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Staying Cool : New Owners Are Expanding Small but Resilient Fosters Freeze Chain

May 09, 1987|NANCY YOSHIHARA | Times Staff Writer

When the bulldozer arrived two years ago to tear down the old Fosters Freeze stand in Santa Paula, the town's citizens thought it was the end for the 35-year-old fast-food outlet. Some came to take bricks as nostalgic mementos. One woman actually cried.

Two months later, the Fosters Freeze reopened, doubling its size with a new dining area. Marvin and Linda Schaefer, who operate the outlet for her parents, had hoped to pick up more business during the winter.

"We ended up doubling our (annual) business," Marvin Schaefer said, adding that actor Sylvester Stallone even stopped for a bite. Now they're building another outlet near Lake Castaic that the chain hopes will become a prototype for Southern California.

It's part of an expansion plan designed by Fosters Freeze International's new and eighth owners, a group of investors headed by Cliff Hiatt, a former school administrator.

They hope to breathe new life into the small but resilient chain, well known for its soft ice milk products. Against the onslaught of huge fast-food chains like McDonald's and Burger King and a planned expansion by direct competitor Dairy Queen, Fosters Freeze has managed to hold on.

But its operations are down to only 189 outlets in California from a peak of 360 in 1951, when founder George Foster sold the chain for $1 million. And the company has been operating in the red.

Part of the chain's decline had to do with real estate costs. Many of the franchisees could not afford to renew leases after 20 years because of skyrocketing real estate prices in California.

Schaefer, who is among the younger generation of operators, attributes the survival of the chain to the older franchisees. "A lot of the old guys are tough old birds. They've been real independent, which is part of the problem now because they are so independent, but that has helped keep the franchise alive. They worked 16 hours a day. They did it when fast food was not the thing to do. People didn't eat out then."

But the chain has survived, with its '50s-style swirled dairy products and its cook-to-order format for hamburgers and other typical fast-food fare.

Given its strong brand appeal, Fosters President and Chief Executive Hiatt is planning to add new franchises. The chain has opened 13 new stores in last 18 months, and five are under construction.

"We are projecting 30 new stores (a year) for the next five years," he said in a telephone interview from the chain's headquarters in Arroyo Grande, Calif.

Hiatt and his five investment partners, one of whom was a former longtime Fosters Freeze franchisee, bought the chain after building two of the new, bigger outlets. Fosters International went public with a small stock offering last month to raise $4 million to retire debt and build new stores.

For the 10 months ended Oct. 31, 1986, Fosters International had a loss of $644,788 and a working capital deficit of $334,762.

Fosters Freeze's biggest challenge, however, may be Dairy Queen's plans to add 200 outlets to its current 51 in California over the next five years. Harris Cooper, president and chief executive at International Dairy Queen, says the chain has reached agreements to add stores in the Sacramento and Fresno areas. San Diego and Los Angeles are next.

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