Repositioning Businesses
Fazoli’s is the leader in the Italian fast casual dining segment that offers moderately priced, freshly prepared pasta, sandwiches, pizza, and salads in a convenient, friendly environment. Founded in 1988, Fazoli’s blends the low prices and convenience of QSRs with the quality, ambiance, and service found in casual dining. When Sentinel invested, the Fazoli’s system comprised 124 company-owned and 89 franchised stores in 26 states.
Background
Fazoli’s was previously owned by a private equity firm that acquired the business in 2006. The previous owners had begun an operational turnaround by recruiting a talented new management team, revitalizing the store base, and improving the food quality and guest experience. In 2014, the owners retained an investment bank to manage a sale. Sentinel was selected as the buyer because of our deep experience in franchising and multi-unit investments, the closing certainty we provided, and the cultural fit between Sentinel and management.
Opportunity
To accelerate Fazoli’s sales growth by attracting new customers, strengthening underdeveloped franchising capabilities, and expanding the franchise store base
Accomplishments
Improved Franchise Mix and Grew Unit Backlog: Under Sentinel’s ownership, Fazoli’s completed a complex refranchising transaction, selling 66 stores to its largest franchisee in 2018. This refranchising increased Fazoli’s mix of franchise stores from 44% to more than 75%, while reducing operational complexity, improving free cash flow, and lifting EBITDA. Sentinel also worked with management to develop a lower-cost store prototype and improved incentives to attract new franchisees. These initiatives resulted in Fazoli’s franchise unit backlog growing to more than 100 units, up from 15 when Sentinel acquired the business.
Accelerated Same-Store Growth: Fazoli’s remodeled all company stores and 65% of its franchise stores, developed new menu offerings, and successfully promoted its drive-thru, delivery, and take-out ordering capabilities and compelling value proposition. In 2020, Sentinel and management responded quickly during the Covid-19 pandemic by emphasizing Fazoli’s value-for-the-money offering and off-premise capabilities. Combined, these initiatives attracted new customers and increased stickiness, resulting in unit volume growth of more than 30% and 19 consecutive months of same-store sales growth.
Outcome
During our 6½-year ownership, Fazoli’s greatly accelerated its growth, profitability, and free cash flow; significantly grew its mix of franchised stores; and built a robust backlog of franchised units. Having achieved its investment objectives, Sentinel sold Fazoli’s to a strategic buyer in a highly successful transaction for Sentinel and management.