Order to Go: Parent Puts El Pollo Loco Up for Sale

Looking to focus on its family-oriented eateries, Advantica Restaurant Group Inc. said Monday that it is putting Irvine-based El Pollo Loco--its lone fast-food chain--up for sale.

Advantica owns the Denny’s, Coco’s and Carrows restaurant chains, all of which are undergoing extensive and expensive remodeling programs. Proceeds from the sale, which is expected to be completed by year’s end, will be used to help pay for the remodeling program.

Advantica didn’t say how much it hoped to get for the 102 units it owns. The company hired the New York investment bank of Donaldson, Lufkin & Jenrette to handle the sale.

El Pollo Loco, which specializes in Mexican charbroiled chicken, also has 166 franchised or licensed restaurants, giving the chain 268 eateries overall. Most of the company’s restaurants are in California. The company had 1998 sales of $246 million, but that accounted for only 7% of Advantica’s revenue.

But the chain is profitable and growing. Sales in restaurants open at least a year--a key measure of growth--rose 5.9% at company-owned stores in the 1999 first quarter, and by 6.4% at franchisees. Its 1998 sales rose 2%, while operating profits hit a record $21.1 million.

“El Pollo Loco is a fabulous concept and we think it has tremendous growth potential, particularly in markets in the Southwest,” Advantica spokeswoman Karen Randall said. “But its growth is going to involve a capital investment that we believe is going to be better invested in our core family dining restaurants. So, it’s a question of strategic focus and where to invest our capital.”

El Pollo Loco had announced earlier that it plans to open 32 new restaurants this year in California, Arizona and Texas. It has 140 restaurants in Los Angeles County and 36 in Orange County.

El Pollo Loco, which in Spanish means the Crazy Chicken, was founded in 1975 in Mexico by Juan Francisco Ochoa, using old family recipes. The company opened its first U.S. store in Los Angeles in 1980. Denny’s Inc., a forerunner of Advantica, bought Ochoa’s U.S. restaurants in 1983.

The company has struggled to expand beyond the Southwest over the years, in part because it has been a small unit of a big company that has been through several ownership changes and a Chapter 11 bankruptcy reorganization.

However, El Pollo Loco seems to have staved off an onslaught of new competition in the chicken segment in recent years, from companies such as Boston Market and Kenny Rogers Roasters that have since fallen on hard times of their own.

That makes the timing of a sale a good one, Irvine restaurant consultant Randall Hiatt said.

“They are positioned into two categories with the Mexican flair and the chicken,” Hiatt said. “They have a pretty solid base, but the concept has not been known to travel outside the Southwest.”

El Pollo Loco’s chicken combo meals are sold with a variety of side dishes such as beans and rice and tortillas and salsa. The restaurants also sell tacos, burritos and sandwiches.

Earlier this year, Advantica unveiled plans to convert its Denny’s restaurants into Denny’s Diners, with 1950s decor and new menu items. About 150 company-owned restaurants will be remodeled by the end of the year. There are more than 1,700 Denny’s restaurants across the country.

The Coco’s remodeling effort is being rolled out more slowly. Advantica has unveiled a prototype for Coco’s California Cafe in three of its locations with the hopes that all 150 of the company’s stores will be updated by 2001. Including franchisees and licensees, Coco’s has 481 restaurants worldwide.

Advantica also recently spent $6 million to spruce up its 122 Carrows outlets, but will not focus on a major revamp until it is finished with the make-overs of Denny’s and Coco’s.

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Chicken Takes Wing

El Pollo Loco’s operating earnings and sales both increased more than 30% between 1994 and 1998. Amounts in millions:

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Operating Sales earnings 1994 $188 $15.2 1995 199 18.4 1996 219 20.1 1997 236 20.1 1998 246 21.1

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Source: Advantica Restaurant Group Inc.