Fast food franchise Souvlaki Hut collapses into administration, but buyers waiting to pounce

Poor retail sales, threats of litigation and disgruntled franchisees are being blamed for the collapse of fast food franchise Souvlaki Hut.

However, administrator Laurie Fitzgerald of BDO says he is confident of finding a buyer and finalising an agreement within the next few weeks.

“We have found a buyer, and hopefully over the course of the next two or three weeks we will be able to finalise an agreement and get contracts signed and so on,” Fitzgerald told SmartCompany this morning.

But other buyers are waiting in the wings, with Franchised Food Company chief executive Stan Gordon saying the company is a good fit alongside its existing holdings and that it can deliver value for Souvlaki Hut franchisees.

Sources have also indicated the Tasmania master franchisor has expressed a desire to buy the company, but it is understood that no final decision or negotiations have been entered into.

Fitzgerald says the company has been looking for a buyer over the past six months, but was unable to complete a sale before financial pressures started growing.

“Over the past two months, the directors became aware of some financial pressures due to potential claims against them, and the general tightening of economic conditions in the retail market which has made business more difficult.”

“Primarily lower sales… and there have been some disgruntled franchises, who probably haven’t been getting the attention they should have been getting. But by and large, the franchisees are still with us, keen to do business, and I’m going to be in daily contact with them.”

As revealed by SmartCompany yesterday, Souvlaki Hut, which was named as one of the country’s fastest growing franchises only 10 months ago, collapsed into administration. Sources indicate the company has experienced problems with handling the different structures of its stores.

Souvlaki Hut managing director Bill Fotiadis, and finance director John Fotiadis, have also been contacted but no comment was received before publication.

Gordon says the company would fit well alongside FFC’s existing franchises, which include Cold Rock Ice Creamery, Nutshack and Pretzel World.

“We will contact the administrators this morning, and we will make our intentions known to them. We know the business reasonably well, we would very much like to look at seeing what we can do with it, and we think we can be beneficial to the franchisees as a group.

“Although the stores are a slightly different format, we think it’s a good opportunity for us. We’ve been talking to some of the franchisees for awhile as part of our own business.”

Gordon says the company has already installed some of its franchises alongside Souvlaki Hut locations in Canberra, and that it would be a good fit to have multiple franchises in the same locations.

Souvlaki Hut recently circulated an information memorandum among potential buyers and investors in the chain. One franchise industry expert who viewed the information memorandum said the business did not appear to be in great shape.

“I get the impression they were all over the shop. It seemed to me they had tried various sizes of formats and it was not quite clear what was the best for them. And there were some legacy issues that needed sorting.”

Fitzgerald says his primary concern now is to “keep the business afloat”.

“That is my aim right now, to keep the business afloat and keep everything as stable as it can be. And then hopefully we can get it operating with a bigger, better balance sheet and keep serving up some great food.”

Souvlaki Hut ranked third on the 2010 BRW Fast Franchise list, with revenue of $17.36 million and growth of 217.89%.

Founded in 2005, the company had outlined plans to expand into Western Australia.

Last year, Bill and John Fotiadis told SmartCompany the company attempts to scrutinise its franchisee as much as possible, knocking back nearly 30 candidates during a 2006 initial interview round.

The pair also said Souvlaki Hut attempted to weather the downturn by focusing on the “sub $10 spend”, with the company also pushing hard into a marketing plan with television and print advertisements.

“You would think business might be hurt with that type of marketing, but honestly, the families have just been running through the door. You’ve got to be in people’s faces, especially in a downturn. People have still got to eat,” Bill said at the time.

Both also said they had plans to take the business overseas once the expansion into all states and territories was complete.