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El Pollo Loco Sold for $114 Million

TIMES STAFF WRITER

The parent company of El Pollo Loco, the Irvine-based fast-food chain that specializes in flame-broiled chicken, agreed Tuesday to sell it to a New York investment firm for $114 million.

The new owner, American Securities Capital Partners, said the management team of the 274-outlet chain would remain intact as the company moves to open more restaurants in its core areas, mostly in California.

The chain, founded almost 25 years ago in Mexico, has “tremendous growth potential,” said David Horing, American Securities managing director.

The investment firm also would assume $14 million in debt in acquiring the chain from Advantica Restaurant Group Inc. of Spartanburg, S.C.

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Advantica put El Pollo Loco up for sale in June, saying it wanted to focus on remodeling its family-dining chains--Denny’s, Coco’s and Carrows. The sale of El Pollo Loco, Advantica’s only fast-food business, is expected to close by the end of the year, and to generate more than $100 million, Advantica said.

The deal would also give El Pollo Loco a chance “to stand on our own and grow our brand,” chain President Nelson Marchioli said Tuesday.

Terms of the deal call for Marchioli and four other top managers to invest an undisclosed amount in the company. Marchioli declined to say what stake management would have in the company once the deal is completed.

El Pollo Loco has struggled in its efforts to grow beyond California and the Southwest over the years, in part because it has been a small unit of a big company, Advantica, which has been through several ownership changes and a bankruptcy reorganization.

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Marchioli said El Pollo Loco will concentrate on expanding in areas of California where it is already established and where 90% of its 274 restaurants are located, as well as in Arizona, Nevada and Texas. He described these as markets “with little or no risk because the brand has already been tested there.” The chain has 36 restaurants in Orange County.

In recent years, El Pollo Loco has expanded beyond its original menu of flame-broiled chicken and seen a jump in lunch sales with the addition of items such as French fries, tacos al carbon and pollo bowls.

But restaurant consultant Randall Hiatt of Irvine said El Pollo Loco faces stiff competition even in its established markets.

“It’s not like it’s an open field,” he said. “You have Taco Bell and then there is Del Taco, which is being very aggressive, and Rubio’s is growing at a fast pace. Baja Fresh is also doing well, and it is still to be seen what the Santa Barbara Restaurant Group is going to do with La Salsa.”

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El Pollo Loco posted a record operating profit of $21 million for 1998 as sales grew 2% to $127.1 million. For the first nine months this year, operating profits increased 20% to $20 million, as revenue climbed 12.4% to $107.1 million.

In the third quarter, sales of restaurants open at least a year--a key measure of growth--were up 7% at 115 company-owned restaurants and increased 5.5% at 159 franchised locations, Advantica said.

Advantica stock closed at $2.22, up 3 cents, in Nasdaq trading.

El Pollo Loco (“The Crazy Chicken” in Spanish) was founded in 1975 in Mexico by Juan Francisco Ochoa, using old family recipes.

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The company opened its first U.S. store in Los Angeles in 1980. Denny’s Inc., a forerunner to Advantica, bought Ochoa’s U.S. restaurants in 1983.

American Securities was founded 50 years ago as a family investment office. It owns one other Southern California company, Anthony International, a manufacturer of commercial refrigeration doors such as those used in the frozen-food sections of supermarkets.

The firm also purchased 130 Burger King franchises in Puerto Rico three years ago.

Marchioli said the change in ownership “should be seamless as it relates to our customers and employees. I suspect [American Securities] will come in a few times a year and as long as we do what we are supposed to do, life should be good.”

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El Pollo Loco at a Glance

Business: Fast-food restaurant specializing in flame-broiled chicken.

Headquarters: Irvine

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Employees: 5,800 (800 in Orange County)

Operations: 274 restaurants, 115 which are company-owned.

OC operations: 36 restaurants

Leadership: President Nelson Marchioli

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Ownership: Purchased by New York-based American Securities Capital Partners L.P. from Advantica Restaurant Group Inc., based in Spartanburg, S.C.

El Pollo Loco Chronology

1975: Founded as a roadside chicken stand in Guasave, Mexico by Juan Francisco Ochoa.

1980: Ochoa opens his first El Pollo Loco restaurant in Los Angeles. His family and friends had already opened 85 restaurants in 20 Northern Mexico cities in the five years before the first eatery opened in the U.S.

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1983: Denny’s Inc. purchases El Pollo Loco’s U.S. operations. Ochoa remains owner of the Mexican operations.

1987: TW Services Inc. (now Advantica Restaurant Group Inc.) purchases Denny’s and El Pollo Loco.

1991: El Pollo Loco opens its 200th restaurant.

1999: Advantica announces in June that it is putting El Pollo Loco up for sale. American Securities Capital Partners L.P. agrees Tuesday to purchase the chain.

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SOURCE: El Pollo Loco


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