In Short Order
The Challenge for Friendly’s is to Reinvigorate the Brand
Harsha Agadi, Friendly’s chairman and CEO, has presided over several brand-reclamation projects over a 25-year career in the restaurant industry, most notably the recovery at Church’s Chicken, and he’s confident he can steer the Wilbraham-based chain to a similar comeback. He said the recent Chapter 11 bankruptcy filing is a regrettable but necessary part of that process, which includes a multifaceted plan to reinvigorate the brand by giving it a new look, feel, and attitude.
Were it not for the Boston Red Sox, Friendly Ice Cream Corp. would easily be the most criticized, scrutinized, analyzed, and perhaps overanalyzed institution in New England this fall.
Since the Wilbraham-based company filed for Chapter 11 bankruptcy protection on Oct. 5, there has been seemingly endless speculation about went wrong for this company (as with the local 9), and a few Canadian forests felled to provide the newsprint for the voluminous speculation about what could — and should — come next (again, just like with the team that plays on Yawkey Way).
Roughly a week after the filing, for example, the Boston Globe carried a piece with commentary from five restaurant-industry executives about what they believe the company might do to improve its chances for success post-bankruptcy. Ideas ranged from hiring a ‘cleanliness concierge’ as part of a focus on being family-friendly, to shelving the restaurants and putting Friendly’s ice cream counters in Panera Bread outlets, to moving the kitchen back to the front of the store as part of a ‘return to short-order cooking’ approach.
Chief Executive Harsha Agadi says he’s read much of the commentary, criticism, and thoughts on the future. And he agrees with some of it. He openly acknowledged that Friendly’s must improve its food, its service, and its looks, and there are plans in place to do all of that and more.
What he doesn’t agree with are any and all suggestions that, moving forward, Friendly’s will only be talked about glowingly in the past tense. He admitted to BusinessWest that, once a restaurant chain develops a reputation for being tired, slow, inattentive to changes in the marketplace, and inconsistent — and Friendly’s has earned all those adjectives, by most accounts — it is certainly difficult to change the course of public opinion.
“When I got involved with Church’s in 2004, it had declining sales, hadn’t franchised anything in three years, and was closing more stores than it was opening,” he recalled. “From 2004 to 2009, we grew stores and sales every year, and we expanded into many different countries.”
Friendly’s can make a similar comeback, he said in a wide-ranging interview a few weeks after the bankruptcy filing, noting that the Chapter 11 procedure was a necessary step in that direction.
It will give the still-profitable company relief from a massive debt burden, and especially from leases signed during boom years for the commercial real-estate market that have severely hindered the company as it has sought to make investments in its operation.
The company won’t be starting over, Agardi stressed repeatedly, using the term ‘business as usual’ early and often, but rather building on its core strengths — especially an ice-cream business that has grown exponentially over the past several years (more on that later) — and, in many ways, updating and reinvigorating the Friendly’s brand.
For this issue, BusinessWest looks at how Agadi plans to go about that assignment and how, by next spring, if not much earlier, people will be talking about his company using much more positive tones.
Any Given Sundae
In recent years, he went on, Chapter 11 has become an effective and increasingly popular relief mechanism for companies burdened with heavy debt, large court settlements, severe cash-flow issues, and combinations of the above.
And this has been especially true in the restaurant industry, he continued, due in large part to the high volumes of risk involved with establishments of any and all sizes.
“As a business lawyer, I’ve always thought that an investment in a restaurant or a chain was the riskiest investment you could make,” he explained. “For starters, tastes change; what’s hot today may not be hot tomorrow. There’s also high overhead — generally you have to lease the space, and there are often multiple employees — and a huge element of theft, of both money and product. And there’s also the spoilage factor; if you’re a seller of clothing, that product may eventually go out of style, but it doesn’t go bad and have to be thrown out if you don’t sell in three days.
“You have all of these problems conspiring against you as you’re trying to keep 12 balls in the air,” he continued, adding that these factors coupled with intense competition are responsible for the high mortality rate across the sector.
All that said, the Friendly’s filing, while certainly not surprising to most industry watchers, was met with large degrees of sadness and disappointment, Katz continued, noting that many in this region especially were dismayed that years of ownership changes, a revolving door at the top leadership rung, and apparent missteps or lack of proper response to changes within the restaurant industry would lead to this.
And like many in this area who can talk nostalgically about the Awful Awful (a Friendly’s milk shake so named because it was ‘awful big and awful good’) Katz had his own thoughts and theories on what happened to the company.
He mentioned everything from his belief that the Friendly’s name doesn’t resonate as well in other regions of the state or country as it does in Western Mass. — where it was founded by Curtis and Prestley Blake, and where that surname appears on many college buildings and other facilities — to a general deterioration in quality and consistency.
Perhaps the biggest factor, he believes, has been the larger, more convoluted menus in the restaurants and other indications that Friendly’s was (and is) trying to be too many things to too many people in an age of heightened specialization.
“It had morphed itself into a business that no longer knew what it was,” said Katz, echoing the sentiments of some of the analysts in the Boston Globe and other publications. “Friendly’s management may disagree, but I’ve talked to former employers and former managers, and my own personal opinion is that for a number of years you could go to Friendly’s and get a burger, a hot dog, and good fries; there were friendly people, good prices, and always great ice cream. You had a good time with your family, and it was a reasonable place to go. It’s all different now.”
Agadi hears such comments, and while he agrees that some changes must be made, he bristles at the notion that Friendly’s has somehow lost its way.
“If we were drifting, how is that I’m still serving 1 million customers a week, 52 million people a year?” he asked rhetorically, adding that he believes that many elements of the company’s model still work. However, there is that proverbial but, or several of them, as the case may be.
“We need to improve our service dramatically, there’s no question in my mind,” he said. “Our number-one issue is speed, and we’re addressing that speed of service every day.”
Looking back, Agadi said it was series of factors that brought Friendly’s to this point, everything from the soaring cost of butter — a huge factor for a company that makes 16 million gallons of ice cream a year — to those aforementioned albatross-like leases, to an economy that has many still cutting back on non-essentials, which includes ice-cream cones and Jim Dandys.
“There’s been a massive — and that word is massive — escalation in commodities costs over the past two years,” he explained. “And that’s driven by butter pricing; it’s gone up 57% in the past two years, while milk has gone up 22%. And if my commodity costs go up 57%, I can’t go and charge my customer almost half more overnight and expect him to pay it.
“That cost essentially evaporated a lot of profitability, which caused many of these issues,” he continued. “The company is still profitable, contrary to what everyone in the media is saying, but these commodity prices are having a huge impact on us. The other thing is the economy itself; the unemployment rate is 9% or 10%, and it’s even greater than that because it doesn’t take into account the number of people who are working part-time that used to work full-time, or the people who have had their hours cut back, and all that affects restaurants.”
On the real-estate front, Agadi went on, the company has been able to get relief from some leases sold when market conditions where much different — generally from landlords concluding that a tenant paying less rent is better than no tenant at all — but not in enough instances to make a real difference.
“When you’re locked into stores that don’t make money and have these high rents,” he said, “all you’re doing is bleeding.”
Considering all these factors, he said the company had little recourse but to take relief in the form of Chapter 11, and to take other steps as well, including the closing of 63 stores, a few of them in Western Mass. What the filing does, in essence, is provide the company with time and breathing room, and the ability to renegotiate more of those leases, he went on, adding that the company intends to take full advantage of this opportunity and eventually emerge a stronger, more vibrant chain.
And most initiatives have been in place for some time, he said, noting everything from an aggressive marketing campaign for the company’s so-called ‘High 5’ menu (items cost $5) to a move back to fresh, not frozen hamburgers (“I wish we had 10 years ago”), to plans for remodeling and updating the chain’s restaurants.
Meanwhile, the price of butter has actually started to come down.
“Many good things are starting to happen,” Agadi said, adding that the code word being used internally is ‘the American,’ the name given to some new-look, new-attitude stores that will start taking shape over the next several months.
“We’re making changes to the product,” he said, referring specifically to food, but also a broad spectrum of measurables. “And those changes, in many respects, are going back to who we are and how we did things; we’re going back to our classical roots.”
And with that, he returned to the subject of Friendly’s prospects for altering public opinion about its products and services, and the skepticism voiced by many analysts about whether it can actually do that.
“It’s not a simple thing to change your reputation,” Agadi told BusinessWest, “but at the same time, it’s not terribly difficult, either. You need a plan, you need capital, which we have access to through our partner, Sun Capital, and you need to test a few stores and then start replicating the entire chain with the new look — very aggressively and rapidly.”
And by that, he meant both the menu, featuring the High 5 component, and the facilities themselves, a few of which will soon sport a new, contemporary look that will be “brighter and fresher,” and immediately send a message that this is not the same restaurant it was even a few months ago.
“When you walk in, there has to be a marked change,” he explained, “so people will say, ‘wow, that’s a different-looking Friendly’s.’”
The new look has to be backed up by better service and food, he went on, adding that there is already some hard data confirming improvement in at least that first department.
“Our speed of service and friendliness have improved dramatically over the past six months,” he said. “We track this religiously, every day, every store — my head of operations gets a report, we all look at the results and see how our stores are doing in service, hospitality, friendliness, accuracy of order, and more.
“And this is measured not by us, but by outside customers who go to the Applebees, the Dennys, the Ruby Tuesdays, and other chains,” he continued. “We’re starting to see a measurable change in our service level.”
By next spring, the new-look Friendly’s will make its debut in the Greater Springfield area, he said, adding that a few area locations will be made over, and the movement will then spread to other regions. Beyond the look, there will be new, slimmer menus with more healthy choices, changes in staff uniforms, and remodeled fountain areas that will pay homage to the chain’s ice-cream lineage.
“We want to bring back heritage items,” he said, “in a contemporary atmosphere.”
At the same time, the company will continue to build on what Agadi calls its “other business” — ice-cream items sold in the restaurants and now more than 7,000 supermarkets (up from 4,000 just a few years ago), including the recently added Wal-Mart. The surge has brought Friendly’s to 95% capacity at its Wilbram manufacturing facility and a search for alternatives to make ice cream — a good problem to have, actually.
“We’ve been around for 76 years and just set a record — 165,000 cases of 48-ounce cartons,” he said. “That’s an example of what I mean by business as usual.”
As for the far-more-problematic and image-impaired restaurant side of the business, Agadi is confident that he can continue a quarter-century-long track record of success with brand building and, in many cases, revitalization.
“I’ve had 100% success with moving the brand in the right direction, and I believe that, in this case, we can, and will, do the same,” he said, adding that, three years out, he expects to be selling ice cream in 10,000 supermarkets and have the restaurant chain back up to 500 stores, with maybe half of those redone into the ‘American’ model, and movement into markets in Canada and Mexico.
Those are ambitious goals, but he’s done it with Church’s Chicken and other chains he’s been involved with.
Stepping to the Plate
Red Sox fans will have to wait until at least next February, and probably next April or even midsummer, to gauge how the team is faring with its bounce-back initiative.
Agadi says the transformation and rebranding of his company is already well underway, and by about the time the Grapefruit League swings into high gear, people in this area will be able to see and experience a change for the better.
Chapter 11 bankruptcy is a regrettable part of the process, he told BusinessWest, but it’s also a big factor in this company’s efforts to enable people to stop using the past tense when they refer to the Friendly’s brand in a positive light.
George O’Brien can be reached at [email protected]