Snyder Buys Johnny Rockets Diner Chain

Daniel M. Snyder agrees to buy  Johnny Rockets with plans to expand  it quickly.
Daniel M. Snyder agrees to buy Johnny Rockets with plans to expand it quickly. (Joel Richardson/twp - Twp)
By David Cho
Washington Post Staff Writer
Saturday, February 10, 2007

The private equity firm of Washington Redskins owner Daniel M. Snyder agreed yesterday to buy Johnny Rockets, the restaurant chain known for its 1950s-themed diners and wait staff members who dance and sing to oldies music.

Snyder's largest private fund, Red Zone Capital Fund II, which had raised $126 million as of January, is to acquire the Lake Forest, Calif., chain. Johnny Rockets is a private firm, and terms of the deal were not disclosed.

Snyder is buying Johnny Rockets with an eye to high-speed expansion. "There is no reason we shouldn't see 1,000 Johnny Rockets locations within the next five years," he said in a statement.

That would make it one of the fastest-growing restaurant chains in the country, analysts said.

"There are not a lot of chains that can grow that much that fast," said Dennis Lombardi, a food service analyst at WD Partners. "Is it possible? Yes. But it is a very aggressive roll-out plan."

Over the past five years, the company added 65 stores, a relatively small number, Lombardi said. "Now imagine what it will take to ramp up to get to 1,000 stores," he said.

The acquisition represents the latest push by Snyder into high-risk, high-profile entertainment businesses. Last year, he gained control of the Six Flags chain of amusement parks after a bitter proxy fight with its board and management. In the summer, he backed Tom Cruise's production company after it was cast off by Paramount Pictures. Under his control, the Redskins have become the most profitable franchise in professional football. They have made the NFL playoffs twice in the eight seasons he has owned them.

Snyder said he would fuel the expansion with new Johnny Rockets Express shops in airports and malls that would be cheaper to build, at a cost of about $300,000 apiece instead of $750,000 for a full restaurant.

Analysts expect Snyder to market the Johnny Rockets brand across his various interests, for instance, by selling its burgers at Redskins home games.

"You have here the merging of sports and a recognizable restaurant brand name, so of course they go together," said Scott Krugman, spokesman for the National Retail Federation.

Six Flags spokeswoman Wendy Goldberg added that her company was working to bring the restaurant chain into its amusement parks.

Johnny Rockets began in 1986 as a single diner on Melrose Avenue in Los Angeles and attempted to capture the nostalgia of the 1950s by serving malts and burgers on U-shaped counters and in padded booths with mini-jukeboxes that play songs for a nickel. It now has 203 locations in 29 states and overseas, including eight shops on Royal Caribbean Cruise Lines.

Johnny Rockets has three locations in Washington, three in Maryland and five in Virginia.

Johnny Rockets declined to reveal the value of the deal or their financial results. The restaurants average $1.25 million in annual sales each, but about 75 percent are franchises that contribute a tiny percentage of their sales to the company's bottom line, Lombardi said. The chain also suffers from higher staff and infrastructure costs than other fast-food restaurants, he said.

While Snyder runs several private funds, Red Zone Capital Fund II is his most ambitious, with a goal of raising $750 million. It lists two partners: Snyder and Dwight C. Schar, chairman of Reston-based NVR, one of the nation's largest home builders. Schar also is a member of the investment group led by Snyder that bought the Redskins for the then-record price of $800 million in 1999.

Snyder made his first fortune as founder of Snyder Communications, a marketing company, which he sold in September 2000 for $2.3 billion. His personal take from the deal was estimated at $300 million. Last year, he retired as chairman of Ventiv Health, a health-care marketing company spun off from Snyder Communications.

Last summer, Snyder, Schar and Six Flags chief executive Mark Shapiro struck a two-year deal with Cruise's production company to pay $3 million to $10 million annually for the opportunity to finance films and profit from hit movies.

Staff researcher Richard Drezen contributed to this report.

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