Advantica names Marchioli new CEO

Nation's Restaurant News, Jan 15, 2001 by Jack Hayes

El Pollo Loco vet to replace Adamson

SPARTANBURG, S.C. -- Armed with a reputation for achievement and integrity, Nelson Marchioli is seen as having a vision to revive the struggling Advantica Restaurant Group and its core brand Denny's when he arrives here as president and chief executive Feb. 1.

"I think Denny's is a terrific brand," said the 29-year industry veteran. He was named this month to take Advantica's reins from his current post as president of the grilled-chicken chain El Pollo Loco, an Advantica holding until it was sold to an affiliate of American Securities Capital Partners L.P. last year.

Denny's "has terrific people and great locations, and the foundation [for its recovery in the competitive family-dining segment] has been laid," said the 51-year-old Marchioli, who joined El Pollo Loco in 1997.

Marchioli's arrival at Advantica's Spartanburg headquarters, after a phasing out of his post at El Pollo Loco over the next few weeks, is seen as a symbolic coming home, in that 275-unit EPL had been the only consistently profitable unit in the once-vast Advantica portfolio. The EPL brand was divested as part of the "one-company, one-brand" strategy advanced by retiring Advantica chief executive James Adamson, who will stay on as chairman through 2001.

Irvine, Calif.-based El Pollo Loco said it was pursuing an external search for a successor to Marchioli.

"Nelson is a successful strategic brand leader who gets impressive results," said management consultant and Advantica director Elizabeth Sanders, who headed the chief executive search. "He brings to our company strong brand-building expertise, proven operations ability and, most important, energetic, collaborative leadership."

Adamson endorsed Marchioli's appointment in a companywide memo.

"Advantica is clearly a challenging assignment," added Steve Finn, chief executive of Bloomington, Minn.-based Leann Chin Inc. "But Nelson is capable of doing what's needed." Finn is a longtime industry peer who hired Marchioli from Burger King's distribution affiliate Distron in the 1980s to begin a 10-year BK career. It included stints as senior vice president of quality and cost as well and his final BK post as president of worldwide operations and sales.

"I like fixing things, and in this industry that means one store, one manager and one customer at a time," Marchioli said. "My style is understanding what the customer needs and wants. What I know is how to take care of customers."

In 1996 Finn brought Marchioli from BK to Bruegger's Bagel Bakeries, where the versatile executive served as senior vice president and chief operating officer until the El Polo Loco opportunity surfaced a year later.

"Nelson brings a skill for building consensus and confidence, which is essential for reshaping any organization," Finn added. "And he is a tower of integrity, which, in the Advantica situation, where you have financial difficulties, will make bondholders and banks feel more secure."

Bond analyst Andrew Ebersol of Montpelier, Vt.-based KDP Investment Advisors, acknowledged that on Jan. 4., the day Marchioli's appointment was announced, Advantica's bonds were trading at a substantial discount -- less than 50 cents on the dollar.

Advantica's financial difficulty was compounded by another factor. The company's FRD Acquisition Co. subsidiary, which has been trying to find buyers for its underperforming 489-unit Coco's and 148-unit Carrows chains, was facing a Jan. 8 lender renegotiation for the $70 million loan and revolving credit line it arranged with banks last May. Advantica guarantees FRD's bank debt.

According to spokeswoman Karen Randall, Advantica is continuing its effort to sell FRD.

Ebersol and other analysts agree that Advantica's highly leveraged position has become a roadblock to its plan for remodeling the Denny's system. They think that Advantica's strategy to refranchise its large stable of company-owned Denny's restaurants is an equally strong option since that would shift more cost burden to the franchisee community.

According to Advantica's most recent financial report, covering the third quarter and nine months ended last Sept. 29, interest expense grew by $1.4 million, to $62.3 million, for the latest nine months. Advantica's nine-month net loss of $73.2 million compared with a loss of $148.1 million for the same 1999 period.

Denny's third-quarter revenue from 784 company-owned units and 1,032 franchised and licensed restaurants totaled $302.6 million, a 3.7-percent decline from 1999 third-quarter sales of $313.8 million, from 869 company-owned and 896 franchised and licensed units.

Third-quarter sales from 637 Coco's and Denny's units totaled $90.9 million, compared with $98.0 million from 624 restaurants in the same 1999 period.

"Advantica lacks the financial flexibility it would like to have at this time; the company is looking for cost-effective solutions," Ebersol added.

A little over a year ago, Advantica announced plans for the Denny's brand focus. The company introduced a restructuring strategy and shared its intent to streamline overhead and refranchise company units over the next several years. With that announcement Advantica terminated 50 members of its corporate staff. The group also said it would focus on modeling its system with the successful Denny's Classic Diner prototype, developed in 1997 by a Florida franchisee.