If you don’t want fast food and an expensive full-course meal, a fast casual restaurant may just be the ticket. Restaurants in this segment marry the quality of a casual dining environment with the convenience of fast food. Higher food quality, a more modified table service, and greater attention to healthier food and ingredients distinguish restaurants in this niche from its fast food counterparts.

The Pancake House Group, with its diverse brand portfolio that includes its namesake Pancake House, Teriyaki Boy, Sizzling Pepper Steak, Le Coeur de France, Singkit, Dencio’s, and Kabisera, knows this all too well. And its recent R800 million acquisition of the entire Yellow Cab Pizza chain is further testament to its direction of building strong brands.

“I’ve been looking at Yellow Cab for three years,” reveals Martin P. Lorenzo, president and CEO of the Pancake House Group. “What really attracted me to it is that the brand itself is very strong,” he explains. Whereas other pizza chains are fighting it out using promos to see who gets the most customers, Lorenzo shares that Yellow Cab Pizza remains a premium brand in that it continuously attracts “a strong niche market of young professionals from 19 to 29 years old.”

He adds: “Yellow Cab has been in the market for 10 years, and they’ve always sold at a premium price. The brand is so strong that you don’t even have to see the yellow cab sign to know that it’s ‘Yellow Cab.’ As long as you see either the box, the Vespa or the checkered flag, you immediately associate it with the brand.”

Immediate Impact
While most acquisitions often result in drastic changes in a company’s operations, Yellow Cab will have none of it. “We like what they’re doing,” shares Lorenzo, “because when I looked at the cash flow, the balance sheet, they were very conservative. They have no debt—very little debt; and almost all the money they made over the last years has been plowed back into the stores. Out of the 80 to 85 locations, 70 are company owned. There really are assets there.”

Fact is Yellow Cab has a lot to gain from the acquisition, too. Lorenzo reveals: “We’ll support them with the financial discipline we have, with developing locations because we have a very strong locations group, and they now have the support of our commissary. But we’re very impressed with the management team they have in place, and the discipline they apply to the Yellow Cab brand.”

With Yellow Cab beefing up the company’s portfolio of casual dining restaurants, the Pancake House Group expects to end 2011 with net sales of P3.7 billion. The group is also expecting to increase Yellow Cab’s EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) from 12 percent to 14 to 15 percent immediately.

“Just by backward integration,” puts in Lorenzo, “because now we can support them with the commissary and the sourcing. We can supply the dough using Le Coeur de France, and the sauces out of Pancake House commissary. This is effective immediately.”

Growth Spurt
With all things coming to place, Lorenzo declares that his “mega brands”—brands over a billion in sales—are now ready to travel. “We’ve been quite successful with Pancake House in Malaysia,” he shares, attributing their success largely to joint venture partner, Chicken Rice Shop.

“I think we can make our brands travel already because we now have the right platform,” says Lorenzo, who realized the need to have a strong local partner when it comes to regional expansion. “It’s not just about taking your brand there and thinking it will work. You need to have the right joint venture partners in those countries, especially in terms of labor,” he explains.

Because most of its restaurants are in table-serve format, quality of labor is really crucial. “We have universally acceptable brands, so we know they can work in other countries,” begins Lorenzo, “but the key is really in training our employees. In the Philippines, we’re way ahead of our SEAsia neighbors with respect to food retail branding and service, and we want to bring that same level of quality there.”

Locally, the group is also in the middle of a growth spurt, with the company looking at aggressively expanding its nationwide reach. “Today almost 80 percent of our business is in Metro Manila,” Lorenzo shares, “but I can foresee in the next 3 to 5 years that 40 percent will be outside Metro Manila. More growth will come from provincial cities.” He singles out Baguio, La Union and Subic as prime locations. “We find Metro Manila congested,” he says, “and the rent here and labor is more expensive. The provincial locations are much more margin-friendly. And there are now a lot of BPO businesses being set up, which is perfect for the Yellow Cab market.”

With all these prospects right around the corner, it is apparent that the Pancake House Group has established itself a strong contender in the fast-casual dining segment. “I think it’s a combination of a few things,” pronounces Lorenzo.

“Number one,” he discloses, “is our strong focus on the brand and the customer; second is the strong emphasis on brand-building, especially in this segment where we have to differentiate ourselves against our competitors; and third, which is really important to us, financial discipline. Because a lot of people set up restaurants, but after five or six stores they lose their discipline; and to survive this industry, you need to have a very strong financial backbone.”

Published in the Business Agenda section of Manila Bulletin, September 12, 2011

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