Diedrich Gets Cash to Revive Expansion

Diedrich Coffee Inc. said Tuesday that a financing company will provide $6.3 million in new capital to help relaunch its national expansion.

Los Angeles-based Franchise Mortgage Acceptance Corp., which provides financing for restaurant chains and other companies, paid $1.3 million for 200,000 Diedrich shares and agreed to loan the company up to $5 million.

As part of the alliance, Franchise Mortgage also will provide mortgage financing to Diedrich franchisees.

“It’s the first time the industry’s ever had an agreement like this,” said Tim Ryan, Diedrich’s president and chief executive.

Franchise Mortgage took an interest in Diedrich after former Taco Bell Chairman John Martin took the reins of the 36-store coffee chain last fall. Martin serves on Franchise Mortgage’s board of directors.

The financing package “is the booster rocket that [Diedrich] needed,” said Franchise Mortgage President Wayne “Buz” Knyal. “They have their sights set to dominate that business, and the only way they can do that is to surpass Starbucks.”

Franchise Mortgage provides loans and equipment leases to small businesses. The company has financed more than $2 billion in loans for the franchisees of restaurant giants such as Taco Bell, KFC, Burger King, Pizza Hut and Carl’s Jr. Its profit doubled to $20.7 million in 1997 on a 68% increase in revenues, to $60.5 million.

Diedrich, Orange County’s oldest and best-known coffee chain, has coffeehouses in California, Texas and Colorado. The company halted its expansion last year and has lost money for four consecutive quarters. Along the way, its chief executive, Steven Lupinacci, resigned. Martin took the helm last November and brought aboard Ryan, a former Sizzler USA and Taco Bell executive.