Taco Bell Cools on Hot ‘n Now Burger Chain : Fast food: Company plans to sell most of its hamburger outlets to franchisees and licensees. Its only California eatery is in O.C.
Hot ‘n Now, the value-oriented hamburger chain that found a niche with 39-cent burgers, fries and soft drinks, evidently isn’t as hot as Taco Bell Corp. once thought.
The Irvine-based fast-food giant plans to sell most of its remaining Hot ‘n Now locations to franchisees and licensees during the coming year as it moves to cut operating losses at the chain.
Taco Bell has said relatively little about the value-oriented burger chain since buying it in 1990 from a Kalamazoo, Mich.-based restaurateur. The chain only has one California restaurant, in Santa Ana, with most of its more than 100 locations clustered in the Midwest and East.
Executives at Taco Bell have treated Hot ‘n Now as a “test brand” since acquiring the chain that opened in 1984, tinkering with its menu, searching for the combination of product, price and service that would spotlight the brand in a nation that’s awash in burger restaurants.
Taco Bell Chairman John Martin told a restaurant industry magazine in 1993 that he didn’t “feel comfortable having franchisees invest a lot of money in Hot ‘n Now until we had it right.” But Martin also stirred up anticipation in that interview by hinting that Hot ‘n Now might one day grow to as many as 5,000 locations.
Hot ‘n Now, which reportedly has closed 80 or more stores in recent months, might still be destined for dramatic growth. But if the chain does mount a serious challenge to the nation’s top burger restaurants, it will be through franchisees and licensees--not through company-owned locations.
Taco Bell executives refuse to discuss the chain’s revenue or profitability--or even confirm how many Hot ‘n Now locations remain open. But, earlier this month, PepsiCo Inc., Taco Bell’s corporate parent, said that most of Taco Bell’s company-owned burger restaurants will be sold to franchisees and licensees.
PepsiCo’s annual report states that the sale is part of a drive to cut operating losses at the burger chain. The anticipated sales will “significantly reduce Hot ‘n Now’s operating losses in 1995.”
While PepsiCo’s annual report paints a relatively bleak picture for Hot ‘n Now, Taco Bell spokesman Jonathan Blum said that the chain’s concept has been refined, and that the package is going to be attractive to potential franchisees and licensees.
“What we did was go into the test markets with a slightly revised concept and offer new products and marketing,” Blum said. “It proved viable . . . and we’re now in the process of rolling that concept out.”
Some restaurant industry observers question whether Taco Bell would be selling its stores if Hot ‘n Now was in a sizzling growth mode. Other observers say that the sale of company-owned locations might be driven by ongoing cost-cutting at PepsiCo’s restaurant division that’s designed to bolster operating profits in a tough and competitive economic environment.
Taco Bell’s assertion that the Hot ‘n Now concept is ready for sale to franchisees isn’t shared by Florida-based franchisee Richard Loehr, who recently closed six money-losing Hot ‘n Now restaurants and laid off 300 employees.
“They’re trying to give these franchises away, and they can’t do it,” said Loehr, who has filed suit against Taco Bell and PepsiCo in U.S. District Court. “It’s a disaster out there now in the Hot ‘n Now system.”
In a suit filed March 16 in Fort Lauderdale, Fla., Loehr alleges that Taco Bell failed to properly support his six Florida restaurants. “Store evaluations slowed to a trickle, advertising and marketing support all but vanished, training and support was nonexistent,” according to the suit that seeks in excess of $100 million in damages.
Loehr, who said he was losing as much as $50,000 a month recently, acknowledged that his units remained profitable after Taco Bell acquired the Hot ‘n Now chain in 1990. But he maintains that sales and profit plummeted in 1993 as corporate support fell by the wayside.
“The consistency that is so critical to the success of the Hot ‘n Now system all but vanished,” Loehr said, and consumers were confused as Taco Bell experimented with items that clashed with the chain’s value-oriented menu.
In early 1994, Loehr alleges, Taco Bell closed as many as 80 Hot ‘n Now restaurants, including all of its company-owned Florida locations. Taco Bell maintained that the closings were temporary, Loehr said, but at least two of the stores later reopened as Taco Bell restaurants.
“They’re not going to reopen those stores,” Loehr said. “They’re history. Hot ‘n Now is history. They can share all the little stories that they want to in the (PepsiCo) annual report, but this has turned into a nightmare.”
Taco Bell’s stewardship hasn’t impressed Hot ‘n Now founder William Van Domelen, who resigned from the company shortly after selling the chain in 1990. Van Domelen said that franchisees began to complain about the chain’s direction in 1993, after former Hot ‘n Now President Don Pierce left the company.
“They changed the concept,” said Van Domelen, who hopes to return to the restaurant business next year. “The menu is more complicated and the service is definitely slower.
“With Don Pierce, they drove the sales up even higher,” Van Domelen said. “But when Don left, it’s like the wheels started to come off. The franchisees would call me but I’d have to say I didn’t know what was going on. All I knew is that the changes were counterproductive.”
Taco Bell executives and Hot ‘n Now Vice President and General Manager Steve Carley declined to comment on the suit or on franchising plans for the burger chain. “At this point there’s just nothing more we would be able to say,” Blum said.
Hot ‘n Now’s failure to grow rapidly is baffling, given Taco Bell’s proven ability to turn a profit with its rapidly growing Mexican-style fast-food chain, Van Domelen said.
“I felt quite sure that they were going to take it and run,” Van Domelen said. “I figured they’d probably have 4,000 to 5,000 stores by this time. I was convinced that they could really do it.”
