Why Travel Centers of America is Acquiring a Bankrupt Restaurant Chain
The quintessential truck stop in the U.S. is adding a wings and burger joint to its portfolio.
Travel Centers of America, a chain of 785 restaurants, truck stops, and convenience stores, acquired 50 Quaker Steak & Lube restaurants, a ribs and wings joint known for its gas-station décor, for $25 million. Quaker Steak & Lube had recently filed for Chapter 11 bankruptcy protection, explaining why this acquisition might be considered a “fire” sale.
Travel Centers of America’s 2015 annual report notes that, “Since 2011, our growth strategy has been to acquire additional travel center locations and, since 2013, convenience store locations.” Indeed, it has nabbed 37 travel centers and 201 convenience stores since 2011.
Tom O’Brien, CEO of Westlake, Ohio-based Travel Centers of America, says its interest in Quaker Steak percolated when it explored becoming its franchisee in a new development in Columbia, South Carolina, in fall 2015. “It’s been around for almost 40 years. It’s a great brand with a loyal following,” he says.
“We think it’s a brand that can be built on and built out,” O’Brien adds. He envisioned expanding the brand by stepping up franchising, rather than introducing them into existing Travel Centers’ truck stops. He notes that maybe two or three would be absorbed into Travel Centers, but the vast majority would remain as stand-alone restaurants.
O’Brien doesn’t expect to make any dramatic changes in Quaker Steak’s menu or décor, but envisions that it will reap “efficiencies” from taking it over. “Our supply chain function is likely superior to theirs. Operating 785 restaurants gives us a certain amount of purchasing power that you can’t get when you operate 50 restaurants,” he says.
In fact, O’Brien thinks Quaker Steak’s menu resonates with its clientele. He describes it “as a casual family place, for lunch and dinner, not a white table cloth restaurant.”
O’Brien says it’s known primarily, “for its wings, more so than its burgers and ribs. They offer the best wings.”
Having owned Quaker Steak for a mere two weeks, O’Brien says the main task is to “make sure we have our arms around the existing operation, identify priorities we want to tackle first, and then execute our part of the plan that involves turning it into a national brand.”
Travel Centers of America has faced its own financial stagnation. Its revenue in 2015 was $5.8 billion, down about 30 percent from the $7.7 billion in 2014 and $7.8 billion in 2013. O’Brien attributes the revenue dip to one critical factor: lower fuel prices.
“Travel Center’s principal source of revenue is selling $2.3 billion gallons of fuel. Our revenue follows the price of gas,” he declares. O’Brien downplays the revenue dip as a cyclical event, suggesting “its growth margins that make the difference.”
Brian Hollenden, a New York-based industry analyst at Sidoti & Co, doesn’t expect the Quaker Steak purchase to have a major influence on boosting Travel Center’s fortunes. “They’ll continue to operate it and integrate it here and there at their sites,” he says. Quaker Steak’s menu should resonate with Travel Center’s core customer, a professional truck driver, he adds.
Despite the financial difficulties faced by Quaker Steak, O’Brien was enthusiastic about what it has accomplished and what it could do for the company. “I like the décor and the loyalty of its customers. Everything we do in these two arenas will be to improve upon what’s done,” he explains. There may be other subtle changes to improve the customer experience, given Travel Center’s restaurant acumen, but he vows there will be “no wholesale changes.”
By Gary M. Stern