El Pollo Loco Is on Sale Block

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, expected to be completed by year’s end, will be used to help pay for the remodeling.

Advantica did not say how much it hoped to get for the 102 El Pollo Loco 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-style 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 El Pollo Loco 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. 1998 sales rose 2%, while operating profit hit a record $21 million.

“El Pollo Loco is a fabulous concept and we think it has tremendous growth potential, particularly in markets in the Southwest,” said Advantica spokeswoman Karen Randall.

“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,” Randall said.

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

El Pollo Loco (“The Crazy Chicken” in Spanish) 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, said Irvine restaurant consultant Randall Hiatt.

“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.”

Earlier this year, Advantica unveiled plans to convert its Denny’s restaurants into Denny’s Diners, with 1950s retro decor and new menu items. About 150 of Advantica’s 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 181-unit Coco’s chain has unveiled a prototype Coco’s California Cafe in three locations and hopes to update all of its outlets by 2001.