Canadian Pizza Magazine

Restaurant franchiser MTY Food Group proposes to swallow Country Style Foods

April 13, 2009, Toronto – Country Style's 490 coffee and doughnut outlets are
being eaten up by MTY Food Group Inc., which franchises
and operates Sukiyaki, Cultures, Yogen Fruz.

The deal will fulfil MTY's publicly stated objective to enter the
coffee service business and pit the Montreal-based MTY against Tim
Hortons of Oakville, Ont., and Seattle-based Starbucks.

And it could also allow the company to emulate its competitors by
renovating some Country Style locations into multiple restaurants,
said one analyst.


Michael Krestell of M Partners Inc. suggested that some Country
Style spots could be reworked to mimic the combo operations that
proved successful for both Tim Hortons and Wendy's, as well as KFC
and Taco Bell.

Country Style has “some fairly decent sized locations,'' he

"This could down the road open up the opportunity for MTY to do
some of that as well,'' he said.

MTY wouldn't have to look beyond its own restaurants to find
other food properties that could be incorporated into the coffee
shops. It owns a wide array of alternative labels including Panini
Pizza Pasta, Chick 'N' Chick, Franx Supreme, TCBY, Sushi Shop and
Koya Japan.

"Despite the fact that there'e been some significant growth, we
think there's more of the table still,'' Krestell said.

While Country Style has been around since the early 1960s, it has
been overshadowed for many years by Tim Hortons, which had nearly
3,000 outlets in Canada at the end of last year.

The company has rejigged its logo and revamped operations over
the past 15 years to reposition itself in the highly competitive
market for coffee and doughnuts in Canada.

MTY didn't disclose the value of the proposed cash deal, though
it said the Country Style chain had $94 million of system-wide sales
in the past year.

"It's something they never had the opportunity to have,'' said
Jean-Francois Dube, head of MTY Food's investor relations.

Under the deal, MTY will have 114 Country Style traditional shops
selling coffee, doughnut and sandwiches, 360 Country Style kiosks
and 16 BunsMaster outlets. All but four of these locations are

However, Country Style doesn't currently have a presence in
Montreal-based MTY's home province of Quebec.

Dube said it's too early to tell whether MTY will expand the
Country Style brand into the province, but noted the challenge of
marketing an English-branded name in the primarily French-language

MTY has two dozen franchise brands but it hasn't made many
inroads into the world of coffee.

The company owns Caferama, a coffee and sandwich chain in Quebec,
but there are fewer than 10 locations in operation, and the MTY has
no plans to expand the brand.

MTY said it will be aiming for annual sales of $435 million after
the takeover of Country Style.

Last year it purchased Tutti Frutti and Taco Time, which helped
round out its multicultural line of quick-serve restaurants.

"The only thing that was missing from their arsenal was a coffee
chain,'' said analyst Leon Aghazarian of Industrial Alliance
Securities in Montreal.

"High margins in the coffee business are very attractive to
franchisees. They're a top-line business.''

With the proposed acquisition of Country Style, expected to close
May 1, MTY said it will "strengthen its position and foothold in
the Ontario quick-service franchise industry and launches itself as
a major player in the coffee and sandwich segment.''

Shares of the company slipped a penny to $7.49 in afternoon
trading on the TSX Venture Exchange.