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Food for Thought

What can up-and-coming restaurant chains do to stand out?

Centre Lane Partners agreed to buy Saladworks for $16.9M. It will invest up to $2M in updates for the 108-store chain.
Centre Lane Partners agreed to buy Saladworks for $16.9M. It will invest up to $2M in updates for the 108-store chain.Read more

How do you like your vegetables?

On June 12, New York buyout firm Centre Lane Partners agreed to buy Conshohocken- based Saladworks for $16.9 million and to invest up to $2 million in updates for the 108-store chain.

On June 17, local investors agreed to pump $20 million into Philadelphia-based Honeygrow, plus $5 million to buy out earlier backers. Honeygrow has four stores.

You can get a $12 lunch at either place. Is Honeygrow really worth so much more?

"Everyone wants to be the next Chipotle," said Andy Greenberg, managing director at investment bank Fairmount Partners, who also tracks company prices through GF Data Resources, where he is CEO.

Shares of popular, profitable, Denver-based Chipotle Mexican Grill - which emphasizes a short list of choose-your-own fresh ingredients and fast service and has quickly grown across the country - zoomed from $22 per share at its January 2006 initial public offering to more than $600 now, even after slipping since January.

The message to early-stage investors is clear: "You make money by investing in the A-plus properties" - and Honeygrow "hits a lot of current hot buttons: quality fast casual, healthy living, urban hipness," Greenberg added.

Saladworks, on the other hand, is coming off a 21/2-year fight between founder John Scardapane and investor Vernon Hill (formerly of Commerce Bank, currently backing Republic Bank and Britain's Metro Bank P.L.C.) that ended in bankruptcy reorganization and both of those principals' getting paid to leave.

Greenberg figures the franchised Saladworks chain, with stores as far as Singapore, could be a moneymaker for its new owner, given "a lot of thoughtful operational management."

I asked a veteran food-industry analyst to compare. He agreed, if I kept his name out of it.

Saladworks, with its cut-vegetable trays, spiced meats, and house dressings, is "kind of a reasonable place for old guys like us who want to save calories for beer and wine," the analyst told me.

Honeygrow, with its digital ordering, cool design, and stir-fry, salads, and smoothies, "is super-trendy, millennial, faddish," the analyst added. "Like I was in a Penn sorority." Indeed, Honeygrow plans to open at Penn, among other colleges, later this year.

Which would he buy?

It's pretty tough to stand out as a restaurant chain, he hedged.

Honeygrow investors are betting on acceleration, cofounder David Robkin agreed.

"We have worked out our systems on the store side and the corporate level to create that foundation needed for intelligent growth," through the Northeast Corridor, cofounder Justin Rosenberg told me.

Rosenberg worked previously at mall-owner Pennsylvania Real Estate Investment Trust (PREIT) on the asset-management side. He studied history at Pennsylvania State University, got his MBA at Temple, and drafted a restaurant business plan stressing "food, design, simplicity." He spent time in a friend's Washington, D.C., restaurant.

He talked, by his count, to 93 investors before partnering with Robkin, who sold his Philadelphia accounting firm to national auditor Grant Thornton back in 1995 and became a venture capitalist, first with Liberty Venture Partners, whose picks got caught in the dot-com bubble.

Robkin hit his stride helping Stephen Starr finance Buddakan and other big-ticket restaurants. He's also a longtime partner in Entertainment Services Unlimited, the Voorhees talent agency.

Chipotles don't happen every day, other investors reminded me. Venture funding for restaurants goes through cycles and fads. There are so many hopeful small chains.

Even a cool concept, smart execution, and sexy locations might not be enough. Consider Cosi, the Deerfield, Ill.- and later Boston-based chain that's been public since 2002. Its shares topped $40 in 2006 - the company grabbed sexy urban locations and a top Burger King executive.

But profits proved more elusive, and the stock is currently struggling to stay over $2. Who needs another coffeehouse?

Investors pause. And then they consider New York-based Shake Shack, which was $21 at its IPO in January, zoomed into the $90s, and, even lately in the low $60s is worth more than $2 billion, with several dozen locations, modest profits, and big plans.