published Thursday, August 4th, 2011

Chattanooga-based Krystal chain exploring sale

The Krystal Building is located at the corner of Broad Street and M.L. King Boulevard.
The Krystal Building is located at the corner of Broad Street and M.L. King Boulevard.
Photo by John Rawlston.
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KRYSTAL AT A GLANCE

Headquarters: Chattanooga

Founded: Oct. 24, 1932

Number of restaurants: 364 in 11 states

Staff: More than 7,000 employees

Ownership: Private investment group that includes Summerfield K. Johnston, Probasco and Patten family members in Chattanooga and the Ingram family in Nashville

CEO: Fred Exum

History: Krystal once owned a major Wendy's franchisee and operated Chattanooga's biggest maintenance and fueling operation at the Chattanooga airport.


KRYSTAL THROUGH THE YEARS

1932 -- Rody Davenport and J. Glenn Sherrill open the first Krystal on the corner of Cherry and Seventh streets in Chattanooga

1941 -- Chain grows to 33 restaurants in Tennessee, Georgia and Alabama; Krystal creates its first logo

1950s -- Company adds drive-through window, adds freestanding suburban locations with parking lots

1965 -- Krystal opens 100th restaurant, changes from stool to booth seating

1968 -- Fried chicken added to the menu

1969 -- DavCo Foods is founded by the Krystal family as a franchisee and operates as a Krystal division

1976 -- DavCo opens its first Wendy's franchise, years later becoming the largest Wendy's franchisee with hundreds of restaurants

1978 -- Krystal reaches more than 5,700 employees

1982 -- Present logo is launched

1983 -- Former Krystal subsidiary Po Folks becomes a public company and subsequently acquires DavCo

1990 -- Breakfast sandwiches introduced

1992 -- Krystal announces IPO to fuel expansion; stock goes public

1995 -- The company declares bankruptcy in the midst of class-action lawsuits by employees over failure to receive overtime pay

1997 -- Company acquired by Port Royal Holding, headed by investor Phil Sanford, current CEO of Jackson Hewitt Tax Service

1998 -- Krystal Chik introduced amid Port Royal expansion plan

2001 -- Company opens 400th restaurant

2002 -- Krystal reaches 6,800 employees, 420 stores; sells Krystal Aviation unit at Chattanooga Metropolitan Airport to TAC Air

2008 -- Company begins initiative to create more company-owned restaurants

2010 -- Krystal lays off a number of employees to cope with recession but begins initiative to open new stores across Chattanooga

2011 -- The company announces it is exploring a sale.

Source: The Krystal Co., news reports

The feisty Southeastern restaurant chain famous for its small, steamed burgers is seeking a buyer after fighting its way through the recession.

The Krystal Co., which owns or franchises 364 restaurants in 11 states, said Wednesday it has retained an investment firm to find a new owner for the Chattanooga-based chain.

Krystal CEO Fred Exum said the company is seeking "a new investor" to take over the financial reins of the company from the private investors who bought the firm in 1997.

"The target is to deliver an attractive exit for current shareholders who have been tremendously supportive over the past 14 years, while also establishing a solid platform for our employees to further expand the brand by continuing to serve our loyal customers," he said.

The company, founded during the Great Depression, now has more than 7,000 employees.

Industry officials say it's unlikely that Krystal would be bought by another chain restaurant -- a move that could result in lost jobs locally. Instead, most restaurant sales in the past year have been to private equity investors, said Paul Frumkin, managing editor of Nation's Restaurant News.

"There's been a lot of private equity interest in restaurants this past year," Frumkin said. "It looks like there's going to be more of it, and it probably will be a private equity buy on this."

White Castle, an Ohio-based chain that, like Krystal, is privately owned and known for small, square burgers, previously has been discussed as a possible suitor for Krystal. But White Castle's Jamie Richardson, vice president of corporate relations, was noncommittal on the possibility of a merger.

"We wish Krystal well as they consider a potential sale," he said. "Knowing the strength of the chain's culture, we are certain they'll find the right fit in ownership that will safeguard the qualities of their brand."

Krystal used to be a publicly traded company until a group of investors under the name Port Royal Holdings bought the chain and took it private in 1997. Phil Sanford, who now heads Jackson Hewitt Tax Service, led Krystal's purchase after the company came out of bankruptcy, staying on as head of the company until August 2003.

During his tenure, Sanford pursued a strategy of expanding the company's franchise operations, which saved the company money on start-up restaurant costs but offered less revenue growth.

Exum took over as CEO in 2003 after Sanford. By 2008, the company had changed course and began building more company-owned stores, which offered Krystal more control over the brand and a bigger slice of the profits.

The restaurant chain was able to expand to more than 420 stores by 2002, according to company figures. But Krystal subsequently closed more than 55 stores and laid off employees during the recession.

On the whole, Krystal has seen "significant growth since 1997," Exum said, leaving the brand "well positioned to continue its momentum."

"We have been extremely successful over the last 14 years, which is primarily due to the hard work of all levels of our management team," Exum said. "Krystal is growing, and we are excited about the future opportunities for the brand."

Minneapolis-based Piper Jaffray, an international investment and asset management firm, will work with Krystal during the attempted sale.

As a private entity, Krystal does not release sales numbers, but National Restaurant News estimates Krystal generated sales of $401.0 million in 2010 -- a 3.2 percent decrease from 2009.

In 2003, Krystal earned about $4 million profit, according to SEC filings, which would translate to $4.86 million today when adjusted for inflation. Krystal has remained profitable, but officials for the private company declined to specify income results.

"The brand is well-positioned to continue its momentum and further leverage its historical equity and strong operational performance, presenting a compelling opportunity for a new financial sponsor," Exum said.

about Ellis Smith...

Ellis Smith joined the Chattanooga Times Free Press in January 2010 as a business reporter. His beat includes the flooring industry, Chattem, Unum, Krystal, the automobile market, real estate and technology. Ellis is from Marietta, Ga., and has a bachelor’s degree in mass communication at the University of West Georgia. He previously worked at UTV-13 News, Carrollton, Ga., as a producer; at the The West Georgian, Carrollton, Ga., as editor; and at the Times-Georgian, Carrollton, ...

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Comments do not represent the opinions of the Chattanooga Times Free Press, nor does it review every comment. Profanities, slurs and libelous remarks are prohibited. For more information you can view our Terms & Conditions and/or Ethics policy.
328Kwebsite said...

One of the biggest mistakes that Chattanooga businessmen have made in their senior years was not being able to turn over their empire to a younger generation. It killed both the Times and the Free Press. Similar conditions have marred several other Chattanooga businesses built from the ground up.

As much as I despise the poor quality of Krystal's main products, I think selling off the company is a bad idea. Get in there and make the most of what you have. It's a big company. It's worth being proud of, even if it means tacky commercials and 3 a.m. gut bombs.

Quash the sell off idea and sell some burgers.

August 4, 2011 at 11:48 p.m.
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