"It's tough to give up your baby, but Fazoli's founder Kuni Toyoda has expansion plans, and a key partner in the Italian restaurant chain he launched 16 years ago had other pursuits. So Toyoda, 52, has announced that an affiliate of Sun Capital Partners, Inc., a private investment firm specializing in leveraged buyouts and investments in market-leading companies, has acquired Fazoli's and replaced him at the helm with a 35-year veteran of the McDonald's corporation.
"This was my baby and this brand will continue to grow and should be able to grow faster," said Toyoda who, as an employee of Lexington-based Jerrico, Inc., saw an opportunity when the company launched Gratzi's Italian restaurant in 1988. One year later, the name was changed to Fazoli's, and in 1990 Toyoda struck out on his own, forming Seed Restaurant Group, Inc. (SRG) and acquiring Fazoli's from Jerrico. Toyoda owned 40 percent of the company, SRG management and Japanese franchising conglomerate Duskin Co. owned 35 percent and 25 percent, respectively.
The concept of quick-serve Italian fare caught on quickly, tapping a market ready for alternatives to burgers and fries. Fazoli's further distinguished itself by passing out limitless quantities of its fresh-baked breadsticks to dine-in customers. Within a decade, Toyoda had grown the chain from its initial handful of five Lexington locations to more than 380 in 32 states, employing 4,700.
While the menu resonated with consumers, company policies captured the attention of the food service industry. In 2000 Fazoli's won the "Industry of Choice" award sponsored by Nation's Restaurant News & Coca-Cola for unique human resources programs and impact, followed one year later by the "People And Performance Awards" for dynamic employee retention practices and results. In 2003, with a new six-layer lasagna added to its menu, Fazoli's received Restaurant Hospitality Magazine's Best Kids Menu in America award.
Eventually, however, demand for the chain's high-carb offerings of pasta dishes, submarine sandwiches and breads began to wane with growing awareness of the expanding American waistline and compelling health-related reasons to get it under control. Sales began a slow but steady decline with rising gasoline prices further dampening efforts to reverse the slippage.
Toyoda said the company was, nonetheless, recovering, but another major financial challenge soon intervened when repayment of a loan was suddenly demanded several years ahead of schedule.
"We have a partner from Japan, Duskin, Inc., and they have been a private company. They wanted to go public. They're planning on going public on the Japanese stock exchange, I think in January of next year," explained Toyoda. "They wanted their capital back in Japan focused on core brands. So that's how it started. Rather than just getting another debt - seems like I've been working for the banks - we paid off quite a few lines of debt. But we needed capital to grow." Toyoda also noted that many company-owned restaurants have undergone or are scheduled for remodeling. And franchisees need help with advertising and marketing.
Enter Sun Capital, with the cash resources on hand to resolve Fazoli's mounting problems.
Robert Weissmueller, a 35-year veteran of McDonald's Corporation, was named to succeed Toyoda as president and CEO of Fazoli's. Weissmueller brings experiences from the burger giant that include director of international operations, vice president of real estate and construction and group vice president, integrated logistics.
There is a relationship with McDonald's in Fazoli's not-too-distant past. In 2002, the two companies entered into an agreement that gave McDonald's a minority stake and a three-year option to buy Fazoli's. The agreement was canceled the following year when McDonald's elected to refocus on its core brand.
For Toyoda, in the meantime, there is life after linguine. "I'm going to move on. I'm going to be using Belle Notte as a foundation for growth for my tiny company."
In an ironic twist, Toyoda has made recent moves into fare for which his Fazoli's menu served as an option: burgers and pizza. Nothing But Burgers, across West Tiverton Way from Belle Notte, is the prototype for a coming chain of freestanding drive-through restaurants.
"We're also going to be opening a brand new concept, Smashing Tomatoes, as a concept of Bella Notte but focusing more on authentic pizza," said Toyoda. Smashing Tomatoes will debut at Fayette Mall, introducing the market to the original Neapolitan pizza pie. "We'll be opening in the first or second week of December," he added.
Sun Capital adds Fazoli's to a portfolio that includes the recently acquired RealMex Restaurants - parent of the Chevys Fresh Mex, El Torito, El Torito Grill and Acapulco casual-dining chains - as well as Bruegger's Bakery and the Souplantation and Sweet Tomatoes chains.
Fazoli's employs 300 at company headquarters, which will remain in Lexington. According to Sun Capital, Kuni Toyoda's baby is in safe hands. No layoffs are anticipated.
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