On some level, Newk’s late 2023 sale to Beef ‘O’ Brady’s and The Brass Tap owner FSC Franchise Co. was a quiet notch in the M&A calendar. It was announced within a press release on the latter two’s growth efforts. No purchase price or further detail was provided, only a note Newk’s presented a “perfect complementary brand” due to a similar geographic profile, average-unit volumes of $2.2 million, and the fact it was fast casual, which carried FSC, led by CEO Chris Elliott, into a category it hadn’t played in before.
More recently, though, Newk’s operators saw this fresh reality crystalized. They attended their first trade show as a multi-brand company in Orlando with alcohol vendors (there for the casual-dining brands) and bags packed with a wide array of merchandise. Entertainment was outsized, as was the energy, crowd, and, simply, scale of the event.
Like what’s happening on the ground level with Newk’s, the show signaled some of the changes since FSC acquired the 2004-founded chain from New York investment firm Sentinel Capital Partners, which paid an undisclosed amount for its share in 2014 when the Newcombs and family friend and cofounder Debra Bryson—the team who founded McAlister’s Deli before selling their interests in 1999—dealt the company.
CEO Frank Paci, a former McAlister’s, Corner Bakery, and Einstein Noah Restaurant Group executive, had been brought in April 2021, with founder Chris Newcomb sliding over to chairman. Paci’s McAlister’s synergy and reputation placed Newk’s on the path. The challenge was to improve profitability so Sentinel could sell the chain after more than seven years dug in. Newk’s was the last investment in a fund Sentinel created, leaving its options at putting the brand in a different one, or finding a buyer.
Inflation and other challenges dampened Newk’s performance in 2022. But it returned strong the following year, which, Paci says, made it appealing to outside buyers. He personally knew CapitalSpring—the company that holds a controlling interest in FSC—from his time at McAlister’s, as the fund financed some of its large franchisees. CapitalSpring was looking for a concept to expand its FSC umbrella, and when it realized Newk’s was available, the conversations began.
For FSC, Paci’s resume and Newk’s differentiated, quality-driven standing made it attractive. And then, work started from the other side.
Joining FSC took Newk’s from about a $225 million enterprise to a group with nearly half-a-billion in sales. So it aimed out of the gate to consolidate purchasing, culinary, real estate, and development functions. “It’s a combination of reducing some expenses and actually getting additional resources to develop the business,” Paci says. “… We’ve been working since I got there to get the business to be back on a stronger trajectory. Certainly, CapitalSpring is in the same position. Really, a lot of that stuff didn’t change. If anything, we got additional resources to support that.”
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Paci looks at his former shop in McAlister’s, roughly 500 units strong, and doesn’t see a reason Newk’s can’t expand 50 percent over the next five years, or ultimately get to 250 restaurants. The chain ended 2023 with 97 stores after retracting by three. It slimmed by five shops each of the previous two years.
Paci says getting to this inflection began, as mentioned, with store-level profitability—a combination of menu innovation, purchasing, and opportunities to become more efficient in the back of the house.
Newk’s has always been an ingredient-dense operation. When Newcomb founded the brand, he designed it with no fryers or microwaves; it was a wide-breadth approach. Over time, favorites emerged and it became clear what customers gave Newk’s credit for—unique options like shrimp and salmon—and where some outliers could be cut. New leadership shed 30 SKUs in the first eight months and improved cost of goods. The brand reported a 25 percent food cost reduction on what remained. The notion was a straightforward one: don’t change or threaten anything popular, but reexamine the products on the fringes to see if they could leave or perhaps be reformulated to use ingredients already in the kitchen. Could LTOs be launched without the need for new proteins or anything that would clog speed of service?
Paci says operators also needed to streamline prep out of COVID since labor was harder to come by. And yet, among all the adjustments, hold Newk’s North Star in mind: “What I’ve talked about since I got here,” he says, “is to have the best in food, quality, and taste in the fast-casual segment. How could we do those kinds of things without impacting quality? That’s what we’ve done.”
Compared to last year, Paci says, Newk’s saw a nearly 400-basis point improvement in prime costs, labor, and food costs, without any degradation in what it’s been known for over the years.
Newk’s, whose roots owe to Newk’s Express Café, created by father and son chefs, Don and Chris Newcomb, in Oxford, Mississippi (the “Eatery” was added to the name in a 2013 switch), initiated a broad rebranding effort in October 2023 that included a fresh tagline, “Extra with Every Bite,” as well as an updated look, app, and digital enhancements like the option to buy and send Newk’s gift cards via the platform, and an optimized ordering process enabling users to place in-app orders with greater speed and ease.
The idea behind the campaign came from a year’s worth of research that centered on the “extras” guests get at Newk’s. Dallas-based creative firm White Unicorn Agency worked alongside Newk’s under the concept of “reimagining tradition.”
Paci says the chain’s goal now is to drive a premium halo positioning. In one example, its best-selling item remains the longtime core “Q” Sandwich. It’s a recipe developed by Don Newcomb featuring the white barbecue sauce he used to find while vacationing in Florida (white barbecue sauce is generally a famously Alabama creation that includes mayonnaise, vinegar, and lemon juice, among other things). The idea of “Extra,” Paci says, is an ideal you can imagine by holding up that sandwich and having the sauce run down your arm.
The brand’s proprietary products, as well as seasonal launches like pesto pasta, continue to score well on external data points like craveability, he explains.
Another effort involved Newk’s pairing menu. In 2021, the chain added a new “Pick a Pair” option that enabled guests to pair a full sandwich, salad or pizza with a cup of soup, half classic salad or a half mac and cheese. What made this change emerge from the industry pack, Paci says, is Newk’s didn’t go half and half to make a whole, like some competitors do. This was full, with something “extra.”
When the update first unfolded, pairings increased from 30 percent of Newk’s menu mix to nearly 38 percent. “One of my challenges has always been to say hey, there are ways we can put products together that we can give a great offer to the guest and still drive average check up and make more penny profit on the business,” Paci says.
Newk’s will never play in the dollar-menu realm (or $5 value arena these days). But it can present value, like its family meal deal that includes two pizzas and a full salad, through curated, large portions that exceed expectations. It will always offer free breadsticks in-store and a condiment table to customize orders.
Of Newk’s 97 locations year-end 2023, 68 were franchised. Corporate stores reported median average-unit volumes of $2.149 million in 2023, with the upper 33 percent at $3.066 million and the lower 33 percent at $1.565 million. Median EBITDA was $293,400.
For franchised stores, AUV was $2.309 million ($3.29 million on the upper 33 percent and $1.515 million at the lower).
Paci says franchisees embraced the “extra” positioning because it’s on-brand and broad enough to cover a variety of angles. The chain offers multiple service options, in one instance. In addition to your typical approach, customers can grab a card with a number and sit down at a table. Newk’s, when it launched its loyalty program, tapped the ability for customers to tableside order from the app. A guest types in their number and employees head over. “We did research with guests and that’s what they told us—give us a little extra,” Paci says.
Naturally, any time as brand is sold, there are going to be some concerns over what’s changing. Newk’s had a franchise owners meeting as part of the Orlando event and aired out questions. Paci says the message was FSC wasn’t making the brand do anything it didn’t already want to. Rather, Newk’s now had additional resources to make good things happen.
“I’ve had franchisees tell me they’re making much better margins than they’ve ever made in the business,” he says, “despite all of the inflation that we talk about it. And I’ll tell you, they’ll be the first people who would call me out and say you’re dumbing down the quality. There’s no way. That’s just not part of our brand to do that.”
The show shot off fireworks to celebrate Newk’s 20-year anniversary. Paci says nerves gave way to an understanding of a larger picture. “I think they’re more excited about it now than they were prior to buying it,” Paci says of FSC. “So they see all of the initiative that we’ve been doing and all of the opportunities that they see from being up close with the business and the kind of synergies that we’ve already derived.”
Newk’s business today is about 55 percent off-premises. So there’s a design evolution in the works as well to thin square footage from 3,500–4,000 or so to 2,800 and improve the investment.
“To me, it’s another great opportunity,” Paci says. “And I’d love to see us really grow this business more.”
