Peachy Keen

REVIEW SUMMARY
Business. Peach's, Sarasota and Manatee counties
Industry. Hospitality, restaurants
Key. Two entrepreneurs bought the chain out of receivership.

Peach's Restaurants, a 10-store chain in Manatee and Sarasota counties that once cleared $9 million in annual sales, began to wilt the last few years.

Inventory was a daily adventure, mostly due to an outdated cash register system. Debts reached into the millions. Repeat visits, the lifeblood of the family-style, breakfast-lunch chain founded in New Hampshire in 1985, slowed in the recession. Annual revenues fell to about $6 million.

Alison Thomas, a server for five years at a north Manatee County Peach's, says morale sank while tensions rose, especially during the dark times of early 2010. Says Thomas: “There were days we didn't know if we would show up for work and the doors would be closed.”

Thomas, however, believed the best solution was to get proactive. So proactive that Thomas, along with her friend and business partner in a catering venture, MaryBeth Hansen, bought the chain out of court-ordered receivership in early December. Thomas and Hansen paid between $1 million and $2 million for Peach's total operations, which included all the stores, equipment and a catering business.

The partners are backed financially by a group of eight investors from the Sarasota area. The purchase, unusual given the economy and the tough industry, turns what could have been yet another recession failure story into a potential triumph.

“Receiverships are usually the last stop before the end,” says Sarasota attorney Morgan Bentley, who represented the court-appointed receiver for Peach's, local commercial real estate executive Joe Hembree. “This one was the exact opposite.”

Plus, the ability of Hansen and Thomas, admitted business deal novices, to buy Peach's in and of itself is a rare success story, say several attorneys connected to the case.

In fact, Hansen and Thomas say several law firms turned them down when they pitched their plans. One firm sent the women a sternly written rejection letter that questioned their sanity. Even the attorney who ultimately took their case, Chad Gates, had his doubts.

“I think crazy might be too strong a word,” says Gates, with Sarasota-based Band Weintraub, “but I wondered how they were going to pull off the transaction.”

The acquisition was indeed a complicated combination of purchasing multiple loans and debts from the First State Bank of Northwest Arkansas and hard assets from Peach's founder, Michael Luciano. Loans and assets totaled more than $5 million, according to court records. “(The deal) wasn't easy to understand, let alone do,” says Thomas.

The complications, says Gates, partially stemmed from timing. Gates says the deal would have gone sour if Hansen and Thomas were only able to purchase either the loans or the assets, because both would be necessary to succeed in the venture. Several layers of loans and lawyers only further complicated the process.

Hansen and Thomas declined to say how much of their own money they put into the deal, only that it was a lot and it came from savings and their catering business.

“We put in more than we were comfortable with,” quips Hansen, “but we decided it was a risk we had to take.”

'Jump into it'

The risk is Hansen and Thomas are now responsible for thousands of customers, 180 employees and dozens of issues, from interior decor and real estate leases to menus and insurance.

On employees, for instance, Thomas says some have gone more than two years without a regular manager. “They suppressed a lot of issues,” says Thomas. “It's hard to keep all the employees happy.”

Hembree and his receivership colleague, John Caragiulo, discovered those employee issues and other daily concerns early, soon after they were appointed to the case last summer. It helped that Caragiulo is one of five brothers behind Caragiulo's Italian-American restaurant in downtown Sarasota, a popular eatery.

“When you get into something like this,” says Caragiulo, a commercial real estate broker at Sarasota-based Hembree & Associates, “you have to jump into it and decide what is short-term and what is long-term.”

Hembree, who has been a court-appointed receiver several other times, says this case was unusual because it included 10 properties spread far apart. That meant the financial issues were tough to contain. “I'm used to having an office building or a shopping center,” says Hembree. “This was quite different.”

Hembree and Caragiulo decided to go for short-term fixes with the goal of placing the chain on a path to long-term sustainability. Step one was to put each store on a budget. “Food and labor costs were going through the roof,” says Caragiulo.

The receivers then met with some of Peach's top vendors, including Sysco food distribution representatives, to begin to assuage fractured relationships. Caragiulo also looked into renegotiating leases where it was feasible.

Despite the depth of the challenges, Hembree says he and Caragiulo decided to do whatever they could to put Peach's into a position where it could be sold, not closed. “There was something there that was scalable and workable,” says Hembree. “So we took a little bit of a chance.”

Expansion issues

Take a chance is just what Luciano did in 1990 when he moved the chain to Florida from New Hampshire. Luciano declined to comment on either the history of the chain or what led to its demise.

But Gary Hoyle, an Anna Maria Island-based entrepreneur whom Luciano teamed up with in 2006 to lead a franchise-based expansion of Peach's, says the failures had nothing to do with the business model. “Mike really put together a great piece of the operational puzzle,” says Hoyle. “He put together a heck of a business plan.”

Hoyle says that included selecting high-traffic locations, creating a “back-to-basics” menu and fostering an atmosphere of camaraderie among customers.

Nonetheless, an attempt to grow regionally and nationally in what became a deep recession plagued the chain. “When you start to expand,” says Bentley, the attorney for the receiver, “you take on a whole new adventure.”

Luciano first decided to sell the chain in June 2009. He listed the company and equipment for sale for $4.25 million through local Re/Max broker Stan Rutstein. In an interview back then, Luciano told the Review he wanted to move back to New England to try something new.

A few offers for the chain fell through, mostly from lack of financing. By June 2010, First State Bank of Northwest Arkansas, which held Luciano's debt, decided to move to get its money back. The receivership route was the first step in that process.

Uniform system

Thomas saw that process play out in her job with Peach's. Thomas, a third-generation Floridian, met Hansen when both worked in the banquet department at the Longboat Key Club in the early 2000s. A Michigan native, Hansen moved to the Sarasota area in 2000.

The women became close friends, the kind who finish each other's sentences, and they soon launched their high-end catering business, the Perfect Party. It focused on cocktail parties and fundraisers, mostly on Longboat Key.

Then, around the same time Luciano put Peach's up for sale, Thomas and Hansen began to have conversations about how they could grow the catering business. “We started to look for something more,” says Hansen.

Adds Thomas: “Originally we didn't want all 10. We wanted one or two.”

But in working with Gates, the pair ultimately decided a bid for all the loans and assets was the best way to capture the attention of bankers and Luciano's attorneys. Gates was told there were multiple offers for the loans in a sealed-bid process.

The gambit worked. Hansen and Thomas closed on the deal Dec. 7.

The entrepreneurs quickly went through a what-did-we-get-ourselves-into moment after the deal closed. In addition to immediate employee issues, Hansen and Thomas had to deal with serious operations snafus. “A lot of things were in disrepair,” says Hansen. “If something was bad it would get a Band-Aid.”

The pair started by taking a triage approach to priority issues. Thomas handles anything out front, such as servers and greeters, while Hansen takes care of the work in the back, such as inventory and the kitchen.

The general goal, says Thomas, is to bring back the down-home feel of the restaurants that got somewhat lost over the past year. “It's not just about the food here,” says Thomas. “The customer enjoys being taken care of.”

In terms of operations, one major step the owners plan to take is to install a standardized, computerized point-of-sale system in every restaurant. Currently, only three Peach's have that system. The other restaurants either have nothing or use an outdated price-retrieval system.

A uniform point-of-sale procedure will allow for more precise inventory counts. It will also provide a way for Thomas and Hansen to see what menu items are top-sellers and which ones are struggling. The entire process will cost at least $100,000, estimates Caragiulo, whom Thomas and Hansen hired as a consultant.

Other issues linger. There's no digital time clock, for instance, so hourly employees, the bulk of the work force, check in and out with a paper and pen. Another upcoming expense: kitchen equipment in a few restaurants, including ovens and refrigerators, needs an upgrade.

Thomas also says the floors and walls in most of the stores are due for a redo and a repaint. New tablecloths are a necessity, too. Those projects could cost up to $250,000, says Thomas.

Still, even with the daunting tasks in front of them, Hansen and Thomas say they are confident and excited about their new adventure. And the attorneys and receivers connected to the sale are likewise convinced Peach's is in good hands.

“They are absolutely the right people for the job,” says Gates. “These ladies have an unbelievable drive.”