MOBILE, Ala. -- Morrison's Hospitality Group here has terminated its lease to run branded food courts in units of Smitty's Super Valu, Phoenix.
The termination resulted from a mutual agreement, said Joe Byrum, president of Morrison's Hospitality Group, a contract feeder. A source at the 26-unit Smitty's confirmed that the agreement was mutual, but Smitty's officials could not be reached for further comment at press time.
"We had been having discussions for quite some time. Smitty's wanted more control of the food courts and our priorities lie in other markets," Byrum said. Morrison's had leased space for two and a half years in all 26 Smitty's units, according to Byrum. The food courts formerly run by Morrison's include various combinations of the following brands: PepsiCo's KFC, Taco Bell and Pizza Hut, and Cinnabon, Subway, and Ms. Karen's Yogurt. Smitty's had rented space to Morrison's via a straight lease, with no agreement to share a percentage of sales or profits.
There had been some difference of opinion about what brands to add and, in the wake of the contract termination, Smitty's is expected to add more brands, Byrum said. But the most immediate result is that Smitty's has become the licensee of all existing branded fast-food kiosks in the food courts. "We met with all our brands, and they've now assigned licensing to Smitty's. They're the franchisees now, not us," Byrum said, adding that Morrison's has sold all the related food-service equipment it owned at the stores to Smitty's.
This move late last month, which puts Smitty's in a position to reap the potential financial benefits of the food courts, could be seen as a testimony to their success. "It's a good business and Smitty's wanted to totally control it," Byrum said. Leaving Smitty's, however, does not signal Morrison's departure from the supermarket arena, Byrum said.
"We'll still be in the business. Maybe not to the magnitude we were at Smitty's, but we're working on a couple now that were started a good while ago. But we'll make future agreements more of a joint venture with the grocery store where we both share in the investment and in the profits, vs. a straight lease," Byrum said.
There are no plans to change the agreement Morrison's has with 128-unit Fred Meyer Inc., Portland, Ore., he added. Morrison's holds a straight lease agreement, similar to the one it had with Smitty's, to run branded food courts in 18 Fred Meyer stores. For Morrison's, the lease termination means it will reallocate its investment in other venues where it has been systematically building business.
"We have so many opportunities in the college market. We're the No. 3 player in colleges, and we want to be No. 1 in less than five years," Byrum said.