Diedrich Plans to Double Stores With Expansion

In its biggest expansion move to date, Diedrich Coffee Inc. said Wednesday it has signed agreements with a major operator of Taco Bell restaurants to develop 44 coffeehouses in North Carolina over the next five years.

The expansion, which would double the number of Diedrich outlets, is part of the company’s strategy of gaining a foothold nationally through agreements with major franchise operators.

“It takes us to the East Coast,” said Tim Ryan, Diedrich’s chief executive. “It’s the first step in our plan to open 1,500 coffeehouses nationwide.”

Irvine-based Diedrich said it is in discussions with several other similar organizations to continue its expansion.

The agreement announced Wednesday is with Don Ghareeb and Dick Reese, who operate 145 Taco Bell restaurants, Diedrich said. The pair will form a new company, Coffee Housepitality LLC, to develop the coffeehouses and about 30 to 35 carts in locations such as airports and office buildings, Ryan said.

Currently, Diedrich has 36 coffeehouses in California, Colorado and Texas, and seven cart operations.

The company put the brakes on its expansion plans last year during a string of money-losing quarters. In November, former Taco Bell Chairman John Martin joined Diedrich as chairman and brought aboard Ryan, another former Taco Bell executive. The pair vowed to relaunch Diedrich’s expansion plans, a process that has been aided by their industry connections and links to Taco Bell.

Ryan said he and Martin have known Reese and Ghareeb--whose offices are in Birmingham, Ala.--for more than 10 years.

Financing for the new franchise operation will be provided by the Los Angeles-based Franchise Mortgage Acceptance Corp. Martin serves on that company’s board of directors.

Ryan said Diedrich intends to make about 20 to 25 similar deals with other franchise operations over the next 18 months. Most of the new development will be in the Midwest and along the East Coast, he said.

But the company also intends to expand in Orange County, where it currently has 21 outlets. Ryan predicts the number of coffeehouses in the county will more than double over the next three years.

Ultimately, the company expects that 75% of the Diedrich coffeehouses nationwide will be operated by franchisers and the remainder will be company owned.

The expansion was announced after the market closed Wednesday. Diedrich’s stock closed at $5, up 6 cents a share, in Nasdaq trading.