AFC buys Chesapeake, taps Luther as Popeyes prexy

Nation's Restaurant News, March 10, 1997 by Mark Hamstra

ATLANTA -- The parent of the Churchs and Popeyes fried-chicken chains, in back-to-back moves confirming its mission to diversify its operations, last month agreed to acquire the Chesapeake Bagel Bakery concept and shifted Popeyes Chicken & Biscuits president, Mark Rinna, to head an as-yet-unnamed future acquisition.

Replacing Rinna as the president of the 1,000-unit Popeyes chain is contract-food-service veteran Jon L. Luther, who most recently was president and chief executive of CA One Services, a division of Buffalo, N.Y.-based Delaware North Cos. Inc.

The moves represent the first tangible evidence that AFC Enterprises, which acquired Churchs and Popeyes from bankruptcy in 1992, is following through on its pledge to leverage its resources and franchise-support infrastructure across a more diverse array of concepts. Other acquisitions, including a possible specialty-coffee adjunct to AFC's new foothold in the bagel niche, are being investigated, according to AFC chairman Frank Belatti.

"Now there are enough oars in the water that some of these things will begin to take shape," Belatti said. "We like to think that at the end of the day we will have an all-star team of concepts."

AFC, which tallied systemwide sales of $1.5 billion in 1996 but had been operating under a heavy debt burden since its formation in 1992, was bolstered last year by an infusion of capital from Freeman Spogli & Co. The Los Angeles-based firm led an investment group that acquired a 58-percent stake in AFC for $320 million.

"[AFC] now has a much stronger balance sheet with which to pursue opportunities," said analyst Bryan Elliott of The Robinson-Humphrey Co., Atlanta.

The 163-unit Chesapeake Bagel Bakery chain, based in McLean, Va., is the fourth-largest operator in the bagel segment and has outlets in 32 states and Washington, D.C. The concept -- the lone member of the cadre of national bagel chains that remains privately held -- distinguishes itself through its use of a full-production, in-store baking process. Systemwide sales for 1996 were $95 million.

"There is no single player in the bagel segment that is so far out in front that any one can't become the dominant brand," said Gregg Kaplan, who last year was named AFC's vice president of strategic worldwide development to oversee potential acquisitions and other opportunities for growth. Kaplan said AFC already had been concept-shopping in the bagel niche when Chesapeake's previous agreement to be acquired by the parent of Big Apple Bagels expired at year-end. The fact that Chesapeake's financial adviser, Wheat First Securities, had been working with AFC on other acquisition possibilities facilitated the move, he explained.

Chesapeake founders Alan Manstof and Michael Robinson, together with new partner David Lavine, said they plan to continue to grow the brand as franchisees. Operating as AlMike Enterprises Inc. the group will convert its eight corporate stores to a Chesapeake franchise entity based in McLean.

"[Chesapeake] needed more leadership and more capital in the system," Lavine said. "There's a reason the three largest bagel chains are all public -- they need capital resources, and they need human resources to grow." Lavine, who had been working with Chesapeake as a consultant before recently being named chief executive, added that although AFC does not yet have public money behind it, he feels it has the resources to drive sales increases at the unit level through its marketing, technology and research-and-development expertise.

"Obviously, the [Chesapeake] concept has been working well," said Elliott of Robinson-Humphrey. "Franchisees have been growing it aggressively, using outside financing sources."

Chesapeake units average about $650,000 in annual sales, a figure Kaplan said can be improved upon. Lavine suggested that bagel concepts in general have room to boost sales through the generation of additional lunch and dinner traffic. "Anybody can get someone to come in and buy a bagel with cream cheese," he said.

A search is under way for a president to oversee the Chesapeake concept, Kaplan said.

The day after AFC announced that it had signed the letter of intent to acquire Chesapeake, the company revealed its plan to remove Rinna from the helm of Popeyes and replace him with Luther. "He [Rinna] felt like there were other opportunities he wanted to pursue," said AFC president Dick Holbrokk, praising Rinna's past efforts at Popeyes. "He had developed, created and stimulated Popeyes' business in many ways. Popeyes is a very different company under his leadership."

Rinna, in what the company said illustrated his confidence in AFC's commitment to diversify, asked Belatti and Holbrook for a new assignment overseeing a concept that has not yet been identified. "I wanted a new challenge," he said. "And they graciously decided that the idea of applying my knowledge and leadership into a new concept would help in achieving the company's goals."

The former Taco Bell and Arby's operations executive had gained the respect of the company's franchisees through a focus on unit-level profitability during his three-year tenure as the top-ranking executive at the chain. He will guide the transition of Luther from CA One into the Popeyes presidency while continuing his ongoing involvement in the evaluation of potential acquisition targets.