MTY renews its franchising push after strategic review

MTY Food Group ended its strategic review on October 9 with plans to put more restaurants in franchisees’ hands. The franchisor and restaurant operator intends to run fewer locations itself, reassess its brands and reorganize some functions and offices.

MTY’s board and independent special committee chose to accelerate its existing business plan after considering a possible sale of all or part of the company. MTY also plans to return more capital to shareholders through a higher dividend and share repurchases.

The group was already overwhelmingly franchised: at August 30, it had 6,966 locations, including 6,782 franchised or under operator agreements and 184 company-owned restaurants. Fifty corporate locations had closed during the quarter under its previously announced program.

In its July 10 results announcement, MTY said a store-by-store assessment had led it to identify 68 underperforming company-owned locations for closure over the next nine months. Management described the objective as reducing losses and concentrating resources on stronger opportunities. Those planned closures would end operations at the selected restaurants.

Refranchising takes a different route. On the October 9 earnings call, CEO Eric Lefebvre said MTY had franchised its first two Sauce locations, a concept previously operated entirely by the company. According to the Quartr transcript hosted by Stock Analysis, he said transfers require an asset purchase agreement, a franchise agreement and disclosure in applicable jurisdictions. MTY would seek suitable buyers and valuations. The transaction transfers operation of a continuing restaurant to a franchisee.

Lefebvre suggested company-operated restaurants could eventually represent about 1% of the system. He distinguished viable restaurants being sold to operators from closures, which he said mostly involved stores repossessed from franchisees that MTY had been unable to turn around. He also said the closure list had grown by seven restaurants, bringing the planned total to 75.

MTY is also evaluating whether some brands would be more valuable under another owner. Lefebvre named no brands for disposal. He said MTY must honor its commitments to franchisees, including support for operations and marketing, and cannot unilaterally stop operating a brand.

MTY, Papa Murphy’s parent, describes its franchise relationships in its annual information form for fiscal 2025. A franchise agreement grants trademark rights within a limited area and sets operating standards, training parameters, technical assistance and other services. The filing describes typical terms of about 10 years in the United States and 10 to 15 years for traditional Canadian locations. Each location generally has its own agreement, with exceptions for some nontraditional sites and master franchise arrangements.

MTY generally earns royalties of 2% to 9% of gross sales, depending on the concept, alongside other fees and revenue from goods and services. Company-operated restaurants, by comparison, generate revenue from the customer sales themselves.

Refranchising shifts MTY’s revenue from a restaurant’s customer sales to royalties and other franchise payments, maintaining a commercial connection through the franchise agreement.

In that filing, MTY describes brand teams responsible for menus, restaurant experience and advertising, backed by centralized resources and shared services. Franchise ownership still sits within a system of brand standards, purchasing arrangements and support. These are the company’s described operating arrangements for fiscal 2025, rather than newly announced contract terms.

An October 7 announcement from Papa Murphy’s shows another form of franchise investment already underway: three signed agreements pairing its take-and-bake pizza business with Pinkberry frozen yogurt. The projects span both new restaurants and an addition to an existing location. Papa Murphy’s International LLC is the pizza chain’s franchisor and operator.

Joshua and Samantha Kimzey plan their first location in both systems in Sunriver, Oregon, with an anticipated early-November opening. John Perea plans to add Pinkberry to the Santa Fe, New Mexico, Papa Murphy’s he has owned since 2010. Casey Kauer, an operator of five Papa Murphy’s restaurants in Utah, plans a new combined location in West Haven for summer 2027.

The company presents the format as a way to share space and labor while serving pizza and dessert customers from one site. In the announcement, Perea pointed to complementary seasonality, while Joshua Kimzey cited shared overhead and employee cross-training. Those are the participants’ expectations for the model.

The agreements were announced two days before MTY concluded its review. They describe an existing path for franchisees to expand through new sites or additions to their restaurants.