UPDATE 3-Friendly's chain files for bankruptcy

Wed Oct 5, 2011 12:27pm EDT

* Friendly's To close 63 weaker restaurants

* 424 restaurants to stay open for business

* Plans sale to a unit of current owner Sun Capital (Adds details and background, expert comment, byline)

By Tom Hals

Oct 5 (Reuters) - Friendly's, an ice cream parlor chain known for its Happy Ending sundaes, filed for bankruptcy on Wednesday as the sluggish economy and slow consumer spending claimed another casual dining operator.

Friendly's Ice Cream Corp blamed rising prices for cream and high rents for its problems. The company, which operates or franchises restaurants in the eastern United States, plans to close 63 of its weaker restaurants; 424 will remain open.

The company, in its Chapter 11 bankruptcy filing, said it intends to sell the business to an affiliate of its current owner, Sun Capital Partners Inc. A restructuring expert said the planned sale was a sign of confidence in the long-term business.

Friendly's has struggled to cut prices to lure back recession-weary families who prefer cheaper counter-service chains.

The company's debt load also prevented it from sprucing up its restaurants, which got their start in Springfield, Massachusetts, in 1935.

"It's horrible," Gene Baldwin, a turnaround specialist with CRG Partners, said of the quality of Friendly's restaurants. "The facilities are terrible and need to be redone."

Friendly's and other restaurant chains that were built on traditional American fare and hearty meals have struggled to keep up with shifts in consumer tastes.

"It's a comfortable place for families, but we do actually have people watching calories and fat," said Jerry Mozian, a restructuring adviser with Tatum LLC.

Sit-down casual dining operators have been hit hard this year. On Tuesday another Sun Capital investment, Mexican restaurant operator Real Mex Restaurants [REALM.UL], filed for Chapter 11 bankruptcy. [ID:nL3E7L417S]

Other casual dining bankruptcies this year include Perkins & Marie Callender's Inc, Fuddruckers and Charlie Brown's Steakhouse.

Harsha Agadi, Friendly's chief executive, said in a statement the bankruptcy would "quickly improve our financial position and ensure we have the resources to build a better and stronger Friendly's."

Sun Capital likely sees the bankruptcy as an opportunity to quickly close weaker restaurants while holding onto the potentially lucrative franchise business, said David Pauker of Goldin Associates LLC, a turnaround advisory firm.

"It's likely that Sun believes that the crisis in consumer confidence which has reduced revenues in the casual dining sector cannot continue indefinitely," he said.

Friendly's said it received a commitment for about $70 million in financing. Along with cash flow, this will provide the working capital needed to meet its obligations during the restructuring, it said.

Friendly Ice Cream Corp listed both liabilities and assets of $100 million to $500 million.

The case is in re: Friendly's, Case No. 11-13167, U.S. Bankruptcy Court, District of Delaware. (Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Sakthi Prasad in Bangalore; editing by John Wallace)

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Comments (5)
Sun Capital validates that brand protectionism is dead in retail foodservice.
The retail food consumer is dynamic not static. Grocery stores are providing additional fresh prepared ready-2-eat and heat-N-eat grocerant meal component options weekly. Chain Drug stores are now selling ready-2-eat fresh prepared food and Convenience stores continue up grading fresh and prepared meal offerings.
Successful branded restaurant operators must rapidly readjust menus, locations and points of distribution to reflect the increased in fresh prepared ready-2-eat and heat-N-eat meal competition. Regular readers of this blog are familiar with our documentation of results of companies that practice brand protectionism over brand evolution.
This fall alone companies the ilk of Sooper Salad, Grandys, Real Mex Restaurants and Friendly’s seem to be caught in the 70’s, 80’s and early 90’s MBA C-level management mind-set trap of “Do no Harm”, “protect the brand” at all cost. 2011 may not be a good year in economic terms, but you can’t blame the economy for outdated positioning. Utilizing recycled or internal C-Level officers of the same ilk has proven once again to be a costly mistake. The consumer is dynamic not static, the interactive participatory aspects of the grocerant niche is one additional reason the consumer are driving its success.
If success leaves clues one of them is follow the customer as fast as you can. If you do not, your brand may very well erode its consumer relevance. Every branded food retailer today must have a vertically integrated multi-channel retail strategy including addressing all points of non-traditional distribution. During the past three years the grocerant niche has expanded and excelled. Companies and brands that are or have been practicing brand protectionism are losing market share to those practicing brand evolution.

Oct 05, 2011 9:00am EDT  --  Report as abuse
LimeDog wrote:
“as the sluggish economy and slowing consumer spending claimed another restaurant chain.” No, that’s not the reason at all. It has more to do with the fact that Friendly’s is just a terrible restaurant. The food is awful, the service is awful, the atmosphere is even worse. I’d rather just stay home and make burgers.

Oct 05, 2011 9:51am EDT  --  Report as abuse
NedStark wrote:
This is a real shame. We used to really enjoy going to Friendly’s when I was a kid.

Our parents would buy us a “Jim Dandy” sundae if we got straight A’s on our report cards. Good times…

Hope they pull through and keep the chain running in a few places at least.

Oct 05, 2011 12:54pm EDT  --  Report as abuse
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