Christopher C Olson
Muma Case Review  •  Volume 1  •  2016  •  pp. 001-018
“Now what?” Ken pondered as he stared out the window on his flight back from Phoenix having just closed on the acquisition of a 20-unit restaurant company: The Good Egg. Ken Pendery, the CEO of the First Watch restaurant chain for the last 30 years, had just recently grown the company by 20% in one fell swoop. But what was he to do with these Arizona restaurants located more than 1,000 miles from the nearest company-owned First Watch…convert them to First Watch, leave them be, institute the First Watch menu but leave The Good Egg flag…?

Ken understood that the decision regarding what to do with The Good Egg brand would have far-reaching consequences. The purchase and conversion to First Watch of two J. Christopher’s restaurants in Atlanta 18 months earlier had not gone as planned. Part of the predecessor’s loyal customer base defected, sales fell by nearly 20%, and the company struggled for the next year to restore sales and profits to pre-conversion levels. If The Good Egg were to have the same fate upon conversion, the results would be devastating for the company and the management team. Recognizing that The Good Egg was the most highly-penetrated breakfast, brunch, and lunch brand with 15 locations in Phoenix and 5 in Tucson as well as a 30-year operating history made the decision even more precarious.

The reasons for conversion were clear in Ken’s mind. First Watch had 10% higher average unit sales volumes than The Good Egg. Additionally, having 20 newly-converted First Watch restaurants would provide a foothold in the West, further expanding the brand’s presence. Finally, upon the inevitable sale of First Watch by its private equity group, the valuation of First Watch would be enhanced if those 20 restaurants were converted to First Watch as opposed to selling two disparate brands.

Allowing The Good Egg to simply continue to operate independently would provide a predictable, stable revenue and profit stream, and remove the possibility of conversion loss as was realized in Atlanta. Straying from this strategy posed the possibility of considerable upside potential, but also significant downside risk.
This would be one of the most pivotal decisions Ken would have to make as CEO and the decision consumed him for the remainder of his 5-hour flight back to Sarasota.
resturant, acquisition, branding, franchising
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