DUBLIN, OH-Wendy's is selling its 400-unit Mexican-food chain Baja Fresh to a group of investors led by restaurant-franchise operator David Kim for about $31 million. The West Coast-based buyer also has interests in such chains as Cinnabon, Denny's, KaBloom and Sweet Factory.
Wendy's executives say they are selling Baja Fresh to concentrate on the company's core quick-service chain. Last month it completed the spinoff of Tim Horton's, a quick-service concept that has a large Canadian presence.
Wendy's management says the deal is likely to close some time in the fourth quarter. There are about 300 company-owned Baja Fresh units, and the rest are run as franchises.
Baja Fresh is being acquired as its sales have faltered. The chain's same-store sales dropped 5.5% year over year during its most recent quarter, reported on July 27. During the same period in 2005, same-store sales only fell 1.7%. Year-to-date same-store sales for the chain have slid 4.6% this year.
Baja Fresh did not fare as well as competitors such as Chipotle, formerly owned by McDonald's; and the Qdoba, operated by Jack-In-the-Box; due to a lack of consistency and uneven store expansion, Wally Butkus, a principal at consulting firm Restaurant Research, tells GSR. "I don't think the chain has a unified direction to execute upon," he says.
The stores were rolled out in two different formats, confusing customers, and the chain was expanded too rapidly without concentrating enough stores in individual markets, Butkus observes. "It usually takes a while, and a certain critical mass in a market, to get a foothold, but that didn't happen," he says.
Under the new owners, Baja Fresh will likely "get smaller before it gets bigger," Butkus says. They will likely close stores in underperforming markets before growing the chain again, he says.
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