On Wednesday, FAT Brands announced its latest deal, bringing Nestlé Toll House Café by Chip into the fold for an undisclosed figure. Arguably the bigger point, however, was FAT Brands’ move to rebrand stores to Great American Cookies, which would tack about 85 stores onto a 370-unit dessert chain.
FAT Brands acquired Great American Cookies, along with Round Table Pizza, Marble Slab Creamery, Pretzelmaker, and Hot Dog on a Stick in summer 2021 for $442.5 million when it purchased Global Franchise Group.
According to an internal memo distributed to franchisees and reviewed by QSR, Nestlé Toll House Café parent company Crest Foods, Inc.’s CEO Ziad Dalal said they’ve been in litigation with Nestle for more than five years. “We expended a considerable amount of time, energy, and resources in addressing the litigation,” Dalal wrote.
The litigation has now concluded, he added, and Nestle is terminating its licensing agreements with Crest Foods, Inc. It’s effective immediately, Dalal said, and the licenses in the product reference agreement will terminate over the next 10 months.
In response, Crest will “immediately” begin rebranding to another concept and eliminate references to the Nestle brand, the Nestle Toll House brand, and Nestle Toll House trade dress in the cafes and marketing.
In section 1.5 of the brand’s franchise agreements it states: “On the expiration or earlier termination of the Master Product Reference Agreement, Franchisor’s right to use the Mark Nestle Toll House’ will terminate, the Cafés will no longer be able to feature the Mark ‘Nestle Toll House’ prominently on permanent store-front signage and the Cafes will need to be rebranded under a different Mark that Franchisor designates.”
And in section 9.2:
“On expiration or earlier termination of the Master Product Reference Agreement, Franchisor’s right to use the Mark ‘Nestle Toll House’ will terminate, the Cafe will no longer be able to feature the Mark ‘Nestle Toll House’ and the Café will need to be rebranded under a different Mark that Franchisor designates.”
Dalal said Crest had “looked closely” at developing an alternative brand for its system. It also recently reached out to “other major players” in its market about rebranding opportunities.
“In this regard, we have arranged with Great American Cookies and Marble Slab Creamery to provide for the conversion of all of our system cafes to Great American Cookies stores and, in certain cases, Marble Slab Creameries,” Dalal wrote.
A “very limited” number of cafes may not be able to convert to Great American Cookie stores due to protected territory rights, the memo added. In that case, Dalal said the company would work with those particular franchisees “on such rebranding alternatives.”
Dalal said Crest believes the conversion of its system cafes to Great American Cookie/Marble Slab Creamery stores provides the best opportunity for franchisees going forward. He pointed to FAT Brands’ 17-brand, 2,300-unit scale, and the higher AUVs of Great American Cookie stores versus Nestlé Toll House Cafés.
Additionally, Great American Cookie affiliates manufacture and supply cookie dough to stores, which “should reduce inventory costs and provide a more stable distribution system, which will help each café make more money.”
Under Crest’s agreement with the Great American Cookie and Marble Slab Creamery brands, each Nestlé Toll House Café is required to convert by December 31. For stores under development, they have until the opening date.
Upon conversion, the franchise agreement for that store will be transferred to the operator of the Great American Cookie/Marble Slab Creamery brands.
“You will become part of GAC system and, in some cases, the MSC system,” Dalal wrote. “In addition, upon conversion you will necessarily cease selling products associated with Nestle and begin selling products associated with GAC, including products manufactured by GAC or its affiliates.”
He said Crest would like to begin the conversion process for all branded cafes as quickly as possible. Until complete, Dalal said they’d work closely with the Great American Cookie and Marble Slab Creamery teams, and franchisees, “to make the transition as seamless as possible.”
He added FAT Brands agreed to execute a new franchise agreement with each operator upon conversion, and to provide them with the training and assistance needed to rebrand and tap into the Great American Cookie system.
This will come at no charge to franchisees, “other than customer administrative or out of pocket expenses, not to exceed $1,000 per converted store.”
Crest has the right to substitute different marks for use in identifying the system and the café if the current marks (like Nestle and Toll House) can no longer be used. “We believe that the substitution of the Great American Cookies marks for the Nestle-owned marks will provide the best, immediate brand recognition, and the anticipated benefits listed above,” Dalal said.
Rebranding financing program options have been arranged as well to provide aid for conversions to eligible franchisees not in default of their existing agreements.
To be eligible, operators must start the application process by June 15. Rebranding will require franchisees to hire a local painting and signage contractor in accordance with the specifications and other requirements, which will be provided by FAT Brands, and to complete the conversation by October 31, the memo stated.
“The scope of work required to convert each café will necessarily be dependent on the condition and other items specific to that café, but at a minimum will require the replacement of all Nestle signage and other items bearing the Nestle marks with GAC signage, and likely will require the painting of certain walls to a color consistent with the current GAC color scheme,” Dalal wrote. “Both we and FAT Brands are committed to work with you to make the conversion as smooth and easy as possible.”
A mandatory town-hall-style meeting for operators was scheduled for 5:30 p.m.