Wednesday, November 21, 2007

What really happened to the Royal Canadian Pancake Houses.

Considering all the brouhaha about what happened to the Royal Canadian Pancake Houses, and because I so miss the damn places, I had to really get to the bottom of it, not only as a fan but as a Wall-Streeter searching for answers. Why would a concept that commanded huge lines, had consistent product quality, and had achieved NY institutional status, all of a sudden close its doors forever from one day to the next, without leaving a trace other than the hordes of perplexed and inconsolable fans?
What I discovered would be extraordinary for the best film noir, although this is a case of reality outdoing fiction: Here I lay the results of my findings before all of you, who like me, would like to see a comeback of our favorite brunch, late funky treats, good food and absurd sizes.

The concept was conceived in the late eighties by Sheldon Golumbia and Beatrice Puja, who were able to put it up on legs and subsequently take it public. It was a resounding success from the instant they opened their doors in their first location in Manhattan all the way downtown on Hudson Street, where the Holland Tunnel empties NJ traffic onto NYC. As they opened up three other locations in the City, New Yorkers went crazy for them, regardless of the neighborhood. In fact, the reaction was such that they opened up two places in South Beach, Florida, started construction on a third one in Coconut Grove, and developed a retail line of frozen pancakes that was deemed revolutionary, a totally natural product line with no additives, colorings or flavorings.

So why would a darling company that everyone loved, had achieved sizable market share in NY's food and beverage industry, was growing by leaps and bounds, with a most promising future, end up in financial turmoil? As I looked at all the players involved in Royal Canadian, I came upon a revealing fact: the investment banker who took them public, was being investigated by the SEC for ethical violations involving other companies long before he ever met Sheldon Golumbia and Beatrice Puja, and this investigation went on throughout their years in business, until the SEC eventually indicted him, and revoked his broker-dealer's license. This is interesting because when a company goes public, there are essentially two businesses in one, the going concern on one hand, and the equity trading and investment banking, on the other. Under ordinary and healthy circumstances, the well-being of the investment banker and the entrepreneur are one and the same. In this case, however, it is apparent that the operational side was pulled down by the misdeeds of the investment banking side, creating an acute liquidity crisis for the Pancake Houses, and throwing them into financial turbulence as reflected in Royal Canadian Foods' disclaimers and red inked financials.

Although I never spoke with the Royal Canadian people or their investment banker, it is abundantly clear that Royal Canadian had to quickly disassociate itself from someone who blatantly had become a liability rather than an asset. Golumbia and Puja succeeded in doing so by closing down all of their locations shortly after his investment bank was closed down by the SEC investigation. So there you have it: a product line ahead of the curve, a corporation operating through a public vehicle with an investment banker indicted and closed down by the SEC for ethical violations. Need I say more?

The Royal Canadian Pancake Houses would be even more successful today than they ever were. Absence, after all, makes the heart, and the stomach, grow fonder!