Debating Room - McFun - For Sale - Search - What's New? - Mailing List
24/04/02 . By: Richard Gibson . Dow Jones Newswires . Des Moines, IOWA
McDonald's-Fazoli's Venture Continues Several Trends
McDonald's Corp.'s intention to partner with "fast-casual" Italian restaurant chain Fazoli's continues three trends.
It's yet another step by the world's biggest fast-food chain to reduce its reliance on hamburgers, even as it struggles to improve overall earnings. It's also another example of a restaurant company adding to the diversity of concepts it seeks to offer to reach as many palates as possible. And it is the latest example of the rapidly rising popularity of "fast-casual" fare, which combines speed with a higher-quality meal than one expects in the drive-thru lane.
The deal between McDonald's and closely held Seed Restaurant Group, which owns the 400-unit Fazoli's chain, isn't the first entry into fast-casual by McDonald's. It already holds a majority interest in the Chipotle Mexican Grill chain, which specializes in fancy burritos and tacos.
In recent years, McDonald's also has ventured into home-meal replacement, with the purchase of the Boston Market chain. It also holds a stake in Pret A Manger, a European-based ready-to-eat sandwich shop chain, and it owns the Donatos pizzeria chain.
All those investments were aimed not only at decreasing the company's reliance on relatively cheaper hamburger-based meals, but also at keeping up with the changing appetite of the American consumer.
"The intent is to give consumers what they want: a variety of tastes and dining experiences," McDonald's said in a press release.
Such deals also have been touted by the Oak Brook, Ill. , company as potential franchising opportunities, although so far those activities have been limited.
Terms of the agreement, announced late Wednesday, weren't disclosed. The companies said McDonald's signed a nonbinding letter of intent with Seed to form a joint venture to develop 20 to 30 Fazoli's restaurants in three unidentified markets.
McDonald's also has an option to buy the entire company at a later date, the press release said.
Although McDonald's has gone farther than other fast-food companies in seeking to diversify its holdings, arch-rival Tricon Global Restaurants (NYSE: YUM - news) Inc. (YUM) is aggressively pursuing a diversification strategy in which it puts two or more of its three major brands - KFC, Pizza Hut and Taco Bell - under the same roof, as well as buying other compatible chains to foster what it calls "co-branding."
Tricon's acquisition of the Long John Silver's seafood and A&W hamburger and root beer chains is
pending. Tricon also has announced a venture with upscale burger operator Back Yard Burgers Inc.
(BYBI) to open several restaurants.