Web Exclusive | October 2013 | By Mary Avant

Under the Umbrella

Brands, investment firms leverage one another’s strengths and expertise.

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Successful relationships are a two-way street, with both sides participating in a give-and-take that benefits each partner. That relationship is no different in collaborations between limited-service brands and their investment firms.

On the surface level, capital investments from an equity firm can provide small and growing brands the financial stability they need to scale their business into a larger concept. But the partnerships are a boon on a deeper level, too, as brands within an investment portfolio can take advantage of their equity firm’s management, infrastructure, human resources, marketing, site selection, and purchasing experience.

“It’s a benefit because not only are you getting access to their capital, but you’re getting access to their expertise,” says Howard Cannon, CEO of Restaurant Expert Witness, a restaurant-industry consulting firm.

Just as equity groups make life easier for restaurant brands, the brand operators are also the key to success for many investment firms, Cannon says. In the past, restaurant investment firms often created their own concepts from scratch. Over time, however, they realized that it takes a lot of time, money, effort, and expertise to get a successful concept off the ground, Cannon says.

“Now what they’ve realized is it’s easier to invest in or buy into an [established concept] that has already worked out all of the bugs of the brand … and that needs an infusion of capital and an infusion of management talent,” he says.

Because operators know how to run restaurants and investors know how to secure capital, “you marry the two together, and many times it works because you bring the best of both worlds together,” Cannon says. “They can optimize the brand to drive sales, lower food costs, and lower labor costs, without having as much risk as creating the idea, the brand, the concept from scratch.”

“It’s a benefit because not only are you getting access to their capital, but you’re getting access to their expertise.”

One private equity firm in particular, Catterton Partners, is doubling down on this approach in the limited-service segment. The firm recently made a number of investments in the space and is using the relevance of the brands in its portfolio to boost the company’s chances for success.

Several of Catterton’s capital infusions have fallen in the fast-casual segment, from investments in gourmet sandwich brands like Mendocino Farms to California-based waffle sandwich concept Bruxie and Ohio-based Italian fast casual Piada.

Cannon says Catterton’s interest in fast casual stems from consumers’ increasing demand for fast, high-quality food at a fair price, as well as from the fact that fast-casual brands are a safe opportunity for investors.

“Catterton’s strategy is focused on identifying differentiated consumer businesses that are well positioned to leverage leading trends and generate significant growth,” says Michael Farello, senior partner at Catterton Partners, in a written statement to QSR. “We look at all segments across the consumer landscape and seek to partner with highly distinctive companies within attractive industry categories supported by strong management teams. Fast-casual restaurants are a good example of one industry segment that we find compelling and where we have been active.”

Thanks to Catterton’s penchant for fast-casual brands, the companies within its investment portfolio are more easily able to secure capital and expenditures for equipment, as well as media, Cannon says.

“They can purchase media in a bundle, and then they can split the media [dollars] among three different brands,” he says.

Not only is Catterton looking to capitalize on the fast-casual craze, but the firm has also taken an interest in concepts with a health-focused angle, such as the 12-unit, Chicago-based fast casual Protein Bar, as well as Snap Kitchen, a healthy-food takeaway concept with six units each in the Houston and Austin, Texas, markets.

“Snap Kitchen’s really on trend with the general increase in consciousness about … the behaviors people need to engage in to either gain or maintain health,” says Snap Kitchen spokeswoman Laurie Berson.

Since Snap Kitchen prides itself on delivering a quality product with a heavy emphasis on nutritional content and local sourcing, Berson says, Catterton saw that the concept fit into consumers’ demands for healthier, more sustainable products.

The brand, which plans to expand to additional cities throughout Texas in the near future, is also looking to Catterton’s expertise in the foodservice segment to help Snap Kitchen grow its store count.

“Snap Kitchen is really excited to become more accessible to people all around,” Berson says. “This Catterton Partners partnership will help us achieve that.”