An institution seeks protection
Friendly Ice Cream Corp. , which opened its first shop during the height of the Great Depression, filed for bankruptcy protection yesterday, closing 63 stores overnight and laying off about 1,200 workers - half of them in its home state of Massachusetts.
The family-oriented restaurant chain said it was the victim of a challenging economy, high supply costs, and changing customer preferences. Thirty of the shuttered stores are in Massachusetts, including shops in Brockton, Charlestown, Hanover, Leominster, Needham, Quincy, Stoughton, and Wareham. Friendly’s will keep open 424 stores in 16 states.
“It’s a tough day,’’ Friendly’s chief executive Harsha V. Agadi said in a phone interview from the company’s Wilbraham headquarters.
He said the company hopes for a speedy restructuring with $70 million in financing already secured after it filed a voluntary petition under Chapter 11 in the US Bankruptcy Court for the District of Delaware. As part of the deal, the chain wants to terminate leases for stores it closed so it doesn’t have to keep paying rent. The move comes several years after Friendly’s sold and then leased back 160 restaurants in 2007.
“Rents we have are rents from a few years back and now they look and feel and sound outrageous,’’ Agadi said.
Friendly’s - which became known for its burgers and the Fribble, a super-thick ice cream beverage - began as a neighborhood ice cream shop in 1935. It was founded in Springfield by brothers Curtis and Prestley Blake as a way for them to stay out of trouble. Over the next four decades it grew to more than 600 restaurants, creating a niche in the market as a family-friendly restaurant serving comfort foods.
But Friendly’s has struggled to compete over the last few decades with casual dining rivals that serve alcohol - such as T.G.I. Friday’s - and fast, casual outlets - such as Panera Bread - that offer fresher food and better ambience, according to restaurant analysts. The operator of 13 Brigham’s restaurants, which featured a similar concept, filed for bankruptcy protection in 2009.
Among its direct competitors, Friendly’s ranked 10th among 12 US chains in a consumer-preference survey published last month by Nation’s Restaurant News, scoring poorly on questions about value, food quality, and reputation.
Friendly’s cofounders sold it to Hershey’s Co. in 1979.
Since then, the business has changed hands several times and is now half the size it reached in 1988. The Blake brothers no longer have a stake in the company.
Agadi, the latest in a series of chief executives at Friendly’s, broke the bankruptcy news on Tuesday night to Prestley Blake and his wife at their home in Connecticut.
“Mr. Blake was very supportive,’’ Agadi said. “He said, ‘Is there anything I can do? You realize this is my baby and has always been my baby and I’d like for you to work and make this successful.’ ’’
James C. Donnelly, an attorney for Blake, said he and his wife are studying the situation.
“This is, from their perspective, a sad day that reflects a legacy of failing to reduce debt and the inability up until now to turnaround the company’s core operations,’’ Donnelly said. “They are concerned about the company’s ability to move forward.’’
Friendly’s plans to sell itself at an auction with an affiliate of its current owner, private equity firm Sun Capital Partners Inc. Of roughly $297 million in outstanding debt, $267.7 million is a secured promissory note owned by affiliates of Sun Capital, Agadi, and others. It stems largely from Sun Capital’s purchase of the business in 2007. Earlier this week, another Sun Capital company, Mexican-food chain Real Mex, which operates restaurants such as Chevys Fresh Mex, filed for bankruptcy protection.
In the first eight months of 2011, Friendly’s reported a 5.3 percent drop in revenue at franchise stores open at least a year, and a 4.5 percent decline at company-owned shops. The slide was compounded by increasing commodity costs, such as butter, which soared 57.5 percent, according to the bankruptcy filing.
“Some of these Friendly’s stores probably should have closed years ago,’’ said James Vinick, a stockbroker who, with his clients, controlled about 12 percent of the company’s shares before the sale to Sun Capital. “But this could be a very viable operation if this is done correctly.’’
Agadi said Friendly’s is already taking major steps to improve. Sales are up more than 6 percent since the chain launched a splashy “High 5’’ advertising campaign last month featuring $5 deals (KSL Media, the company behind the campaign, is owed $3.3 million, making it one of the top Friendly’s creditors). Customer complaints are down nearly 40 percent since calls started being handled at a local level, rather than getting funneled to a call center, according to Agadi. He said he expects profits to double or triple after Friendly’s emerges from bankruptcy.
The company is already working on a new store concept, with the code name “American Classic,’’ he said. It will include a more trendy look, iPads for order-taking, and focus on healthier foods. The first of the two stores is scheduled to open in Springfield in March.
“It’s probably the only thing they can try short of almost starting over,’’ said Ron Paul, president of Technomic Inc., a market research firm in Chicago. “How successful that will be remains to be seen. It’s very difficult to change the brand image of a chain like Friendly’s that has a specific image in consumers’ minds. It takes time and money.’’