Interface: Kevin Blackwell and Doug Ducey

Two Top 400 restaurant CEOs discuss the merger of their companies and what the future may hold.

By Derek Gale, Associate Editor -- Restaurants & Institutions, 7/1/2007

An accomplished triathlete, Kevin Blackwell’s vision of offering consumers nutritious fruit smoothies and energizing sports drinks led him to found Surf City Squeeze, a juice bar, in 1988. Now, as CEO of Scottsdale, Ariz.-based holding company Kahala Corp., Blackwell (l.) oversees four Top 400 concepts (Blimpie, The Great Steak & Potato Co., Taco Time and Surf City Squeeze) as well as eight smaller chains. Recently, Kahala announced a merger with the second-largest ice-cream chain, Cold Stone Creamery, also based in Scottsdale and led by Chairman-CEO Doug Ducey. The new, integrated company will have systemwide sales in excess of $1 billion.

Q. What are your companies’ 3,000 franchisees saying about the merger?

Blackwell: We’ve done this on the Kahala side several times. So we knew we’d get a good reaction from our franchisees, but I didn’t realize it would be this good. [In the few days] since the announcement, somewhere in excess of 100 existing Kahala franchisees already have inquired about whether they can take the next step and buy a Cold Stone store.

Ducey: We’ve spent more time on the phone on conference calls than ever before with the franchise community and developers; there’s great excitement. The best thing about this merger is how much sense it makes with the parties involved. I think Kahala-Cold Stone was a perfect opportunity and the perfect fit to take the strengths of both organizations, [the capital that Kahala brings and Cold Stone’s franchising machinery] and leverage them for both communities.

Q. What will make Kahala-Cold Stone different than the many other multiconcept franchisors?

Ducey: I think the first thing we are going to be is innovative. We will take our core strength of franchising and build brands in a way that benefits our existing franchise community. Another thing that differentiates us from private-equity firms is that Kevin is passionate about the brands he’s helped create.

Q. What are your plans for growing some of the smaller Kahala brands, such as Frullati Café & Bakery or Samurai Sam’s Teriyaki Grill?

Ducey: We want to take a look at the portfolio and see not only what we think of these brands, but also what customers think of the brands, and talk with the franchise community about what opportunities are available. Of course we will focus on those with the most upside potential. Our team here loves [Sam’s], customers love it, people are e-mailing me telling me they go twice a week. We think there’s a huge opportunity for a brand like this across the country.

Q. Will you co-brand Cold Stone Creamery with other Kahala brands?

Ducey: We are going to be open-minded. Some have done co-branding with limited success; some have done it with no success. We do think there are opportunities for some of these brands to help each other. We’re not so much looking for co-branding as we are for dayparts. If one in the family of brands can help, of course we’ll use it. We’ll do tests, we’ll try things in different markets; we have some exciting ideas around that. But to announce today that there’s going to be this inside, that is premature.

Blackwell: What Doug and I are going to do is more of a multibranding type thing: to go into a university or airport [or] office buildings and offer the entire portfolio. But the brands themselves will stand on their own. It’s kind of nice when whichever storefront a customer goes to is one of yours.

Q. Will the company continue to acquire brands short or long term? What types of concepts might be targets?

Blackwell: We’ll do three significant acquisitions over the next 18 months. As far as categories, I can’t speak too freely because the targets have been identified, and I’m under confidentiality [agreements]. But we will do at least three acquisitions over the next 18 months, and we will not overlap any of the existing brands. We are careful not to hurt existing franchisees.

Ducey: I think the thing that is exciting about the target list is that it gives us the opportunity to leverage key suppliers, vendors and real estate relationships, all to the benefit of the greater franchise community.