Huddle House Seeks to Grow by Turning Around a Struggling Family Dining Chain
Here's one sign of how popular this type of food has become for restaurants trying to drive business to their properties: An Atlanta-based chain known mostly for its all-day breakfast said it plans to buy a family dining chain that leads with a breakfast menu.
Huddle House, which has about 400 locations mostly in the Southeast, is preparing to close on the purchase of Perkins Restaurant & Bakery by Oct. 21. Memphis, Tennessee-based Perkins & Marie Callender’s filed for Chapter 11 bankruptcy protection in early August, and a hearing on the sale is scheduled for Sept. 17. Huddle House submitted the winning cash bid of $51.5 million during an auction of the company's assets, according to court documents. Calls to the companies weren't returned.
Breakfast has been a strong segment in the restaurant business. Perkins, however, has struggled for years amid increasing competition from fast casual chains where consumers can grab their food and sit to eat. The latest bankruptcy filing is the company's second since 2011.
At the time of its latest filing, Perkins closed 10 locations. In the deal, Huddle House would pick up 342 Perkins locations, 100 of which are owned by the company and the rest owned by franchisees. Perkins' locations are mostly in Florida, Tennessee, Indiana and Ohio.
“Strategically, this is a very good fit,” Michael Abt, Huddle House’s CEO, said in statement, noting both are "breakfast-first" establishments.
Huddle House and Perkins would continue to operate as separate brands. While both offer breakfast all day, they also have lunch and dinner. Perkins is noted for fresh baked pies.
According to Restaurant Business, annual sales at Perkins locations have been sliding since hitting a peak of $644 million in 2015.
Abdt said Huddle House can use the company’s existing platforms and financial backing to strengthen the growth of the Perkins brand. “This acquisition is by careful design and calculation, as the brands fit well together serving complementary markets but supported by similar resources,” he said.
Huddle House has been in expansion mode, with plans to add 135 franchise locations.
Both chains occupy freestanding buildings. Often times, investors own the real estate and have net leases with Perkins and Huddle House. The tenants pay most if not all of the property’s operating expenses — maintenance, insurance and taxes — while the landlord receives an annual return on investment known as the capitalization, or cap, rate.
There are several of each on the market. Huddle House real estate runs from about $750,000 to $1.2 million, averaging cap rates of 6% to 6.75%.
Perkins real estate ranges from $1.95 million to more than $3.6 million with cap rates at 7% to 7.75%. With 4,000 to 6,000 square feet, they are double to triple the size of a standard Huddle House.
Randy Blankstein, president of Wilmette, Illinois, net lease firm The Boulder Group, said Huddle House buying Perkins will make its real estate a “little more appealing as it takes away uncertainty regarding their future.” But Perkins is “still a concept that needs to be turned around,” Blankstein said.
