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KLE courts other franchisees, looks to better days

Published:Sunday | July 24, 2016 | 7:00 AMTameka Gordon
Gary Matalon, CEO of KLE Group Limited.

The KLE Group is courting at least three other franchisees for its casual dining outfit, Usain Bolt Tracks & Records (UBTR).

While noting it may too be early to say whether the discussions will come to fruition, CEO Gary Matalon told the company's annual general meeting on Wednesday that discussions are "well advanced and show great potential to actually come through".

"But there is quite a bit slip between the cup and the lip. The possibility of it happening or not happening still kind of hangs in the balance," he said, noting his caution in advising the market before the deals are sealed.

Investor Joe Bogdanovich, in May, bought a 51 per cent stake in FranJam, the franchising company under which the KLE Group operates the Jamaican-themed restaurant.

FranJam was spun off from KLE and sold to pay off a US$650,000 ($79 million) debt owed to Bogdanovich for a loan he gave to the company in 2014 after he took on a 23 per cent stake in KLE and joined its board.

Interest in the franchises has been steady and has yielded some quality prospects, Matalon said.

The company has carved out two distinct franchising options: investors may opt for the Usain Bolt-branded version, to leverage the name of the Jamaican athletic legend; or the Jamaican-themed casual dining concept that is purely Tracks and Records.

"Ultimately, the main difference would be in the logo and the use of Usain's intellectual property," Matalon told the meeting.

The difference, he said, was created to cater to the different markets in which the company wants to push the brand as some investors only wish to leverage the Brand Jamaica association instead of having their restaurants tied to a celebrity.

Franchisees who use the UBTR logo would pay a higher royalty.

 

A seven-year contract with Bolt

 

KLE has a seven-year contract with Bolt to use his intellectual property in the branding and marketing of the company. Five years have already passed, but Matalon said they are confident of a continued partnership with the track star.

Pressed by shareholders on the length of time it takes to establish franchisees, Matalon said the investor profile and the depth of the investor's pockets may lengthen the process.

"The profile of a Tracks and Records franchisee is someone who has a net worth of maybe US$2.5 million to maybe US$3 million and free cash of US$1.5 million. That really kind of makes the market very selective," the KLE CEO said.

Due-diligence checks further lengthen the process, he said.

"We classify them by different degrees of readiness. So a big part of the selling process is the background of the actual franchisee," he said.

There are dozens of others which have shown interest, and that, the company is processing, he said.

The first franchise is due to open in Ocho Rios in a matter of weeks.

Staff members been trained and furniture is now being installed, Matalon told the meeting, noting the kitchen is already set up and ready.

"The franchisee is working night and day to get that location open," he said.

KLE is also working on "new franchisable concepts" to strengthen its prospects of securing business.

As part of the turnaround programme, KLE has also redesigned its logo, turning the 'K' in its name in a forward-facing position.

 

Bad omen

 

Matalon said shareholder Orette Staple has repeatedly stated concern that a backward-facing 'K' spelt a bad omen for the company.

Additionally, the meeting was not without hiccups as Staple took the board to task for not holding an annual general meeting in 2015 and "robbing shareholders" of their right to vet the actions of the board and voice their concerns.

The financial reports for both 2014 and 2015 were presented at Wednesday's meeting.

KLE earned $174 million in annual revenues for the year ending December 2015, down from the $205 million reported for the previous year. It made a loss of $34 million in 2014 and then doubled that loss to $64 million last year.

Operationally, the company managed to reduce its cost of sales, which amounted to $67 million, down from the $86 million posted in 2014. This, Matalon said, was due to menu changes as well as price adjustments.

Overall, the company has seen an uptick in the performance of the UBTR Marketplace location.

For the first half of 2016, revenue amounted to $90.6 million, with the two busiest periods, August and December, yet to come where "we typically do 15-20 per cent of your overall revenue for the year", Matalon said.

"The company is far better poised to realise the potential that it has and that everybody is waiting on," he told the meeting.

Pressed by shareholders for a forecast on revenue growth, the directors estimated a five per cent increase by the end of the third quarter.

tameka.gordon@gleanerjm.com