Beefing Up Green Burrito’s Franchise Future : Restaurants: Investor Willy Theisen hopes to load up bottom line by piggybacking his fast-food operations on other eateries.

Say “Willy” in Omaha society and just about everyone knows whom you’re talking about.

Willy was the guy who turned Godfather’s Pizza into a sprawling chain of 900 pizzerias before he turned 40; the man who put Nebraska on the fast-food map. Not bad for a working-class kid who started in a strip shopping center with a single beer joint called Wild Willy’s.

But Godfather’s, it turned out, was actually something of a problem child. William M. Theisen sold his stake in the chain for $128 million just as it ran headlong into big trouble. Godfather’s was a major disappointment to its next couple of owners. The last one--Pillsbury Co.--sold it to Godfather’s own managers in 1988.

Now Theisen is running a little Orange County-based chain of Mexican fast-food restaurants called Green Burrito that had 1991 sales of $8.5 million. Which brings us to the question at hand: How much is Willy worth to Green Burrito?

A lot , if you believe investors who have bid up the stock from around $3 a share on NASDAQ in August to the high-rent neighborhood of $14.50 now.

But don’t call your broker yet: At $14.50 a share, stock analysts say, GB Foods may be a little steep for a company that isn’t even profitable.

Consider this: At that price, Green Burrito’s 7 million shares outstanding (including 2 million shares for which Theisen holds a warrant) are valued by the market at a little more than $100 million. That’s for a company that owns 11 restaurants.

By contrast, the Carl’s Jr. hamburger chain--with 380 restaurants--has a market value of just $150 million, not even twice what the market says Green Burrito is worth.

Sure, Willy Theisen had a pretty good track record at Godfather’s. After all, knocking together what was then the nation’s third-largest pizza chain in just 10 years is no mean feat.

But when Theisen sold it, sales per store were flat; Pizza Hut was crushing it in some cities; the corporation had grown so fast that it often wasn’t managed efficiently; and lighter lunches were just getting to be all the rage, while Godfather’s mainstay was a hefty pizza loaded down with toppings.

“Theisen saw there were problems coming, and that’s what motivated the sale,” said Godfather’s former executive vice president, Richard P. Jeffries, now an Omaha lawyer. “I thought he was crazy to sell Godfather’s. But 12 months after the sale I was glad it was theirs.

“Willy had a masterful sense of timing.”

Theisen certainly has a more impressive track record than Green Burrito’s management.

Since it went public in 1990, Green Burrito has had a history of not making good on its promises. Two million dollars of the $3 million it raised from the initial public offering was to be slated for building 10 new restaurants that the company would own. Green Burrito had nine at the time; it has only 11 now, more than two years later.

Green Burrito has had five losing quarters in a row. But hope springs eternal: Twice last year it gave investors the impression it was going to turn a quarterly profit--only to lose money both times.

So shareholders have reason to applaud a proven quantity like Theisen coming aboard. Since selling Godfather’s in 1983, Theisen has dabbled in investments in real estate and banking and operates Jubilee Farms, where he raises English jumping horses for Omaha’s equestrian set.

Clearly Green Burrito wanted some of his cash badly. The company let him buy a million shares last fall at a little more than $3 each. With restaurant stocks all the rage these days--Green Burrito among them--those million shares are worth about $11 million more than what he paid for them.

Then Green Burrito gave him a warrant to buy another 2 million shares at $5 apiece. That comes to 3 million shares--more than 40% of the company.

But here’s the most unusual part of the deal: In return for his money, Theisen demanded--and the three top executives agreed--that they turn over complete control of their 20% or so of Green Burrito’s stock to him for the next five years, which means he’s now running the show.

And that brings us to the most important question: What does Theisen plan to do with the little chain?

The Green Burrito restaurants have two things going for them: They serve very big--if somewhat bland--portions; and they sell them at relatively small prices. “Restaurant food at fast-food prices,” one analyst calls it.

The “Big Ed” burrito, for instance, is two pounds of beef, carnitas, refried beans, rice, lettuce, tomato, guacamole and cheese wrapped in two big tortillas. It goes for around four bucks. As a promotion, the company once made a bet for $1,000 with a petite customer who knocked off three in a row that she couldn’t do it again. (She did.)

On the other hand, Southern California is saturated with fast-food restaurants: Getting a good street corner to yourself is becoming harder and harder. Green Burrito has made do mostly with small restaurants tucked away in strip malls or on quieter streets. This makes it tougher to drum up customers but--theoretically, at least--cheaper to operate.

So far, though, Green Burrito hasn’t been able to run its restaurants very cheaply at all.

Take a look at these figures: Operating income--what a company has left after subtracting the costs of running the business from sales--is minuscule, just 1.6% of sales for the first nine months of 1992. And that was an improvement over the year before, when it was 0.6%. Between 10% and 20%, say stock analysts, is what bigger, more efficient fast-food chains do.

By the time Theisen found it last year--he says he was looking for a Mexican fast-food chain to buy--Green Burrito was in deep trouble.

Theisen, who jets in from Omaha for a couple of days each week, blames slipshod cost controls and the company’s free-spending ways. Since taking over in November, he’s had a half-dozen people laid off at the company’s headquarters in an unassuming industrial neighborhood in northern Anaheim. And he’s put in his own chief operating officer to keep an eye on the place.

Just recently, Gary A. McArthur--one of Green Burrito’s founders and biggest shareholders--resigned as president and from the company’s board, saying he was “burned out.” An adjacent commissary that used to cook the food for the company’s restaurants and the 54 franchised outlets has been just about closed down.

“He’s finally getting this place under control,” says Chairman Ruben A. Rodriguez, who is actually Puerto Rican, not Mexican, and who Theisen says will stay on. “There were too many chiefs and not enough Indians.”

Though even the receptionist at Green Burrito calls him “Willy,” and he has no title, it’s quite clear there is only one chief now. When Theisen’s in town, he likes to work at a big conference table right in Rodriguez’s office, eschewing the big, empty president’s office down the hall.

But just cutting costs isn’t going to do it for a company that’s been bleeding money. Green Burrito isn’t going to become a big chain the traditional way. It doesn’t have the cash to build a zillion stores or to go head to head with McDonald’s for the best street corners.

The answer, Theisen insists, is on a busy street in Long Beach.

Last year Sherman Oaks-based KFF Management Inc., which owns 60 Arby’s roast beef fast-food restaurants, was trying to figure out how to resuscitate its poorest performing locations.

“Arby’s hasn’t set any records in California in the last few years--except negatives,” says William Brusslan, KFF’s president.

Last year Brusslan got an idea from the food courts you see in lots of malls. He decided to purchase a Green Burrito franchise and combine it with one of his anemic Arby’s in Long Beach. At the time, the Arby’s was doing $480,000 a year--not so hot compared to his busier stores, which do about $700,000.

But this new combination store, Brusslan says, has doubled sales since it opened in August, all the new business being Green Burrito’s. Best of all, it didn’t cost a lot: The store hasn’t been expanded a single square foot.

So that’s Theisen’s plan: Why build a lot of new restaurants when you can put a Green Burrito franchise in several thousand Arby’s that are already built, or in lackluster pizza parlors? Or even under-performing hamburger joints like the Anaheim-based Carl’s Jr. chain where, Theisen says, he’s also talking to franchisees. It costs Green Burrito a lot less than opening its own restaurants, and as the franchiser it would get as much as 5%--its standard royalty--of the Mexican food sales.

So far, though, the response hasn’t exactly been overwhelming.

KFF--owned, incidentally, by the Japanese company Kyotaru International, operator of the biggest takeout sushi chain in Japan--says it’ll convert at least five more Arby’s to combos. And a small Seattle chain, Pietro’s Pizza, says it’ll test one.

Still, some big Arby’s franchisees are said to be interested. And why not? The nation’s 11th-largest fast-food chain--owned by corporate raider Victor Posner--admits sales have been slow for the last few years: It’s not always easy trying to push roast beef as an alternative to the ubiquitous burger.

Once New York investment firm Trian Group raises the money to buy 25% of Arby’s parent, DWG Corp., from Posner, Theisen hints that under the new owners the franchisees will be allowed to sign more deals with Green Burrito.

Miami-based Arby’s--which would have to give permission to franchisees to convert any more of their 2,300 stores--says it’s still kicking the idea around for a few months. The big question: Will a fast-food Mexican-roast beef restaurant work elsewhere “or is this just a Southern California phenomenon?” wonders Gaylon Smith, Arby’s senior vice president of franchising in Miami. “We don’t know yet.”

There’s also the question--raised by stock analysts--of whether Green Burrito might begin to cannibalize the sales of the adjacent Arby’s restaurants. That, of course, means less franchise fees for Arby’s corporate headquarters and gives it another reason to consider any deals carefully. (Brusslan, who says the Arby’s sales in his combination restaurant in Long Beach are down 3% at last count, had to promise to pay Arby’s the same royalties on sales that he paid before the conversion in order to get his deal.)

Can Theisen work that old fast-food magic again? Will Green Burrito be the wave of the future or another Flakey Jake’s, a chain of hamburger joints where Theisen sat on the board awhile, and which existed all of three years before filing for bankruptcy in 1986?

“I was a kid” in the Godfather’s days, says Theisen, now 47. “I didn’t know anything.

“I’ve matured, I’ve had a rest. I’ve got the desire, the experience, the cash and the contacts to make it work.”

Says Steven M. Bernard, a stock analyst at St. Louis brokerage Pauli & Co.: On one hand, “Theisen adds a lot of credibility to the company.”

On the other hand, says Bernard, don’t bet the ranch just yet. “A lot of people are putting a lot of faith in what he can do. There’s a lot of speculation built into the stock price.

“It’s definitely not a stock for widows and orphans.”

Times librarian Sheila A. Kern and researcher Dallas M. Jackson contributed to this report.

Story of the Green Burrito

GB Foods began as a private company in 1987. It went public Aug. 21, 1990, by selling 1.3 million shares, netting proceeds of $3.5 million. The big story began this summer when it went from trading in the $2-a-share range to more than six times that amount last week.

Revenue In millions 1987: $0.9 1992*: $8.7 *

Profit and Losses In thousands 1987: -$ 25.0 1990: $233.0 1992*: $-587.8 Profile of 1992

*

Revenue profile of 1992 In millions 1st qtr: $2.4 3rd qtr: $3.3 *

Loss profile of 1992 In thousands 1st qtr: -$246.9 3rd qtr: -$98.9 * Figures through Sept. 30

Stocks Climb

The company’s stock rose 530% from its all-time low in late July, to its all-time high of $15 on Monday.

Closing price

July 3: $2.81 Jan. 8: $14.50 Sources: GB Foods Inc., Dow Jones News Retrieval

Researched by DALLAS M. JACKSON and SHEILA A. KERN / Los Angeles Times

Close-Up: William M. Theisen

Position: Entrepreneur, top executive of GB Foods, Anaheim.

Birthday: May 30, 1945.

Birthplace: Chicago.

Family: He and his wife, Karen, have five children.

Residence: Omaha.

Education: Attended University of Northern Iowa.

Career highlights:

1973 -- Opens Wild Willy’s lounge in Omaha where a menu item, Godfather’s Pizza, was so popular that restaurants were opened in Omaha, Council Bluffs, Iowa and Lincoln, Neb.

1975 -- Begins franchising Godfather’s Pizza restaurants; by 1983, there were 900 of the restaurants nationwide.

1983 -- Sells the Godfather’s Pizza chain to the Chart House group for $306 million total--his share was $128 million. The combined entity was renamed Diversifoods Inc. and Theisen sat on its board as vice chairman for a year.

1992 -- Purchases controlling interest in GB Foods, which operates and franchises Green Burrito restaurants.