Fast-food king no more

Dennis Riese is flush with cash and ready to invest in fancier restaurants.

Dennis Riese

The Riese Organization, one of the largest and oldest restaurant operators in the city, has generated its share of unwanted headlines over the years, including a bankruptcy in 1999 and widely publicized photographs of vermin nibbling on pastries in Riese-owned Dunkin’ Donuts stores. The ensuing media frenzy resulted in Dunkin’ Donuts kicking Riese out of its franchise in 2009.

But Dennis Riese, whose father, Murray, and his brother, Irving, founded the business in 1940 and amassed vast real estate holdings, is now steering the company in a new direction, and trying to shed his reputation as the fast-food king of the Big Apple.

“We will be much less known for fast food,” said Mr. Riese, chairman and chief executive. “I haven’t liked that identity.”

For the first time in many years, Mr. Riese, 62, can boast that the privately held company has enough cash lying around to make the kinds of changes he’s been dreaming about. After more than a decade of struggle because of debt assumed by the first generation of Rieses, the company two years ago pocketed about $85 million by selling a four-story building in Times Square, 1552 Broadway, where it had operated a T.G.I. Friday’s—one of 10 it owns.

“It put a tremendous amount of capital in our treasury. We have virtually no debt, and we are fiscally healthier than we have ever been,” said Mr. Riese. “We are a very wealthy restaurant company.”

His plan is to use some of that money to invest in other restaurant businesses, bringing them into the fold and thus expanding the Riese Organization’s portfolio to include better-quality casual eateries and more full-service restaurants.

It is a big shift for the company and for Mr. Riese personally, said industry experts.

“He’s been working with the wind in his face for so long,” said Stephen Zagor, dean of culinary business and industry studies at the Institute of Culinary Education. “He’s also had to live in the shadow of his father and uncle, who were hall-of-fame restaurateurs.”

The late Murray and Irving Riese, two brothers from Harlem, started their empire by purchasing a luncheonette in Manhattan and selling it a few years later for a great profit. They continued their strategy for decades, running 300 restaurants by 1989, mostly franchises like Beefsteak Charlie’s, Brew Burger, Chock Full o’Nuts coffee shops and many quick-service eateries. They were credited with developing the food- court concept, clustering their fast-food businesses closely together, sometimes in the same space. And they owned much of the real estate where they operated restaurants.

Ill-timed expansion

“They never had any pretentions about food,” said Vincent McCann, chief operating officer of the Riese Organization from 1985 to 1992. Mr. McCann, a restaurant consultant, said the brothers were smart operators who achieved $400 million in sales at their peak.

They ran into trouble in 1990, during a recession, when they tried to expand too quickly and borrowed $140 million from the Bank of Tokyo-Mitsubishi Trust Co. Sa

ddled with debt, the company was forced to shrink its portfolio. Today, it operates some 75 restaurants, generating $100 million in revenue, which also includes rental income from 25 buildings. After his father’s death in 1995, Dennis took the reins, steering the company through its bankruptcy several years later.

“It’s been a little bit of a long haul,” he said. So when the opportunity arose to make a tidy sum on real estate, Mr. Riese seized it. “All good things came from that sale,” he added.

He has already begun to deploy some of the cash and has plans to invest in other restaurateurs via a new venture capital arm called Riese Capital. In December, the Riese Organization bought a building at 211 W. 34th St., where it plans to open one of the brands it currently owns, such as Tequilaville—a casual bar and restaurant. Another option, Mr. Riese said, is partnering with a smaller restaurant group in Manhattan to open an eatery in the building.

Last month, the company also signed a franchising deal with a popular California-based restaurant, Fatburger, to bring the fast- casual brand to New York.

New concepts

But Mr. Riese is pinning his hopes for the company’s transformation on the future restaurants he’ll invest in. Riese Capital has begun an advertising campaign in local media, soliciting proven entrepreneurs who need from $500,000 to as much as $5 million in capital to expand. The company has the unique ability to offer real estate and operational expertise in addition to cash.

The venture-capital arm is an idea Mr. Riese has tried before—albeit not very successfully—and one that other deep-pocketed restaurateurs such as Jeffrey Chodorow have utilized, cultivating talent by taking an equity stake in their businesses. In the mid-1990s, the Riese Organization invested in an upscale Italian restaurant, Martini’s, which is now closed. It also partnered with celebrity chef David Burke in the now-defunct Hawaiian Tropic Zone in Times Square.

“I want to bring new brands into our stable,” said Mr. Riese. “We’ll probably collaborate with notable restaurateurs, though I’m not a big believer in fine dining.”

Transforming the company’s reputation won’t happen overnight, considering that it owns some 60 KFC, Pizza Hut, Nathan’s Famous, Roy Rogers and other franchises, which account for about a third of the company’s revenues.

“I’m not going to increase those holdings,” he said. “I like service restaurants much more, and I want the chance to compete against other restaurateurs.”

CASH COW: Dennis Riese sold his T.G.I. Friday’s building in Times Square for an $85 million profit. Photo: Buck Ennis

 

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