Chicken Natural Pins Hopes on Franchises : Fast-Food Chain Plans to Expand From 3 Units to 200 in 5 Years

Daniel J. Cline remembers all too well his first bite of Chicken Natural chicken.

It was late 1985, a few days after the chain, which recently moved to Irvine from Los Angeles, asked him to be its chief executive. With just one mouthful of the herb-flavored, flame-broiled chicken, he wondered if he had bitten off more than he could chew.

“My reaction,” said the former director of marketing at Denny’s Inc., “was that I wouldn’t even walk across the street to eat this stuff.” He described the chicken as tasteless.

Now, with what Cline says is a vastly improved product--the chicken now is marinated in a sauce of lemon juice and herbs before being cooked over open flames--he not only plans to cross the street, but also to crisscross Orange, San Diego and Los Angeles counties with it.

Over the next five years, Cline plans to turn the three-unit company with 45-employees into an operation with 200 stores and thousands of workers. But he will only keep a handful of company-owned stores and seek future growth primarily through franchising Chicken Natural Food Services Inc. outlets.

Chicken Natural is trying to catch on--albeit somewhat tardily--to the West’s continued fervor over fast-food fowl. Annual sales at its three outlets are just $1.5 million compared to the industry’s kingpin, El Pollo Loco, which is racking up yearly sales exceeding $40 million.

Nationwide, chicken has rocketed to nearly 20% of fast-food sales compared to less than half that much just 10 years ago, according to industry estimates. And those numbers are still growing.

The segment growing the fastest is the flame-broiled end of the market, where the chicken is basically cooked in its natural juices, and not breaded, fried or cut into bite-sized nuggets. Industry consultants credit chicken’s popularity to health-conscious consumers who are eating less beef and more fowl. But even though Chicken Natural has met the low-fat, low-cholesterol guidelines established by the American Heart Assn., company executives say health isn’t their major selling point.

“We don’t want to be a healthy food restaurant,” said Cline. “We want people to come to us because it tastes good.”

So popular is flame-broiled chicken, that even Kentucky Fried Chicken has begun to investigate a non-fried chicken alternative.

“Frankly,” said Donald Pierce, president of Santa Fe Springs-based El Pollo Loco, “I’m a lot more concerned about Kentucky Fried Chicken than I am about Chicken Natural.” The El Pollo Loco chain is a division of Denny’s Inc.

Analysts say there is still room aplenty for growth in this market--particularly in Southern California where it began. In the Los Angeles area alone, analysts estimate that more than 200 of these flame-broiled chicken outlets now exist, but most of them are mom and pop shops in predominantly Latino neighborhoods. Many were lured to the Southland from Mexican barrios.

Just a few, however, have found the capital to test the growth markets. And of those, El Pollo Loco is the overriding success story--even though it only became profitable this year after years of losses. Chicken Natural posted losses of $210,000 last year and expects to lose money this year, too, Cline said.

But even if profits begin to flow in the Southland, that doesn’t mean the road is paved for national growth, analysts warn.

“You have to remember, the whole country is not receptive to certain regional trends,” said Sarah Stack, research analyst at Bateman Eichler, Hill Richards Inc.

One key to the growing success of flame-broiled chicken chains is the relatively low prices of the products. At Chicken Natural, for example, one quarter chicken costs $2.19 and one whole chicken is $6.87.

Open Fires

Unlike the other chicken chains, however, Chicken Natural has already acquired some distinctive traits. First, it is easily recognizable because of the open fires over which its chicken cooks, spitted on rotisseries.

“You drive by Chicken Natural at night, and you can’t miss it. It looks like the place is on fire,” Cline said.

But it is also attracting business with an amenity more commonly associated with pizza parlors--free home delivery. The company has closely watched the wild success of the home delivery concept at pizza outlets, and decided to test it with chicken.

“I want to be the Domino’s Pizza of the chicken business,” said Cline.

For the price of a $10,000 delivery truck, each outlet adds a service that boosts sales significantly. Sales jumped more than 10% within two months of putting free delivery into one of its Los Angeles units--and that was without any outside promotion, Cline said.

Consultants say free delivery may prove profitable. “It seems to be a natural extension of their business,” said Robert Patterson, managing partner at Laventhol & Horwath, the Los Angeles-based accounting firm. “But the problem with home delivery,” he added, “is that others can copy it very easily.”

Few chains, however, would want to copy Chicken Natural’s past--one that is muddied by multiple-owners, failed recipes and self-admitted disorganization at the top.

“Sure, Chicken Natural has been troubled from the standpoint of not having good management, but the most important person--the customer--has never seen that,” Cline said. He said the clientele--primarily composed of young, professionals--has remained amazingly loyal.

The original Chicken Natural opened in November, 1979, in Los Angeles but ran into financial trouble and filed for bankruptcy within a year. The company was salvaged by a banker, who two years later sold the company to John J. Pike, a Toluca Lake resident and Chicken Natural aficionado. Pike proceeded to expand the company slowly, but in 1984 built the most widely known outlet on Sepulveda and National boulevards--which is the prototype for future franchises.

One year ago, Pike decided the chain was ripe for growth, but he needed the expertise to manage it. So, he tapped Cline, who before his position at Denny’s also held executive posts at Swensen’s Ice Cream Co. and Saga Corp.

Cline quickly performed a housecleaning at the company, and over the past six months turned two of the three units profitable. What’s more, he has lined up franchisees for Orange County, Minneapolis/St. Paul and Hawaii.

At Saga, Cline worked under John Hollingsworth, former president of Straw Hat Pizza. Now a Laguna Hills consultant, Hollingsworth says that under Cline, Chicken Natural has a fighting chance of success. “Smaller guys with a lot more dough have tried and failed, but someone is going to score big in this concept, and there’s no telling who it will be.”

Cline wants that someone to be Chicken Natural. Under current plans, franchises could number 150 to 200 units within the next five years, Cline said. Among them are 25 to 30 stores that the chain expects to open in Orange County within the next three years.

The company hopes to begin a modest advertising campaign shortly, primarily on late night television and spot radio. That, however, cannot compete with the annual $2-million advertising budget of rival El Pollo Loco.

“Just signing franchise agreements isn’t enough,” said El Pollo Loco’s Pierce. “It takes a lot of cash to get your name known in the market.”

Chicken Natural hopes to get its name known--but mostly by selling good-tasting chicken, cole slaw and potato salad.

“There’s something magic about California,” said Cline. “If we can just make it work here, I guarantee it will work in the rest of the country.”