New owner is planning coffee chain’s second act

Quebec’s Foodtastic to buy Second Cup, will expand struggling brand

Quebec-based food franchising business Foodtastic Inc. announced a deal Monday to buy troubled coffee chain Second Cup Coffee Co. and has big plans for the brand, including opening more than 100 new locations.

Foodtastic CEO Peter Mammas said Monday the company is buying the Canadian coffee retailer and roaster from Aegis Brands Inc. in part for its national infrastructure.

“Second Cup has operations teams across Canada and we want to take our other brands out of Quebec and Ontario and into other parts of Canada, so we’re going to use that platform to do it,” Mammas said in an interview. “It gives us more of a national footprint.”

Mississauga-based Aegis Brands didn’t disclose Second Cup’s sale price, but said it includes $14 million in cash, plus a post-closing earn-out.

Mammas said Foodtastic is also taking over a “very, very large lease liability.”

Still, the franchisor of multiple restaurant concepts, including Big Rig Kitchen & Brewery, Chocolato, La Belle & La Boeuf, Rotisseries Benny and Souvlaki Bar, is planning to grow the Second Cup brand.

Foodtastic will begin selling Second Cup coffee in all of the company’s 130 restaurant locations within six months of acquiring the chain, Mammas said.

The company also plans to expand the coffee chain to about 300 locations within 36 months, up from 190 locations currently, he said.

But the store count will likely drop before the expansion begins, Mammas said, as Second Cup first goes through a “stabilization period.”

Currently, the coffee shop’s locations are concentrated in downtown cores, malls and transit locations, he said.

Those locations are struggling the most, Mammas said, while the chain’s suburban counterparts are fairing better.

Some unprofitable locations will likely close, though they could reopen as one of Foodtastic’s other brands, he said.

Some Second Cup locations just need to be renovated, Mammas said.

“Some locations look great, but others look like they’re still in the ’80s,” he said. “They haven’t been renovated and they look a little worn out.”

Foodtastic’s equity partner is Oaktree Capital, an asset management firm majority owned by Brookfield Asset Management, which puts the Montreal-based company on strong financial footing, he said.

“Our balance sheet is very strong … and we’re really wellfinanced,” Mammas said. “I think it’s going to be easier for the franchisees to secure the capital required to renovate.”

Meanwhile, new Second Cup locations will likely be smaller, located in more suburban, high-traffic areas and feature drive-thrus, he said.

“We definitely want to be coast to coast,” Mammas said.