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TGI Fridays latest chain seeking exit from running own restaurants

September 26, 2014


TGI Fridays is planning to sell off the bulk of its company-owned restaurants, becoming the latest chain wanting to largely get out of the risky business of operating restaurants itself.

The casual dining chain said on Friday it plans to sell 247 U.S. restaurants to franchisees, following similar moves in recent years by its peers in the restaurant industry, from Burger King (BKW) to Dunkin Donuts (DNKN) to DineEquity’s (DIN) Applebee’s to more franchisee ownership, which reduces their expenses and exposure to elements beyond their control. The vast majority of McDonald’s (MCD) U.S. restaurants are already franchisee-owned.

“It mitigates the risk for the restaurant company,” Steve West, a restaurant analyst with ITG told Fortune. Typically a restaurant company gets a 5% cut of overall sales from a franchisee, but is spared from bearing capital expenses, and the day-to-day complexity of running a restaurant, including dealing with labor issues. The company also is less exposed to ups and down in sales, West said.

Fridays has been gearing up for the shift by remodeling restaurants and updating its menu to stay relevant at a time many casual dining restaurants are hurting. (Hello, Olive Garden?) The overhaul is also aimed at attracting prospective franchisees, more likely to be attracted to restaurant where traffic and sales are on the rise. So far, 93 restaurants have been remodeled.

“This new structure is a natural step in the evolution of the Fridays brand, and is in full alignment with our broader strategic plan,” said TGI Fridays CEO Nick Shepherd.

Fridays was sold this July by Carlson to private equity firms Sentinel Capital Partners and TriArtisan Capital Partners for an estimated $800 million.

The first TGI Fridays restaurant opened in 1965 in New York City, and the chain has grown to more than 900 restaurants with reported systemwide (franchise plus company-owned) sales of $2.7 billion in 2013.

(Updates sub-headline to make clear company not selling all company-owned locations.)