Kahala on a hot streak - East Valley Tribune: Business

Kahala on a hot streak

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Posted: Saturday, April 17, 2004 6:59 am | Updated: 6:20 pm, Thu Oct 6, 2011.

Kevin Blackwell, a triathlete in the 1970s and 1980s, liked to concoct fruity energy drinks for himself and his buddies.

Somebody suggested he sell the tasty thirst quenchers.

So Blackwell opened a Surf City Squeeze shop in a health club near his Scottsdale home in 1981. Now there are 125 of the smoothie shops.

In the late 1980s, he founded Kahala Corp. to market Surf City Squeeze and six more fast food chains that he has bought or built in the nearly two decades since.

The Great Steak & Potato Company, which has 260 locations including shops in Scottsdale Fashion Square and Phoenix Sky Harbor International Airport, is the most recent purchase. Kahala bought the chain in March, boosting the total number of shops in the company’s fastgrowing, fast-food empire to more than 900. Another 77 stores are under construction.

The Kahala brand most familiar to local diners likely is Samurai Sam’s Teriyaki Grill, the homegrown chain that Blackwell picked up a year ago. He plans to take the Arizona brand nationwide.

The company also owns Ranch *1, a mall food-court favorite for chicken and its fries, and Rollerz, a tortilla wrap sandwich concept developed by Kahala. Ranch *1 has spots in several local malls including Scottsdale Fashion Square and Chandler Fashion Center. Rollerz has a downtown Tempe location.

Kahala acquired Dallasbased Frullati Cafe & Bakery in 1999 and Taco Time, a fast-Mexican concept hugely popular in the Pacific Northwest, in October. Those brands aren’t in the Valley yet, but they are coming, said Michael Reagan, Kahala’s general counsel.

Kahala’s staff researches new brands to make sure they will be complimentary to the existing chains, Blackwell said.

"We’re buying them because each concept is distinct," Blackwell said. Franchisees like having the option of owning multiple stores to capture different customers’ tastes, he said. And frequently franchisees can combine two or more Kahala brands in one location, he said.

Having a choice also allows franchisees to use the best available locations for the most appropriate concepts, Reagan said.

For example, smoothies are an impulse purchase so Surf City Squeeze shops do best in mall kiosks, airports and other high-traffic areas, Reagan said, while Samurai Sam’s is a dining destination and can be successful in office complexes as well as shopping plazas.

Kahala owns only about 10 of the 900-plus stores in the chains. The company uses those to train franchisees and to try out menu changes, Blackwell said.

"We have no interest in running the stores. It’s a distraction, " he said. "We pride ourselves in selling, supporting and marketing the concepts."

The company has an aggressive business plan.

"We want to have 2,000 locations within two to three years," Reagan said. "We have 75 under construction right now, and we’re confident we can make that goal."

Kahala has 44 employees in its Scottsdale headquarters and about half as many more scattered around the country to directly assist franchisees.

Although it could locate anywhere, Blackwell said Kahala will stay grounded in Scottsdale as it grows because he and his staff like the area.

"It’s easy to get talented people to move to Scottsdale," he said. "It’s not too hard to twist an arm."

Franchising has mushroomed in recent years as a way for entrepreneurs to own their own business with the backing of proven brands, said Matthew Shay, executive vice president of the International Franchise Association, an industry trade group.

A 2001 study by the trade group found that franchises accounted for 14.2 million U.S. jobs and $369 billion in payroll.

"More than 56 percent of all establishments in the quick-service food category are franchised," Shay said. "And with demographic changes, consumer preference changes, population growth and (consumers) looking for a higher level of convenience, it is a robust segment of the marketplace."

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