New ownership seeks to revive Arthur Treacher's chain

Nation's Restaurant News, June 24, 1996 by Mark Hamstra

JACKSONVILLE, Fla. -- Hoping to salvage what they see as a sunken treasure, a New York-based group of investors has acquired a 39.7-percent stake in the Arthur Treacher's Fish & Chips chain, installed new management and announced plans to begin testing a line of grilled entrees at the former fried-fish powerhouse.

Bruce R. Galloway, who invested $1 million in Arthur Treacher's in 1993 and led the more recent investment group, was named chairman of the 133-unit company.

"The seafood aspect of the fast-food industry has been very lackluster in the last 10 years," he said. "There has been zero innovation. We're very excited about the prospects for Arthur Treacher's."

Galloway appointed as president and chief executive R. Frank Brown, whose 17 years in the Shoney's Inc. system included eight as president of the then-635-unit Captain D's chain.

Brown left Captain D's in 1991 and became a franchisee of two Shoney's units in northern Utah and since has served as president of the Skipper's Seafood 'n Chowder chain, which was recently purchased from NPC International.

"There's a very strong sense of pride in the Arthur Treacher's name among franchisees at the store level," Brown said.

Galloway's investment group secured a $2.5 million private placement to make the acquisition, of which $1.2 million was paid to former president James Cataland for a "significant portion" of his ownership position. The remaining $1.3 million will be used as working capital for the publicly traded company.

Cataland, who purchased Arthur Treacher's from bankruptcy court in 1984, will remain a consultant, the company said.

After boasting more than 800 units during its heyday in the 1970s, the Treacher's chain sank under the weight of the ownership changes that followed, Brown said. When Cataland purchased the chain, its numbers had evaporated to a few dozen outlets.

"He took it from 20-something units to where it is today," Brown said. "That proves the strength of the brand."

The company now owns about 30 units, and its largest franchisee, MIE Hospitality Inc., Bloomsburg, Pa., has 36 outlets in the Northeast, but the bulk of the Arthur Treacher's franchise system is made up of two- to six-unit operators scattered from Florida to Ontario.

Franchising has been a sore spot for the chain in recent years, as several operators had complained that the company didn't offer enough support and deliberately misled them about the profitability of the system.

"We as a licensee have received very little in terms of support from the company," said MIE president Harry Katerman, who added that he is cautiously optimistic about the new ownership.

Brown said current sentiment among franchisees "covers the whole spectrum." He added that there currently are no outstanding lawsuits from franchisees but said there are some lingering disputes with former consultants that he predicted would not have any "material impact."

Among the initiatives Galloway and Brown hope to implement are an expanded menu featuring such grilled items as tuna, swordfish, salmon and halibut plus a new line of vegetable side dishes.

The company also plans to begin remodeling some of the older Arthur Treacher's outlets and to expand in some areas where it has a minimal presence, such as Florida, and in areas where the name is widely recognized, such as the Northeast.

Galloway said he expected that the company would need more capital to implement the changes his group has planned and probably soon would tap either the public or private markets for another $5 million to $10 million.

Testing of the grilled items, which would be positioned as a separate menu within the restaurants, is slated to begin in several corporate units in central Ohio -- where Treacher's is concentrated enough to promote the changes efficiently -- and in two franchised stores in Pennsylvania, beginning next month. The items will be priced from $3.99 to $5.49, Galloway said.

Long John Silver's, the leader of the quick-serve seafood segment with about 1,500 units, offers its proprietary Flavorbaked line of fish and chicken items as both entrees and sandwiches to supplement traditional fried-fish offerings. A spokeswoman for the chain said that about 4 percent of its customers order the baked products, which were introduced systemwide in September 1994. She added that the company also is experimenting with "other non-fried concepts."

Skipper's, the 111-unit chain where Brown most recently served, has been offering baked fish items for about three years, according to president Paul Baird. The chain also has begun introducing grilled items, which Baird said produces a better product, in a few restaurants.

"We're moving toward having grills in all our restaurants over time," he said.

Galloway, who wrote his M.B.A. thesis in 1983 on the feasibility of starting a quick-serve seafood chain offering nonfried items, said he hopes to capitalize on the use of the term "grilled" in describing Treacher's new menu, which he said customers perceive as connoting more flavor than the terms "broiled" or "baked."