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New Diedrich CEO May Stir Coffee Chain

Beverages: Analysts praise the selection of J. Michael Jenkins, known for moving companies in the right direction.


Diedrich Coffee Inc., which is facing huge losses from its Gloria Jean's coffee store unit, hired turnaround expert and 30-year restaurant industry veteran J. Michael Jenkins to head the Irvine coffeehouse chain.

Jenkins, who has headed such companies as Boston Chicken and TGI Friday's, succeeds Timothy Ryan, 60, who is retiring as chief executive after nearly three years.

The top-level shift comes as Diedrich struggles with a poorly performing Gloria Jean's unit that the chain acquired as part of an ambitious expansion strategy aimed at positioning the firm as the nation's second-largest operator of specialty coffee shops.

But Diedrich, which has 360 coffeehouses in 38 states, remains far behind Seattle-based industry behemoth Starbucks Inc., which has more than 3,000 stores.

Diedrich said in June it planned to record substantial losses for the fourth quarter and the fiscal year, largely from its Gloria Jean's unit. Last month, the president of Gloria Jean's resigned. His replacement has not yet been hired.

Analysts say coffee chains have struggled to expand because investors have been reluctant in a market so dominated by Starbucks.

And the competition only figures to intensify. McDonald's Corp. is planning to begin testing it's specialty coffee concept, McCafe, in the U.S. next year.

Still, analysts praised the selection of Jenkins, 53, whom they said is well-known for his ability to get companies moving in the right direction.

"He has a significant amount of operating experience, and I believe that's one of the things they need the most," said Hal Sieling, a Carlsbad restaurant industry consultant.

The company said Ryan's departure was planned and not related to the company's disappointing performance. Ryan had emerged from retirement in 1997 to take the job as a favor to Diedrich Chairman John Martin, said Matt McGuinness, chief financial officer.

When Ryan's contract expired last year, the company's board asked him to stay on until a replacement was found, McGuinness said. Neither Ryan nor Jenkins could be reached for comment.

In 1997, troubled by growing pains, the company hired Martin, former Taco Bell chairman. He brought aboard Ryan, a marketing whiz and former executive at Taco Bell and Sizzler USA.

Under their leadership, the company has pushed its expansion, snapping up Coffee People, a chain twice its size and the operator of Gloria Jean's mall-based coffee shops.

Although the deal established Diedrich as the No. 2 specialty coffeehouse operator, it created financial headaches. Last month, Diedrich said it expected to record noncash charges of $15 million to $18 million for the fourth quarter from closing 39 poorly performing Gloria Jean's stores.

The firm has continued to sign franchise deals, part of its plan to add 1,200 to 1,500 coffeehouses globally in the next five to seven years.

But its stock has lost more than half its value this year. It closed Monday at $1.88, up 13 cents, on Nasdaq.

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