlanta consumers. That kind of past success is a great predictor of future success.
Second, we are looking for powerful brands that are already connected with consumers. And, of course, if a portfolio company is dealing with a franchise business, it must find models that work and can be replicated on a regional or national basis.
Third, portfolio companies look for something in a category with robust growth ahead of it. There are a lot of categories with great fundamentals. For example, the burrito and Mexican category has phenomenal growth ahead of it. Pizza, particularly gourmet pizza and pizza in the casual-dining space, [does, too]. I think the sandwich category has a lot of running room. People say it’s dense, but there is still a lot of room. All of those categories show a wide consumer understanding of the category—who doesn’t know what a sandwich is? They are deep and accepted, yet there are a lot of great innovations and new taste profiles [coming out].
Romaniello: Once we stabilized Carvel and built the infrastructure, we asked, “What should be the next pieces going forward.” In the acquisition business, the process often is reactive. You don’t say, “Hey, that’s a great brand over there, let’s buy it.” That’s not how it works. You have to keep your eyes and ears open, and that’s how we were invited to invest in Cinnabon. That brand offered complementary characteristics to the current brand portfolio and had a similar brand profile and AUVs from the franchisee standpoint. Plus [we knew] Cinnabon might provide a new line of business or something easily leveraged against the current infrastructure.
What you’re looking for in a new brand can change over time. With Cinnabon, we acquired a dominant treat concept, and we felt we already had the best ice cream treats in Carvel. The purchase also expanded us into the mall environment and had a fairly large and robust international presence that we could put to work for Carvel.
Once we had those two brands, our approach changed. We had two terrific treat concepts, but wanted to get into center of plate. That led us to Schlotzsky’s, which brought us new geographies, domestically, and took us into new categories with highly differentiated products. We were also able to add to our management team in areas where up to that point we [had not].
With Moe’s, we saw a great brand and category with incredible growth prospects, that was just maturing to the point where it was ready for the next step. We had the infrastructure in place and were able to plug Moe’s directly in.
D’Loren: At NexCen, we aim to take the package and export it globally through our area development partners in our Athlete’s Foot brand. Our partners outside the U.S. tend to be large, multibrand, multiproduct developers. They represent a very strong network of area developers we can go to with the whole package when we get it together.
Going into 2008, we will likely look for a sandwich concept, again to create a platform for cookies and other treats.
Blackwell: Because we’ve grown through acquisitions, we have a lot of books come across our desks. If it’s a potential fit, the brand will not overlap with our current portfolio. We see where it sits geographically, whether it’s a complement to existing franchisees. Often … no, 100 percent of the time, what happens when we buy another brand is that the trust factor between ourselves and system means the franchisees take a hard look at the new brand [and we] get immediate growth. Existing franchisees buy into the new brand.
We will close one new acquisition in the second quarter of 2008. It should close during or before June 2008. The current size of the brand is 740 operating units.