Pioneer Chicken Tries to Emerge From Its Second Bankruptcy : Fast food: Management and franchisees point fingers at each other. Some store owners are interested in buying the firm out of Chapter 11.
Sean Thakkar has watched the Pioneer Chicken chain decline, fall--and fall again.
Thakkar’s Pioneer Chicken franchise in Altadena used to draw as many as 1,400 fried-chicken-craving customers each week in the mid-1980s. But the chain has been run by two different franchisers during the last few years, both of which have filed for bankruptcy protection--the second time in January. After years of such troubles, Thakkar’s store now gets only about 800 or 900 customers each week.
“It’s been a white elephant,” Thakkar said of his store.
Thakkar now is on a committee representing franchisees after Pioneer Chicken Co.’s bankruptcy filing on Jan. 24 in U.S. Bankruptcy Court in Los Angeles. Pioneer Chicken Co. is the Canoga Park franchiser of about 150 fried chicken stores and owns 14 others. Almost all of the stores in the chain, which is dwarfed by 5,000-outlet Kentucky Fried Chicken, are in Southern California.
Pioneer is not alone among fried chicken chains in facing problems. With more people buying fast-food chicken that is baked or grilled--at competitors like El Pollo Loco--even mighty Kentucky Fried Chicken saw its net income fall 7% in the quarter that ended in September, 1990.
Pioneer’s franchisees blame their recent problems on Pioneer Chicken’s management, and many store owners have stopped paying royalties to the company--a move that has contributed to its severe financial problems. The franchisees claim Pioneer Chicken botched its advertising--the main service franchisees need from the company--and also fell short of providing routine help for franchisees.
But the two sides may be able to patch things up. Some franchisees are interested in forming a cooperative to buy Pioneer out of bankruptcy, an option that was to be discussed at a meeting Monday night. And Rod Jarboe, who owns a Pioneer franchise in Hemet and is chairman of the franchisees’ bankruptcy committee, said that at the same meeting, franchisees may vote to start paying some royalties to Pioneer Chicken Co.--as well as money for advertising and rent.
Another plus is that Pioneer Chicken’s new president, Jeffrey Kahn, who took over as president the day the company filed for bankruptcy protection, seems to have impressed some franchisees. Kahn is a lawyer and accountant who has worked on the turnaround of the Sahara hotel-casino in Las Vegas and the Valley Hilton Hotel in Encino. “I’ll give Jeff Kahn credit,” said Ernest Lee, a 16-year franchisee with stores in Reseda and Lynwood. “He’s trying to work with us.”
But both sides have years of troubles and finger-pointing to overcome. Even today, the franchisees contend that they stopped paying royalties because of mistakes made in recent years by the company’s management. (Those managers bought the chain’s assets the year after Pioneer first filed for bankruptcy protection in 1988.) Kahn, however, said the company’s financial problems really started when the franchisees “just flat-out stopped paying.”
In any case, Pioneer Chicken Co.’s financial problems are clear. It lost $6.64 million on revenue of $14.1 million in 1990, according to a filing made by the company in bankruptcy court. As of Dec. 31, the company had assets of $16.6 million and a negative net worth of $400,200.
Pioneer’s problems began long before its current management arrived on the scene.
The fried chicken chain was founded in the early 1960s by H. R. Kaufman with a single store in Echo Park. But the chain--then known as Pioneer Take-Out--began to have troubles in the mid-1980s when a group of franchisees sued Kaufman and his company, claiming that they were delinquent in paying bills, failed to provide training and support and made advertising blunders. Kaufman denied the charges.
In early 1987, Kaufman struck a deal to sell the chain, but the agreement fell through because of a disagreement about payments. Mired in disputes, Pioneer Take-Out filed for bankruptcy protection in early 1988.
In September, 1989, a new group, including businessman Ira Young, formed Pioneer Chicken Co., a partnership that then bought the assets of the fried chicken chain. Young also owns Malibu Grand Prix, a Woodland Hills company that operates a chain of amusement centers focused around amateur auto racing.
Although they were at first optimistic about the new owners, the franchisees now complain that Young’s group made mistakes right from the start.
According to franchisees, the Young group’s major marketing effort, which lasted about four weeks in early 1990, was a television advertising campaign offering eight pieces of chicken for $4.99 instead of the usual $5.99.
“I told them they would not make any money” with such heavy discounting, Thakkar said. In his own store, sales did shoot up 20% to 30% but the price cut wiped out his profits, and he ended up covering his losses with $8,000 in personal savings.
Pioneer Chicken Co. also didn’t do enough to help franchisees with basic operations, Scott C. Dew, attorney for the franchisees, said.
“The only time a supervisor shows up in my store is to write a report,” Thakkar said. “I don’t feel that’s what I’m paying my royalties for.”
Kahn said, however, that Pioneer Chicken Co. has more district managers per store than does competitor Kentucky Fried Chicken. “I don’t see it as an issue,” he said.
It was late last year that many franchisees stopped paying royalties. Lee, for example said he stopped making royalty payments (he declined to say exactly when) even while he continued to pay his rent. “I had to support the other franchisees,” he said.
Despite the dispute over the payments, Kahn said the possible franchisee-led takeover of the chain is “an interesting concept.” In the meantime, he said, the company plans to push ahead with a new television advertising campaign featuring Lakers announcer Chick Hearn as Pioneer Chicken’s new spokesman. (Hearn, however, may be overshadowed by Magic Johnson in Kentucky Fried Chicken’s new ad campaign.)
And even Pioneer Chicken Co.’s harshest critics say they have open minds. “We all want it to succeed,” Thakkar said. “Don’t ask me why. I should close my doors and walk away.”
