Dive Brief:

  • Elite Restaurant Group has acquired 68-unit Gigi’s Cupcake chain, about seven months after Gigi’s filed for bankruptcy protection, Nation’s Restaurant News reports.
  • Elite’s restaurant portfolio will now include nearly 120 units and gross sales of nearly $150 million, according to David Eldredge, head of marketing for Elite.
  • Elite Restaurant Group also owns Slater’s 50/50 chain, Patxi’s Pizza and Daphne’s Mediterranean. The latter, a Middle Eastern fast casual chain, is also facing acute financial difficulty, having recently closed almost a dozen locations.

Dive Insight:

Elite’s acquisition of Gigi’s aligns with its overall strategy of taking on distressed brands with an objective of turning them around. In January, the cupcake chain filed for bankruptcy, listing liabilities between $1 million to $10 million in Texas Northern Bankruptcy Court. It also had to navigate a contentious franchisor/franchisee fight in the process. According to the Dallas News, Gigi’s was entangled in a number of lawsuits from 18 franchisees claiming they were misled about the company’s finances.

These are undoubtedly significant hurdles to overcome. A reported decline in the popularity of gourmet cupcakes could be a challenge for Elite with its Gigi’s acquisition. The Wall Street Journal reported the cupcake concept waning in 2014 with the closure of then-public Crumbs Bake Shop, and plenty of articles have been written about the rise and fall of the cupcake market. However, Food & Wine revisited the trend last year positing that the “fall” may have been widely overblown, as evidenced by Magnolia Bakery’s announcement of a national expansion in 2018, which offers a glimmer of optimism behind the acquisition.

Elite’s move is part of an active M&A environment and joins a number of companies growing their portfolio in the restaurant space in an attempt to pool resources and diversify offerings to compete in a saturated market. However, while it’s known as a turnaround specialist, that result has yet to come to fruition for Daphne’s (formerly Noon), which Elite acquired out of bankruptcy in April 2018. Earlier this week, Daphne’s Mediterranean closed all 11 of its Texas locations, some of which were open for mere months.

In a statement to Restaurant Business, Eldredge said the restaurants’ performance was not up to expectations. The company plans to pursue other options to grow the business, however, which makes sense considering the emergence of Middle Eastern cuisine into the American mainstream. According to Mintel’s 2019 U.S. Flavor Trends report, Middle Eastern cuisine on U.S. menus increased 45% from Q4 of 2015 to Q4 of 2018.

Elite also continues to pursue its aggressive plan for growing both Patxi’s and what it is calling “Daphne’s 2.0” into national brands.

As it continues to build its portfolio, Elite Restaurant Group is also considering going public, NRN reports, which would add some more capital behind these plans. Of course, Elite would have to find investors equally as optimistic about these brands’ turnaround potential.

View full version at Elite Restaurant Group acquires Gigi’s Cupcakes