The MTY Group, which operates a network of some 7,200 restaurants in North America, mainly franchised stores, was affected by the closure of many establishments during the pandemic and was forced to reduce the pace of acquisitions for two years, despite its trademark, its DNA, says its CEO Éric Lefebvre. However, the food group found its bearings by making two major acquisitions last September and December.
“Historically, we make three to five acquisitions per year, but we were forced to put everything on hold in 2020 due to the pandemic. We were in contingency mode for two years, and activity only returned to normal in March-April 2022, exactly one year ago,” Éric Lefebvre explains to me.
During our meeting, the CEO had just returned from California, where he went to meet the management of Wetzel’s Pretzels, the restaurant group that MTY acquired last December.
Wetzel’s Pretzels is a chain of 350 snack-type restaurants, located in 50% of the most populous states in the United States and which still has great potential for expansion, according to Éric Lefebvre. MTY paid $207 million to a private fund that had reached the end of its investment.
The acquisition came three months after that of BBQ Holdings, a Minneapolis-based group that operates more than 300 restaurants under various brands, including 125 owned. MTY launched a friendly takeover bid on this group whose shares were valued at just 4.5 times earnings.
“We paid 200 million US for this acquisition which allows us to access expertise in the management of corporate restaurants with table service. We now have a performance management group in this area, which we didn’t have before,” says Éric Lefebvre.
As it did with its latest acquisitions in the United States, the MTY group will keep the management teams on site to support it.
“It’s a lesson from Alain Bouchard, who at the time told Stanley Ma [the founder and main shareholder of MTY]: ‘If you go to the United States, trust the teams in place. They will do better than if you try to manage from a distance, ”says Éric Lefebvre.
With these last two acquisitions, MTY has regained its pre-pandemic size when the group had some 7,300 restaurants operated under 80 brands, including Thai Express, Valentine, Ben
Today, MTY makes just over 30% of its revenue in Canada, 3-4% internationally (with franchises in the Middle East, Asia and Africa) and over 65% in the United States. United.
The Cold Stone Creamery chain (1350 establishments) is the most profitable in the United States, while the Thai Express franchise (some 400 restaurants) is the most profitable in Canada.
“We had an erosion of the network during the pandemic. Many franchisees have decided not to renew a lease for 10 years not knowing if they will be able to operate normally.
“Right now, we’re seeing the same percentage of restaurant closings as before the pandemic, but we’re not opening as many as we’re closing. Normally, we open about 300 restaurants a year,” said the CEO.
The delays and construction costs as well as the difficulty in obtaining supplies of catering equipment complicate the task of franchisees, a situation that prevails throughout North America.
Despite the closure of several hundred restaurants, MTY has always been able to generate excess cash in each of its quarters because the group has taken the necessary measures.
The periods of confinement and the generalization of teleworking have also particularly affected MTY’s restaurants, which are located in food courts in office complexes. These restaurants represent 10% of the group’s total franchised establishments.
“Our restaurants’ operations at food courts have resumed well everywhere, except in downtown Montreal, where people don’t want to come. It’s too complicated, access to the city center. A situation that we do not see elsewhere in Canada or the United States.
“The Complexe Desjardins food court is an exception because it was completely renovated during the pandemic,” observes Éric Lefebvre.
With revenue of 4.5 billion recorded in fiscal 2022, MTY Group has returned to pre-pandemic revenue. Is high inflation affecting its business?
“We had to adjust our prices, but not as dramatically as the 10% increase in the grocery basket. As food costs represent 30% of our fixed costs, the actual increase was only 3% at home. It hasn’t affected traffic because people see that our prices have gone up less than at the grocery store,” says Éric Lefebvre.
Has rising interest rates dampened the group’s appetite for new acquisitions?
” Not really. We adjust our acquisition prices according to the cost of financing. Rising interest rates affect more our franchisees who want to open new restaurants,” observes the CEO.
During the two years of the pandemic, MTY used its excess cash to pay down its debt, which allowed it to build up a war chest to make its last two acquisitions and consider new ones in the coming months.
