Why the downfall of Garden Fresh Restaurants is so maddening

The owner of Souplantation and Sweet Tomatoes was investing in units and planning an expansion. And then the coronavirus hit, says RB’s The Bottom Line.
Photograph courtesy of Souplantation and Sweet Tomatoes

The Bottom Line

As word emerged on social media sites on Thursday that buffet concepts Souplantation and Sweet Tomatoes were likely closed for good, thousands of the chain’s fans expressed sadness at the decision.

Some called the restaurants a family favorite. Some said they cried. Others urged the company to reconsider. The comments were so numerous that Souplantation was trending on Twitter for a time on Thursday, something that doesn’t often happen with a chain that has fewer than 100 locations.

The comments provided some cold comfort to John Haywood, who has been the CEO of Garden Fresh for the past three years, and who was tasked with the tough job of informing the chain’s employees that it was likely done for good.

Nor did it come as a surprise. In his time there, Haywood learned of the concepts’ loyal following. He was understandably proud of it.

“One of the things I really bragged about this concept was it had the most fanatic guest base,” he said. “We have 2 million Club Veg members. That’s incredible for a 97-unit chain.” Club Veg is the company’s loyalty program.

That’s also what makes this particular news event so maddening. Garden Fresh is not another poorly run zombie chain that was overleveraged and simply couldn’t weather the economic storm of the past two months.

It is a legitimate victim of the pandemic, and of federal recommendations designed to protect Americans from the spread of the coronavirus. So, too, are the company’s 4,400 employees, many of whom have been there for much of the chains’ existence.

To be sure, Garden Fresh has had its challenges. It filed for federal bankruptcy protection in 2016, a victim of high labor costs and, of course, the unfortunate combination of sale-leasebacks and way too much debt that typically push chains into bankruptcy.

The company couldn’t find a buyer and was ultimately sold to a distressed debt specialist, Cerberus Capital Management, which has frequently acquired struggling chains over the years. Later that year, however, the company was sold to a pair of investment firms, including family office Perpetual Capital Partners.  

Here’s where the story changes. Perpetual is the investment firm of Robert Allbritton, known by most as the founder of Politico. Over the past three years, the firm “has not taken a penny out of the company,” Haywood said. “Not even fees.”

Perpetual also wrote a $2.5 million check to pay everybody for a vacation following their layoffs, Haywood said. “They’ve just been a tremendous owner,” he said.

That has included investing in the concepts. It’s typical for buyers of struggling chains out of bankruptcy to simply take them for the cash they produce, investing only the bare minimum. Garden Fresh was allowed to invest in its restaurants.

That’s vital at a time when the industry is so competitive. While Garden Fresh operated a buffet, which had been somewhat out of vogue in recent years, it also specialized in healthy, fresh food—and that was most definitely in vogue.

Things haven’t been perfect: System sales declined 3.3% last year, according to data from Restaurant Business sister company Technomic. And it still has those leased locations from its prebankruptcy sale-leaseback—leased locations are a bigger challenge when you’re not generating sales, after all.

But Garden Fresh has the same number of locations it did three years ago. It was in the midst of remodeling all of the restaurants. Guest counts have also increased every period for the past three years, and it was on the verge of adding new locations for the first time in seven years.

 “That’s the real shame,” Haywood said. “We were doing great.”

The company temporarily closed its restaurants in mid-March, much like many other restaurants around the country. There was considerable uncertainty, for sure, but also hope. “Our commitment to our guests and team members remains as dedicated as ever, and we look forward to serving you again shortly,” Haywood said in a message posted on the company’s website.

Properly run restaurants with good owners and good relationships with landlords and lenders can survive a catastrophe like this, even though Garden Fresh burned through more than $1 million a week, even with closed restaurants.

But as reopening plans began developing, they frequently didn’t allow for the type of service Garden Fresh specialized in. Federal recommendations suggested that self-service would be out, even after reopening.

While that meant no self-serve drink stations with buckets of sliced lemons at most chains, for a buffet concept such as Souplantation and Sweet Tomatoes with a wide variety of options, it was likely a death knell.

Much to his credit, Haywood did not trash these recommendations, calling them “understandable” multiple times in an interview. Yet he also said they were not feasible, at least for a company like Garden Fresh.

The company agonized over the past two months, searching for something that could work, and found nothing. Buffet concepts with a lot of different options were built on a model in which customers served themselves. Changing that would mean changing the very nature of the brand.

“It just doesn’t work with the type of high-quality, fresh product we serve,” Haywood said.

Buffet concepts will be allowed to open eventually, but he doesn’t see that happening this year. At the very least, there is considerable uncertainty over when chains such as Souplantation and Sweet Tomatoes could return to their prior business. But nobody can afford to pay more than $1 million a week to find out.

In the end, the company is planning to file for bankruptcy and will likely not reopen, yet another victim of a global pandemic that has ravaged much of the restaurant industry.

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