TGI Fridays plans to sell most of its 247 company-owned restaurants in the U.S. to franchisees. Rob Bennett for The Wall Street Journal
SOUTH GATE, Calif.--TGI Fridays Inc. plans to become the latest restaurant company to effectively exit the business of running restaurants.
The casual dining chain, which is owned by private-equity firms, plans sell most of its 247 company-owned restaurants in the U.S. to franchisees, executives told The Wall Street Journal. TGI Fridays also plans to sell all 63 of its company-owned restaurants in the United Kingdom.
Both fast food and casual restaurant chains, from Burger King Worldwide Inc. to DineEquity Inc. 's Applebee's, have been moving toward more franchisee ownership in an effort to reduce the chains' capital expenditures and maintain a more stable revenue stream from franchise fees.
Carrollton, Tex.-based TGI Fridays has been preparing for its move by remodeling restaurants, boosting its bar offerings and revamping its menu in an effort to make the brand more relevant to customers and more attractive to prospective franchisees.
"We had to decide: are we a franchiser or an operator of restaurants?" TGI Fridays Chief Executive Nick Shepherd said in an interview. "When you do both, the franchisees worry that the parent company is focusing on its restaurants first."
Mr. Shepherd said the company decided it could more effectively support its franchisees if it stopped running restaurants. But first, the chain, which had been struggling with declining customer visits and sales, had to revive the business. "It only works if you give people something to invest in. You can't franchise a bad product," he said.
Executives said the revamp predates the acquisition of TGI Friday's earlier this year by private-equity firms Sentinel Capital Partners and TriArtisan Capital Partners from Minneapolis-based Carlson in a deal that valued the chain at more than $800 million, including debt.
TGI Friday's decided more than two years ago to change the interiors of its restaurants, whose walls were filled with what Mr. Shepherd describes as "lots of ephemera and bric-a-brac" such as photos of the Blues Brothers. "It was quirky in the 70s, quaint in the 80s, outdated in the 90s and had grown past its sell-by date in the 2000s," he said.
After the company opened its first remodeled restaurant in Nashville, Tenn., in July 2012, the restaurant experienced a 30% sales increase from before the restaurant was redone. "That came from guest counts, not price," Mr. Shepherd said. "That allowed us to go to our franchisees and say, 'This is what wins for our guests.'"
At a newly remodeled restaurant in South Gate, Calif., about 11 miles south of downtown Los Angeles, the walls are mostly bare, except for some mirrors. Red and brown leather booths ring the edges while a contemporary-looking bar with soft lighting forms the centerpiece. The outside of the restaurant has a simple, modern design of wood and brick with none of the chain's signature red stripes.
So far 93 restaurants have been remodeled. Mr. Shepherd said that, on average, same-store sales have grown by 5% at the remodeled restaurants.
TGI Friday's also has focused on improving its food. Two years ago the chain switched to cooking fresh food from scratch instead of heating frozen food. It is added such items as ahi tuna, grilled lobster tails and Thai pork tacos, while keeping traditional items like potato skins and remaking others like its Oreo ice cream sandwich, which now has a crumbled cookie crust so it no longer resembles a Klondike bar.
In July, TGI Fridays began offering endless appetizers for $10. The promotion became the subject of a David Letterman top 10 list and went viral on social media. The deal was particularly successful with millennials—those in their midteens to mid-30s—who now comprise 31% of TGI Fridays guests, up from 20% before the promotion. Mr. Shepherd says same-store customer traffic has increased approximately 6% since the endless apps promotion was introduced.
"Their previous performance was spotty. Successful promotions are what drive sales. But if the food isn't good enough, it doesn't work," says Malcolm Knapp, a restaurant industry consultant who tracks sales at casual dining chains. "They've been upgrading their food and presentation and the all-you-can-eat appetizer promotion has really driven the sales needle."