Arby's-RTM merger seen as buoying Triarc's profits: 1,008-unit group would tap top franchisee

Nation's Restaurant News, June 13, 2005 by Jack Hayes

ATLANTA -- The new Arby's Restaurant Group, which is expected to kick off operations from its headquarters here this fall upon the completion of a merger of Arby's LLC and its largest franchisee, 775-unit RTM Restaurant Group, could propel the fortunes of Arby's brand owner and franchisor, Triarc Cos. Inc.

Based on the latest figures for Atlanta-based RTM's outlets and the 233 units of Triarc's Fort Lauderdale, Fla.-based Arby's LLC, average-unit sales at the franchisee's restaurants are 16.7-percent higher, or $1.03 million a year, compared with the $882,000 annual per-location average of Arby's LLC.

Creation of a 1,008-unit Arby's powerhouse in the form of a publicly traded Arby's Restaurant Group, or ARG, also stands to attract new franchisees and enhance overall growth for the roast-beef sandwich brand.

In fact, the number of Arby's restaurants opened in 2004--the chain now has a total of 3,327 outlets--declined significantly from the figures for the previous three years, according to Triarc's most recent 10K annual report.

While franchisees launched a net 50 Arby's each year between 2001 and 2003, they added only 11 branches to the system last year. Furthermore, international franchisees closed a net six Arby's units last year, chiefly in Canada, where the Arby's unit total declined from 130 to 125 outlets, Triarc reported.

"I see the merging of Arby's and RTM's cultures like two branches of the same family coming together," said Douglas Benham, RTM's former chief financial officer, who thoroughly realigned Arby's LLC's management after arriving as its president and chief executive in January 2004 to succeed Michael Howe.

Indeed, within six months of taking his new post, Benham had hired former McDonald's strategic planning and business development director Jordan Krolick, former Sports Authority controller and logistics senior vice president Todd Weyhrich, and former Garden Fresh menu guru Jeff Blackmun to head Arby's business development, finance and product development departments, respectively.

"In addition to the people I've brought to the team, we'll take the best of both RTM and Arby's," Benham added. "This is not going to be .just one or the other but a fine tuning.

"We consider it a low-risk integration from a cultural standpoint. We'll create a fabulous company here."

From the standpoint of system growth and unit execution, the post-merger addition of current RTM president Thomas Garrett, who also is chairman of Arby's franchise association, as ARG's chief operating officer is expected to energize Triarc's 233 existing Arby's and the system of 2,319 non-RTM-franchised Arby's units.

A 25-year RTM veteran, Garrett was named regional president of the group's Indianapolis-based mid-America division in

1993. He was promoted to chief operating officer of RTM's entire Arby's operation in 2000. Three years later, he was named RTM's president, succeeding founder Russell Umphenour, who remains chief executive.

Although an apportionment has not been divulged, Umphenour stands to be a leading beneficiary of the $175 million in cash and 10 million shares of Triarc common stock that the company agreed to pay to acquire RTM.

The companies' May 31 statement of a "definitive" merger deal earned the praise of Triarc chairman Nelson Peltz for the pending combination of "the ownership and management of a leading national quick-service restaurant brand with the operational excellence of its largest franchisee."

Peltz predicted the new company would be positioned "to benefit from scale efficiencies and, working with franchisees, to adopt RTM operational practices across the franchise system."

Umphenour called Triarc's acquisition of his company a "natural, logical step in Arby's 40-year brand history" that would involve "working with our longtime associates to effect a seamless transition."

However, Umphenour could not be reached for further comment, and RTM spokesman John Gray said the company is barred from talking publicly about the pending merger.

Ironically, the Triarc-RTM merger is taking place eight years after Triarc sold 335 Arby's to RTM in order to become solely a nonoperating franchisor of the brand. Yet, five years after that sale Triarc resumed restaurant operations when it bought Arby's second-largest franchisee, Sybra Inc., which had filed for Chapter 11 bankruptcy in November 2002. A month later Triarc took over 239 Arby's units in nine states while paying $14.2 million to Sybra and $8.3 million to its creditors.

Sybra's revenues in fiscal 2001 and 2002 were $200 million and $209 million, respectively. Last year, under Triarc ownership, the 233 remaining units generated sales of $205.6 million. RTM, meanwhile, said its 775 Arby's had sales of $796 million in the latest fiscal year.

Among the key issues expected to surface when RTM's operational management assumes control of Triarc's Arby's units are the effectiveness of dual-branding within the Arby's system as well as questions about compensation for Arby's restaurant managers and the most effective uses of menu items to position the brand.