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Steve Gill first visited the headquarters of Foodtastic Inc., located by a drab stretch of highway in Saint-Laurent, Que., sometime last year. He was there to discuss selling the company he’d been running since 2004, Quesada Burritos & Tacos, which had around 180 locations across Canada. He’d had offers before but always turned them down. The interested buyers were typically private equity types and finance bros, eager to exploit synergies and cost savings, but with less enthusiasm for growing the brand he’d worked so hard to build.
Foodtastic was different. Its founder and CEO, Peter Mammas, had a long history in the restaurant business and seemed genuine about expansion. When Gill arrived that day, he wasn’t ushered into a boardroom to negotiate with a besuited executive. Instead, he came across Mammas, wearing a T-shirt, casually loading cardboard boxes into a storage room. “I liked that he was hands-on,” Gill says. Mammas turned out to be more hands-on than Gill assumed, possessing the details of all of Foodtastic’s many brands. “I’m not sure how that’s done,” Gill says. “I felt like I was getting close to my personal limit with one.”
At Foodtastic, Mammas oversees 23 restaurant brands—including Quesada, a deal that just recently closed—many of which were accumulated through acquisitions. Since 2016, he’s turned Foodtastic from a loose collection of Quebec restaurants with about $20 million in system sales into a fledgling empire with more than 1,000 restaurants poised to hit $1.2 billion in sales this year. He has a coffee chain (Second Cup), casual dining (Milestones), quick service (Pita Pit), pubs (Fionn MacCool’s, Shoeless Joe’s), Mexican, Greek and Italian eateries, a microbrewery, and a handful of names mostly confined to Quebec. There are, for example, at least four separate entities comprising the “chicken portfolio,” as he calls it. Five to seven times a week, he dines out at one of these restaurants—always incognito, because he wants the experience of being a regular customer. (He doesn’t cook much but says his wife does.)
Mammas is constantly scouting for potential buys. His son first suggested that Foodtastic purchase Quesada after he found he was spending too much money there. Mammas will cold-call entrepreneurs, but he wants people to call him, too: At the bottom of every press release from Foodtastic is his personal mobile number. He’s nothing if not opportunistic, scooping up recognizable brands that have been beaten down amid the COVID-19 pandemic. In February, the company closed the deal to buy Freshii Inc. for $74.4 million, about 80% below the healthy-dining chain’s valuation when it went public five years ago. He bought Second Cup for even less—just $14 million, roughly. Troubled brands are the most appealing, in some ways. “The ones that are most advantageous for us are where we can fix them and then grow them,” Mammas says.
And that’s the real challenge. Any entrepreneur can take advantage of a crisis to borrow money and buy some restaurants. It’s another thing to boost sales and bring in new customers. When, for example, was the last time you visited Milestones over, say, The Keg? Does anyone really crave a Mediterranean quinoa bowl from Freshii? Or is Freshii the place we find ourselves in because we forgot to pack lunch and there’s one across from the office? And does anyone seek out a Second Cup? Or is it the café of last resort when there’s inexplicably no Starbucks, Tim Hortons or indie coffee shop in a one-block radius?
Mammas is still grappling with some of those questions even as he scouts for more deals. There are holes in the Foodtastic portfolio: no breakfast spots, no Asian cuisine, no quick-serve burgers. Mammas is betting that his long career running restaurants—including one that was linked to Céline Dion—along with a prudent approach to acquisitions and operations, will allow him to build, in effect, another MTY Food Group, whose headquarters are a very short drive down the road from Foodtastic’s own offices. MTY is much bigger, accruing about $4.3 billion in system sales through its portfolio of 81 brands, which includes the quick-service stalwarts of food courts and strip malls across the nation, like ManchuWok and TacoTime. But with a restaurant industry still recovering from the pandemic, and some Foodtastic brands in need of retooling, the hard part for Mammas is still ahead.
Mammas readily admits he’s made a lot of money in the restaurant business. But on a recent morning at a Milestones in Toronto, he looks more like the manager than the guy who runs the entire conglomerate. The 55-year-old is casually dressed in dark slacks and a polo shirt bearing the logo for Copper Branch, a vegan chain he purchased in 2021. And even though Foodtastic has an office nearby, today he’s chosen to work at Milestones. He serves as Foodtastic’s CEO, while his big brother Lawrence, 62, recently transitioned from chief development officer to vice-chair of the board. Peter handles the dealmaking and operations, and Lawrence acts as more of an adviser and ambassador, while visiting with franchisees. (“My skills as a people person are second to none,” Lawrence boasts.)
Mammas is soft-spoken in conversation, and while not exactly garrulous, he’s as open to discussing a brush with tax evasion as he is extolling the virtues of Second Cup’s coffee. The humble bearing masks a blunt self-confidence, though, which becomes obvious after a few questions. Why build Foodtastic in the first place? Because I can. Can he turn around a broken brand? Sure, just diagnose the problems and hire smart people. Is the company profitable? Very.
His name has only become better known outside of Quebec in the past couple of years, but he’s spent most of his life in the restaurant business (aside from a stint buying and selling comic books as a teenager, that is). His dad opened a seafood joint in Montreal after emigrating from Greece, and when it hit a rough patch, he recruited Mammas to pitch in. He was only 12 at the time, and he resented being pulled away from his regular hockey games to wash dishes. “I didn’t talk to my father for a couple of months,” he says.
Alex Lysakowski/The Globe and Mail
Around 1990, he and Lawrence went into business together with plans to open a ‘50s diner concept called Smokey’s. They had a third partner, Paul Sara, who happened to be the cousin of René Angélil, the manager of a young Quebecois chanteuse named Céline Dion. Mammas, an anglophone, had no idea who she was. Angélil and Dion toured the restaurant, then under construction, and became so smitten with the concept that they became investors. They did, however, suggest changing the name to Nickels, five being a lucky number of theirs.
Nickels grew, alongside Dion’s rising fame, to about 40 locations in Quebec and Ontario. A gargantuan slice of chocolate cake, dubbed “gâteau Céline,” became a fixture on the menu. Dion and Angélil sold their stake in 1997, which was just as well, because two years later, a number of the restaurants were raided by officials from Revenu Québec. The tax authority was investigating Nickels for deploying “zappers,” software that understates revenue from electronic cash registers, artificially lowering tax obligations as a result. Mammas, as spokesperson for Nickels, assured the media that Dion had sold her shares and had nothing to do with the allegations, while she remained a “friend of the corporation.” In May 2000, Nickels pleaded guilty to numerous counts of tax evasion.
“I wish it never happened, that’s for sure,” Mammas says when I bring it up. He didn’t know his franchisees were using the software (“According to the government, we should have had knowledge of it,” he says) and says that understating revenue hurt head office, too. But to avoid franchisees having to plead guilty and risk restaurants closing, the Nickels corporate head office arranged a deal to plead guilty, he says, adding Revenu Québec was after a “headline.” Asked what he learned from the experience, Mammas doesn’t really cite any lessons—not about screening franchisees or keeping closer tabs on them or the perils of growing too fast. “If you go and open up so many restaurants in 36 months, I’m sorry, but there’s no way that your teams are even going to realize what’s going on,” he says. The official details are lost: A spokesperson for Revenu Québec said all records related to the case were destroyed in 2012 in line with internal retention rules.
The Nickels brand survived, albeit in a diminished form, and Foodtastic still operates nine in Quebec. A few years after Nickels got off the ground, the Mammas brothers and a partner launched another concept, an Italian eatery called Vinnie Gambini, and in 2001 they bought Bâton Rouge, a chain specializing in ribs. By 2006, there were 17 locations in Ontario and Quebec generating about $75 million in system sales. That year, they sold the company for $43 million to what would become Imvescor Restaurant Group, which later retained Mammas as a consultant. He still had a few other restaurants on the go, and with all the work he was putting in at Imvescor, he wondered why he wasn’t building a similar company himself.
So in 2016, Mammas incorporated Foodtastic, along with his brother and a friend, to bring together five brands, one of which was a Quebec chain called La Belle et La Boeuf. Branded with a similar sanitized sauciness as Jack Astor’s, the chain carries a few impractically large burgers. The “crise cardiaque” is an unholy mix of beef patties and beef hotdogs. Another is slathered with peanut butter and fried KitKat bars, along with brie, bacon and mushrooms. On the menu, the burgers are shown spewing forth their contents, a mass of glistening beef and liquidy cheese that cannot be contained between two meagre buns. It is delightfully gross. Mammas wants to bring the chain to the rest of Canada, the one problem being nobody can decide whether to translate the name to English. His own feeling is that “Beauty and the Beef” lacks a certain mystique.
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To grow Foodtastic, he needed money. Through a mutual friend, he met Jordan Rubin, who previously worked at Pershing Square Capital Management, the firm founded by activist investor Bill Ackman, which has a large stake in Restaurant Brands International. Rubin went into business for himself; he formed a joint partnership with an asset manager in California called Oaktree Capital Management to invest in restaurants. “My pitch to them was: ‘Listen, you know what MTY has done? We could replicate that,’” Mammas recalls. He secured a $47-million investment in 2018 from the partnership, called Restaurant Royalty Partners.
“We took it slow,” Rubin says. “Our view was, let’s see what we can do and try to become a big fish in a small pond.” The financing—and the Mammas brothers’ growth ambitions—proved to be a point of contention with their third partner, a friend who was more risk-averse. “He was probably going home and having heart attacks,” Mammas says. They bought him out in February 2020 and remain friends.
That’s when the pandemic hit. Mammas had just finished building what he calls his dream house, a property on the shores of Rivière-des-Prairies on the island of Montreal that had been under construction for more than a year, and had spent millions buying out their partner. “We drained our accounts,” he says, and had reason to be concerned about finances. All of his restaurants with dining rooms closed as a result of lockdowns, and sales collapsed by more than 90%. Foodtastic employed around 20 people at its head office then (it has about 200 today) and temporarily laid off staff. After a month, sales started to recover as restaurants pivoted to delivery services, and the employees were soon brought back.
By 2021, Mammas was confident enough to take on more investment. Rubin, from his perch in the U.S., could see that restaurant sales bounced back quickly in the states that had loosened pandemic restrictions. “We took the perspective that this is an opportunity to double down,” he says. Foodtastic secured another $50 million in February 2021, and last December it arranged a $175-million debt facility with a number of lenders, led by National Bank of Canada. Between Foodtastic’s cash flow and credit facilities, it’s well positioned to make more acquisitions. (Before the Freshii and Quesada acquisitions, Foodtastic was targeting a profit of $40 million this year.)
Since that second round of funding in 2021, Foodtastic has made at least eight acquisitions, including Second Cup, Copper Branch, Milestones, Pita Pit, Quesada and Freshii. With that, Foodtastic became a national player.
The restaurant landscape in Canada has been slowly consolidating among corporate owners. In 2011, about 62% of restaurants were independently owned, according to the NPD Group, while today it’s down to 47%. The industry is intensely competitive, and there are two main ways to grow: the gruelling work of stealing customers from rivals, or the easier task of buying growth through acquisitions, which explains the rise of MTY, Recipe Unlimited and Restaurant Brands International.
Like all roll-ups, cost savings are a significant part of Foodtastic’s strategy. The company can save through consolidating departments—marketing, finance, legal and so on—and use its increased size to score more favourable terms with landlords, advertisers and suppliers. (One of the biggest challenges Gill faced at Quesada, for example, was negotiating favourable deals with suppliers, especially amid inflation.)
Cost savings can only go so far, especially at some brands like Second Cup. For years, the coffee chain has been undergoing a kind of perpetual turnaround, a succession of leaders promising brand revamps, but really going nowhere. Second Cup had close to 400 stores 20 years ago, a number that has dwindled to 180. It distinguished itself as an upscale coffee shop in contrast to Tim Hortons, but with fierce competition from Starbucks, followed by McDonald’s foray into caffeinated beverages, it lost whatever individuality it had. Some cafés started to look tired, cloaked in a gloomy brown colour scheme. From a peak in 2006, the share price cratered by close to 90% over the next 15 years or so. Second Cup was so fresh out of ideas by 2018 that it decided to convert some locations into cannabis shops.
But what really hurt the company was the pandemic. “The only reason I think we were able to buy it was because of the destruction that COVID laid on the brand,” Mammas says. Many Second Cup locations are in downtown centres, he points out, and suffered from office closures. Foodtastic paid just $14 million for Second Cup in 2021, and Mammas is well aware the chain had lost some of its appeal with consumers. “My kids would go to Starbucks, and it would fucking drive me crazy,” he says.
What he does have going for him is that Canadians have an endless desire for coffee. One survey from the Coffee Association of Canada found we drink an average of 2.7 cups per day. “If Second Cup could find a way to differentiate themselves as opposed to being perceived as a ‘me too’ brand, it could be great for them,” says Jeff Dover, president of consulting firm fsStrategy.
Fortunately again for Foodtastic, the bar was set pretty low at Second Cup. A few basic functions had been allowed to lapse. “There were operational concerns throughout the brand with different franchisees,” says Tom Hogan, a vice-president of brands at Foodtastic. Some locations weren’t stocking their stores properly, he says, while the same drink could be made differently depending on the café. Spending on marketing and advertising was brought in-house and made more effective through billboards, radio and social media. Second Cup’s loyalty program had been neglected for years, too, and it’s planning to roll out a new one later this year. The logo has been updated, as have the cups, which now feature a more distinctive yellow-and-black look.
The company has since expanded its offerings of cold beverages, teas and specialty drinks, like a “blue butterfly white hot chocolate” made with blue-butterfly-pea-flower powder, released this past winter. (I was not prepared for the semi-gelatinous sediment floating in my drink. I kept debating, with each wary sip, whether these chewy globules were supposed to be there.) But such drinks, which occasionally border on novelty, are nevertheless crucial for getting new customers through the door. “It’s the younger consumers who are really being motivated by this style of beverage,” says Robert Carter, a managing partner at the StratonHunter Group, a food industry consultancy. “It’s really the innovation in beverages that’s driving growth.”
Next on the agenda is improving the quality of food. “I can tell you the sandwiches 12 months from now are going to be a lot better than they are right now,” Mammas says. The company is experimenting with fresh-baked goods, allowing franchisees to better match quantities with customer demand, offer more customization for customers and cut costs.
There is room for growth with the number of locations, too, Mammas contends. About 27 new cafés are in the pipeline, and Mammas sees more opportunities in suburban locations than downtown cores, which are still recovering from the pandemic. (In mid-February, only 42% of employees in Toronto were back in the office compared to pre-pandemic levels, according to the Strategic Regional Research Alliance.) He wants to build more drive-through spots and offer hybrid locations, where a Second Cup is combined with another Foodtastic brand. Some cafés are still in need of sprucing up. When I visited a Second Cup in an affluent area of Toronto recently, I witnessed one dutiful customer crouch down to slide a broken tile shard back into place. At least one renovation is underway in Mississauga to showcase Foodtastic’s new vision (wood floors, lots of natural light) that will also include a Chocolato, an ice cream bar of sorts also owned by the company.
The plan doesn’t sound too far removed from when the previous owners of Second Cup stuck a frozen yogurt bar called Pinkberry in some locations. And renos can be a delicate issue. A few years ago, the chain tried to convince franchisees to adopt a sleeker look, which it dubbed the “café of the future.” Some owners balked at the costs, damaging their relationship with head office. Mammas insists his company will avoid such pitfalls. Asked how, he delivers a line that could be read as eminently practical or comically miserly: “We’re going to figure out what is the least amount of money we could spend to make the store the best possible.”
Mammas first reached out to Matthew Corrin in early 2021 to talk about buying his company, Freshii. The chain, known for healthy salads and bowls, had been struggling for years, trying to reverse declining same-store sales growth and a falling stock price. But to Mammas, it was an attractive prospect with a recognizable brand, and so far as he could tell, devoted customers. Corrin, the founder and CEO, controlled the company through multiple-voting shares and wasn’t interested in selling.
In May 2022, Corrin stepped down as CEO to move into an executive chairman role, opening an opportunity for Mammas to try again. This time, Corrin took the offer to Freshii’s new CEO, Daniel Haroun, who brought it to the board. Freshii’s advisers tried to drum up other potential bidders, only one of which made an offer, according to regulatory filings. That forced Foodtastic to increase the price of its bid by 10%. Mammas also had the advantage of having a fully financed all-cash bid, unlike the rival offer.
Last December, the companies announced a $74.4-million deal for Foodtastic to acquire Freshii. Mammas isn’t entirely sure what prompted Corrin’s change of heart, but speaking generally, he says founders want assurance that the brands they created will be cared for. “In 20 years, they can tell their kids, ‘Hey, I started Freshii,’” he says. (Corrin did not respond to interview requests.)
Some of Freshii’s problems had to do with investor perception. The company went public in 2017 at what many saw as an inflated valuation and boasted of ambitious targets that it could not meet. “He came out and made ridiculous comments about growth, and that really hit the stock hard,” Robert Carter, the consultant, says of Corrin. Foodtastic, as a private entity, can now deal with operational challenges out of the public eye. Those challenges are substantial, especially after the pandemic. Prior to the acquisition, Freshii had been working to close down unprofitable locations, and the pandemic wiped out many more. Store count dropped from 470 at the end of 2019 to 331 as of last September.
When Freshii launched in 2005, it had the benefit of being somewhat distinct in a quick-service field dominated by burger chains. But it didn’t take long for competitors to offer salads, bowls and other healthy fare, nor for knockoffs to emerge. After all, you can’t patent the concept of kale in a bowl. More recently, Freshii expanded into retail and signed deals with Shell gas stations and Walmart to offer Freshii-branded juices, snacks and prepackaged meals, to mixed reviews. “It kind of took away from the brand once you make it that accessible,” Carter says. Indeed, a gas-station taco box, which Freshii offers through Shell, doesn’t necessarily connote health and flavour. The company branched into e-commerce, buying a majority stake in an online food and wellness retailer called Natura Market Ecommerce in 2021. So far, both the retail and e-commerce ventures have been money-losers, together turning in a $4.8-million loss for the first nine months of 2022.
Mammas is diplomatic in his assessment of Freshii’s track record. “Mistakes were made with the brand, let’s say,” is as much as he’ll allow. But what gave him confidence is that surveys with both consumers and franchisees showed a strong affinity for the brand. Foodtastic plans to increase marketing spending and harness the power of its seven corporate chefs to create new dishes. Plus, the cost savings afforded by consolidation will help the franchisees’ bottom lines, he contends. Some locations will inevitably close, but he’s adamant that within 18 months, there will be more stores overall than today. As soon as the deal closed in February, he put the e-commerce division up for sale, while he plans to expand the consumer goods business and develop products under other Foodtastic brands. (Milestones ribs, anyone?)
Freshii’s strategy in the U.S. requires retooling, where its presence has been decimated. At the beginning of 2019, Freshii had around 110 locations in the U.S., according to an internal document obtained by The Globe and Mail. Today, it has only 28. Freshii had stores scattered across the country, often with just a handful of locations in each area, complicating efforts to build brand awareness and save on supply costs. “The problem a lot of companies have when they go to the U.S. is they don’t concentrate on one geographical area,” Mammas says. “You’ve got to concentrate on one area, do it properly, and move to the next one.”
For years, that’s what he’s been doing in Quebec, but now Foodtastic is branching farther afield. He’s even considering bringing one of the company’s Quebec rotisserie-chicken brands to the rest of Canada. But for a guy who tries to convince other entrepreneurs to sell to him, his own Foodtastic stake is not on the table. “I have no interest in selling one single share,” he says. Mammas has two daughters, both of whom are planning to be doctors. His son, who is 20, works as a delivery driver for one of the chicken chains and as a busboy for Nickels. Mammas has a career path mapped out for him: an MBA, two years at Alimentation Couche-Tard, followed by two years at a major bank. Only then can he join Foodtastic. “I’m pretty sure he’ll succeed me,” Mammas says.
He does have a way of preserving things, after all. He still has some 35,000 comic books from the time he traded them as a teenager, maintained in a dedicated, climate-controlled room at his house. He hasn’t bought or sold anything in decades, not since he turned his attention to restaurants—the one collection he’s still adding to. So if you’ve got a chain to sell, get in touch. His number is easy to find.
Joe Castaldo