In 2015, Freshii looked to join the IPO bandwagon in the U.S. As it explored the market, apparently, investment bankers were touting the healthy fast-casual brand as being a $1 billion concept.
The brand never went public in the U.S., ultimately taking its case to Canadian investors two years later. It raised just under $100 million U.S. and traded at just under $9 per share. By the end of the year it would have a market cap of $180 million, according to the financial services site Sentieo/AlphaSense. That’s a far cry from that $1 billion mark.
It’s in even worse shape today. Five years after its IPO, Freshii’s stock has fallen to under 70 cents per share. Rather than soar to some 10-figure number, the fast-casual brand has sunken to penny stock territory, its market cap a paltry $20 million.
To be sure, the market is different now than it was back then. When Freshii was considering an IPO, U.S. investors were falling all over themselves trying to give money to fast-casual brands. In 2014, for instance, Wall Street handed a valuation of nearly $300 million to Zoe’s Kitchen, which finished 2013 with an adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, of $11 million.
Freshii had been a rapidly growing brand at the time, with a founder in Matthew Corrin who found a way to get publicity for his chain by sending letters to McDonald’s and urging Subway franchisees to convert to his brand. The company positioned itself as a healthy fast-food brand, which got people excited.
And investment bankers have a way of over-promoting the valuation of the companies they are touting as potential public offerings.
Yet even at the time, the stated valuation was off the charts, a clear sign of just how crazy the market had become for fast-casual brands. (Consider that Potbelly, Noodles, Habit Burger and Shake Shack all performed better on their first day of trading than Chipotle Mexican Grill in 2006.)
That market changed by 2017, when Freshii did ultimately go public. Investors had soured on the fast-casual sector after disappointments by some of the aforementioned newly public companies (including Potbelly, Noodles and Zoe’s). Canadian investors were apparently more welcoming.
Much like those other fast-casual brands, Freshii would struggle as a public company.
Its sales slowed in 2018, as did new unit openings. Its stock and valuation plunged as a result.
Freshii didn’t do much the next year. Same-store sales began falling in the second half of 2018 and then continued into the pandemic, when everybody started working from home and no longer opted to get one of the chain’s healthy options for lunch.
Most of the brand’s locations are in Canada, where the recovery from the pandemic has been slower to take hold than in the U.S. But after some recovery last year, same-store sales have once again turned south. Freshii’s 11% decline in same-store sales in the third quarter was the worst performance of any publicly traded restaurant chain. That’s not great for a brand that is entirely franchised and generates less than $500,000 in average unit volumes, according to Restaurant Business sister company Technomic.
By comparison, venerable Canadian chain Tim Hortons’ same-store sales were up 11.1% in Canada and it has completely recovered from the pandemic.
Company executives last month blamed their sales challenge on competition from other concepts. “We believe consumers felt safe and confident in choosing takeout options at Freshii at a time when other experiences such as … full-service restaurants were not available,” CEO Daniel Haroun said, according to a Sentieo transcript. The company as such saw a slowdown at dinner, which it had been relying upon in its recovery.
Haroun, meanwhile, was named CEO earlier this year after Corrin, who had been CEO and was its founder, left to found a company called Percy that uses employees in Nicaragua and Pakistan to take counter-service orders for brands in North America.
Freshii, meanwhile, has been huge on selling its products inside grocery stores. It acquired an online health and wellness retailer last year and folded it into its retail products business. For what it is worth, that restaurant business makes money. Its restaurant business generated CA$1.2 million. But losses in other areas left it with a $4.2 million loss last quarter. A year ago, it lost $700,000.
Despite these challenges, Freshii just signed a six-unit development deal for six locations in New Jersey and says it has deals for 125 more locations. But that’s not a $1 billion company.