Yogurt Kings Buy Kahala
(Note: This story has been updated to include more details.) Michael and Aaron Serruya once tried to franchise a frozen yogurt chain in the mid-1980s in their home country of Canada, were rejected, and then founded their own brand, Yogen Fruz, which now has 1,400 locations. So it's probably fitting that the pair are now buying a U.S. treat chain--and all sorts of other brands that come with it. The Serruya Family has purchased the Arizona-based franchisor Kahala Corp., owner of the ice cream concept Cold Stone Creamery.
Terms of the deal were not disclosed. Kahala boasts numerous brands, including Cold Stone, Blimpie, Great Steak & Potato Company, Taco Time, Samurai Sam's, NrGize Lifestyle Cafe, Surf City Squeeze and several others. Combined, the chains have system sales exceeding $1 billion and more than 3,000 locations.
The Serruya family bought controlling interest in the franchisor in an auction. Under the deal, Michael Serruya will be the chairman and co-CEO of Kahala, while Kahala founder Kevin Blackwell will be the other co-CEO. Serruya said that the plan is to grow the brand in domestic and international markets. He wants "to work closely with the entire Kahala team to enhance and strengthen the entire business model."
In a statement, Blackwell said that Serruya's involvement "will have a positive impact on Kahala and its future." He added, "The financial strength of this company has been greatly enhanced by this transaction. It positions Kahala as an industry leader, and will allow us to grow our portfolio by acquiring or partnering with other world class brands."
Still, Kahala's brands have struggled over the years with declining unit count and controversy. That includes Cold Stone, the clear gem in the deal. Cold Stone has dealt with lawsuits from franchisees, and its U.S. units have declined from 1,368 in 2006 to 1,031 at the end of last year, but many of its domestic units are now cobranded with other concepts, like Tim Horton's. The chain has found friendlier territory in international locations. In 2006, Cold Stone had just 10 units outside the U.S. Today, it has 424.
At one point, Blimpie had been its biggest and most well-known brand. In 2000, Blimpie had more than 2,000 locations and was the second largest sandwich chain in the country. But it had been on a downward slide in 2006, when Kahala bought the chain—at the time, Blimpie had nearly 1,600 units and had fallen to third on the sandwich rankings. Kahala has been unable to stop that slide, and today Blimpie has just 631 locations.
Blackwell started Surf City Squeeze in 1988, and starting in 1999 expanded his company mostly through acquisitions, eventually renaming the company Kahala Corp. In 2007, Kahala merged with Cold Stone. That was the same year the company made perhaps its most infamous deal, purchasing the then-hot Cereality concept. Cereality sold cold cereal and staff wore pajamas and slippers. The concept faded almost immediately after the purchase. Today Cereality has two locations, both co-brands, according to the company website.
According to the Globe and Mail, the Serruyas purchased controlling interest in Kahala thanks to an auction of the estate of the company's largest shareholder, Robert E. Petersen, who had first invested in Blackwell's restaurant business in 1999. Petersen had turned his love of automobiles into a publishing empire, beginning with Hot Rod Magazine, first published in 1948. His most well-known publications included Motor Trend and Teen Magazine. And he's the namesake of the Petersen Automotive Museum in Los Angeles.
Petersen died of cancer in 2007, and his wife Margie died in 2011. The couple's sons died in a 1975 plane crash, and according to reports their assets were being auctioned off and the funds donated to charity.