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Diedrich to Open 80 Franchises in L.A. Area

Restaurants: In latest expansion move, company makes a pact with California Coffee.

May 27, 1999|DARYL STRICKLAND | TIMES STAFF WRITER

Diedrich Coffee Inc., moving to extend its operations throughout Southern California, said Wednesday that it will open 80 coffeehouses in the Los Angeles area.

The Irvine-based company, which is seeking to establish itself as the No. 2 operator of coffeehouses behind industry giant Starbucks Coffee Co., said it has signed an agreement with a new company to set up the franchises.

Under terms of the franchise deal, California Coffee Co. of Los Angeles will open Diedrich units from Long Beach to Pacific Palisades and in neighborhood strip malls in the San Fernando Valley. Diedrich has two coffeehouses in Los Angeles.

Terms of the agreement were not disclosed, but California Coffee also will have an option to open 103 stores in the Bay Area, Diedrich said.

The franchising deal is the fourth in the last eight months for Diedrich as it moves toward a goal of establishing 1,200 stores nationwide.

Since creating a franchise division last September, the company has signed agreements to develop 224 stores in California and five other states. In addition, options have been granted to build 148 stores in Arizona and Northern California.

In November, Diedrich signed a similar deal to open 50 coffeehouses in the San Diego area.

California Coffee hopes to open the first new coffeehouses in Los Angeles in six months, Diedrich said. The typical store employs 20 people. If all units planned for Los Angeles are built, about 1,600 jobs would be created.

"We believe there is considerable opportunity for the California Coffee Co. to grow the brand in this important market," said Tim Ryan, Diedrich Coffee president.

The principals in the new company have owned and developed a number of Applebee's International Inc. restaurants and other quick-service eateries throughout California, Arizona and Nevada.

John Martin, Diedrich's chairman, and Ryan, the company's second in command, are former Taco Bell executives widely credited with turning a regional chain into the world's largest Mexican-theme fast-food chain.

Diedrich's previous franchise agreements were with operators of Taco Bell restaurants.

In February, Diedrich agreed to buy Coffee People Inc. of Castroville, Calif., for $35 million. The deal is expected to increase the company's cash flow and add 320 units.

Diedrich has 36 coffeehouses and seven coffee carts in Southern California, Denver and Houston.

Diedrich stock closed unchanged Wednesday at $6 a share in Nasdaq trading.

Starbucks, which has about 154 stores in Los Angeles County, did not seem perturbed by Diedrich's expansion plans.

"We feel there's plenty of room in the specialty coffee market for a variety of players," said Chris Gimbl, a spokesman for Seattle-based Starbucks.

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