HARD TO RECOVER
Leder’s warning on tarnished brands
Add distressed investor Marc Leder to the list of people sickened by Chipotle Mexican Grill.
Leder, one of the most prominent figures in investing in battered retailers, is nonetheless scared by what is happening at the burrito chain.
The scarred brand, like other chains that have recently been forced to tackle extraordinary incidents, is causing Leder to become much more selective when buying distressed restaurants and retailers.
“We find that once a brand is tarnished with the consumer it is much harder to restore [its luster] given the growth and proliferation of social media,” the 55-year-old head of Sun Capital said in an exclusive interview with The Post.
“What has happened at Chipotle is an example of isolated issues that have gone viral,” Leder said.
Chipotle, its brand battered in media reports by food-borne illnesses, has seen its shares tumble 21 percent over the past year, to $305.51. On Tuesday, it hit a four-year low. The Mexican food chain might not be technically a distressed company, but to Leder it is a perfect example of why in the last two years Sun Capital “has become much more selective” about buying companies with tarnished brands.
In fact, Boca Raton, Fla.-based Sun Capital has not acquired a company with a tarnished brand in the past two years despite managing a $2.1 billion fund.
“We find once the brand is tarnished with the consumer, it has become much harder to restore in the time of social media,” Leder said.
“A few years ago, a couple isolated incidents would go unnoticed,” he said, “but now every slip-up [like health scares at Chipotle] can go viral.”
Sun Capital’s history in restaurants includes buying the distressed restaurant chains Friendly’s, Johnny Rockets and Captain D’s Seafood. On the retail side, it owned Mervyn’s and The Limited, and it presently owns Shopko.
Leder points out that when his firm in 2007 bought Boston Market from McDonald’s it, too, was tarnished.
Same-store sales were down double digits, and the stores were looking as worn and tattered as the brand.
Leder says in 2007 a tarnished brand like Boston Market could be fixed by remodeling its locations and improving its food.
But now that is much harder to accomplish.
Sun Capital is presently trying to sell Boston Market, seeking roughly $400 million, according to media reports.
On the retail side, Leder said the whole department store industry is under siege.
“You hear it so often it becomes a self-fulfilling prophecy.”
Sun’s three investments since 2014 in retail and restaurants have been in companies that may require operational repositioning but have at least decent reputations with consumers.
That includes discount retailer Furniture Factory Outlet that since Sun bought it in 2016 has extended credit for customers to increase sales.
Overall, Leder said 15 of Sun’s 18 investments since 2014 have been buying packaging, general manufacturing, industrial and chemical companies.