McDonald’s to Sell Pizza Chain Back to Founder

McDonald’s Corp. is getting out of the pizza business but keeping burritos, meatloaf and chicken pot pies on its plate in the U.S. market as it cuts back its non-McDonald’s brands.

The restaurant giant on Monday announced the sale of Donatos Pizzeria back to the chain’s founder and said it was retaining its Chipotle Mexican Grill and Boston Market businesses in the United States while discontinuing development of all non-McDonald’s brands abroad.

The moves will cost McDonald’s in the short term, resulting in a fourth-quarter charge of 23 cents to 28 cents a share, or $300 million to $360 million.

But over the long haul, Chairman and Chief Executive Jim Cantalupo said they would help the company further tighten its focus in an attempt to boost sales and profit growth, in part by “eliminating distracting and unprofitable operations.”

McDonald’s has been deliberating for months on what to do with its noncore brands amid speculation it might spin them off into a separate company.

But the company reportedly could not turn up a buyer for all the non-McDonald’s brands, which collectively lost $23.4 million in the first nine months of 2003 while McDonald’s was posting overall operating income of $2.5 billion.

The company is shedding only Donatos and its 182 U.S. restaurants for now, selling the 40-year-old business back to founder Jim Grote for an undisclosed sum. The deal comes 4 1/2 years after McDonald’s bought the Columbus, Ohio-based chain from Grote in the hope the fast-food giant would achieve better success with established pizzerias than with its own failed pizza offerings years earlier.

Cantalupo said that besides minimizing distractions, the latest moves would reallocate resources to McDonald’s restaurants and provide a more focused growth platform for Chipotle and Boston Market.

“We will concentrate our efforts primarily on Chipotle and Boston Market in the United States, concepts that have potential for long-term growth and benefit to McDonald’s,” he said. “These two brands are sizable companies that can operate autonomously.”

Fast-food industry analyst Douglas Christopher of Crowell, Weedon & Co. said Boston Market and Chipotle have strong potential.

Morningstar analyst Carl Sibilski said he wouldn’t be surprised if the company divested itself of either brand in the future. “It looks as if they don’t have the ability to sell all their [noncore] brands right now, so they’re going to sit on some of them until they get a good offer or until ... the McDonald’s brand is firing on all cylinders and they can focus more time on the other brands,” he said.

McDonald’s shares fell 36 cents to $25.42 on the New York Stock Exchange.