Little Chef could be back on the road as private investor moves in

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The roadside restaurant chain Little Chef will unveil an 11th hour rescue package today after being brought to the brink of administration as it struggled to meet rental payments.

It is understood Little Chef has finalised a deal with Arazim, an Israeli property firm, and RCapital, a private equity firm based in London. They are expected to pay less than £10m to acquire the chain. It is thought the investors will close 40 of the company's restaurants.

The future of the British institution ­ along with the jobs of 3,500 employees ­ has hung in the balance for weeks while Little Chef held crisis talks with its landlords Travelodge and Arazim, along with a number of private US and UK investors.

The company, which runs 235 restaurants along major A-roads and motorways, has been looking for new private investment since the summer after its 90 per cent stakeholder Lawrence Wosskow suffered a heart attack. He is now keen to pull out of the business.

Administrators PricewaterhouseCoopers have been on standby in case talks failed and auditors KPMG have been advising the company on its future options. However, there is good news for Little Chef and its legion of fans as chief executive Simon Heath, who owns the remaining 10 per cent of the company, is understood to have finalised the deal.

Mr Wosskow and Mr Heath bought Little Chef in 2005 from private equity group Permira for £52m and set to work to try to reverse declining sales by slashing prices and introducing healthier options.

The chain raised £60m from its sale and leaseback deal with Arazim last February and hoped to modernise its premises but the financial plan stumbled and Little Chef has had difficulties meeting the increased rents to Arazim and Travelodge, its former parent company, which owns 112 restaurants. It is understood the chain has been making losses of £3m a year.

Lee Manning, an insolvency expert who is the reorganisation services partner at the consultancy Deloitte, said consumers have simply grown tired of the Little Chef concept and are now spoilt for choice with the array of restaurants and convenience stores offering respite for a weary traveller.

"When a restaurant is struggling it is the rent that is the easiest target to manipulate," he said. "Having cheaper food or cutting staff affects quality so retailers and restaurant groups will seek to win better deals on rent. However, it is not the rent that causes the problem. High rents have always been around."

More people now use motorways rather than A-roads and Little Chef faces stiff competition from garage forecourt shops and Marks & Spencer convenience stores that have sprung up along A-roads and motorways, he added.

As one industry analyst said: "People would rather eat a sandwich than go to a greasy café." Family pub-restaurants have also captured a share of the market and this is expected to increase when the smoking ban is extended into England and Wales later this year, making more pubs improve their food.

In many ways, Little Chef has become a victim of its own success. The company started life as an 11-seat restaurant in Reading in 1958, the year the first motorway in Britain opened. Its founder, the caravan maker Sam Alper, based the restaurant on the model of an American roadside diner and it quickly spread, located alongside the major A-roads, which were then the main thoroughfares across the country. As the road network expanded so did the chain. Everyone from businessmen to young families ­ even prime ministers, as both Tony Blair and John Major have graced the doors ­ could look forward to a welcome break during their long journeys. Little Chef became most famous for its legendary breakfasts, including the Olympic breakfast, which currently offers two rashers of bacon, two sausages, two eggs, mushrooms, sauté potatoes, tomato, baked beans and toast for £6.99.

The company enjoyed its heyday in the 1980s when it opened the Little Chef Lodge hotels that were later rebranded as Travelodge. For many critics, Little Chef is still stuck in a timewarp with its old-fashioned leather banquerettes and menu and its emphasis on the fatty and fried in an increasingly health-conscious age.

Although Mr Heath and Mr Wosskow have altered the menu by introducing " lighter" options and have opened new "Coffee Tempo" bars in some branches, the staple dishes remain fry-ups, fish and chips and pies.

However, for all its detractors, Little Chef still has an army of supporters who will be delighted to see that the chain has been saved. Fifteen thousand people lobbied the company last year when its owners were planning to slim down its famous logo Fat Charlie as part of their drive towards a healthier image. Certainly, support for Little Chef appears to be as much to do with nostalgia as the quality of its products. A trip to the diner evokes childhood memories of the excitement of setting off on a long journey with the family.

For parents, Little Chef remains a refuge, somewhere to sit and take a break with the children who have been cooped up in the car. The company says it serves more than 20 million customers a year, including 10 million cups of tea, 12 million rashers of bacon and 13 million eggs and sausages.

With a new financing package that could see interiors modernised and fresh ideas brought to the menu, Little Chef could be on the road for many more years to come.