Parent of Carl’s Jr. Plans to Open 300 Boston Chicken Outlets in State
Hoping to cash in on growing consumer demand for healthier restaurant food, Carl Karcher Enterprises said Monday it plans to open as many as 300 Boston Chicken Inc. restaurants in Southern California and Sacramento.
The move, under which Anaheim-based Karcher Enterprises is buying Boston Chicken franchise rights for an undisclosed amount, is designed to augment flagging profits at the parent company of the Carl’s Jr. hamburger chain by giving it a strong presence in what is arguably the nation’s fastest-growing restaurant segment.
And for Boston Chicken, a Naperville, Ill.-based rotisserie chicken chain that set records when it first offered stock to the public last November, the deal is a major piece in its ambitious plan to expand nationwide.
Boston Chicken said it was attracted to the real estate held by Karcher Enterprises. “Carl’s has some of the highest-quality real estate in the Southern California market, and we needed a substantial player in the market to get our concept going strong.” said Mark Stephens, Boston Chicken’s chief financial officer.
Karcher Enterprises President Donald E. Doyle said the company will convert some Carl’s Jr. stores to Boston Chicken locations. At the same time, the company will continue experimenting with new menu items at its Carl’s Jr. restaurants in an attempt to regain market share from larger, better-capitalized competitors in the burger business.
In planning to open separate chicken restaurants, Karcher Enterprises is joining several competitors--including longtime king Kentucky Fried Chicken--that are rushing to meet the demand for products that are perceived as healthy and relatively inexpensive.
“This is the food concept of the 1990s,” said Janet Lowder, a restaurant consultant in Rancho Palos Verde. “You’ve already got an awful lot of competition in that non-fried chicken segment, and this deal suggests it’s going to heat up even more.”
KFC Inc., the Louisville, Ky.-based parent company of Kentucky Fried Chicken, turned up the heat last summer by spending more than $100 million to roll out its new Colonel’s Rotisserie Gold chicken line. The company’s rotisserie sales totaled $175 million for the second half, leading KFC to project that they will equal those of fried chicken by the end of the decade.
KFC controls about half of the nation’s $7-billion market for fried chicken. But investors nonetheless embraced Boston Chicken when the company made its first public stock offering in November. Its shares more than doubled in first-day trading to close at $48.50, up from $20. Restaurant industry analysts were stunned because the chain had fewer than 200 locations nationwide and had recently reported a $5.9-million loss on annual revenue of $8.3 million.
Monday’s announcement pushed Boston Chicken’s stock up $3.75 to close at $41 in Monday’s Nasdaq trading, while Karcher Enterprises, also traded on the Nasdaq market, surged $2 to $13.625.
Karcher Enterprises President Doyle described the Boston Chicken franchise purchase as a long-term investment that won’t make a significant contribution to his company’s bottom line until 1995 at the earliest.
“We expect a modestly positive effect in the second year, with (profits) improving after that,” Doyle said. Karcher Enterprises will create a separate division to run the chicken business, Doyle said. Currently, Karcher Enterprises has 649 Carl’s Jr. fast-food restaurants in California, Nevada, Oregon, Arizona and Mexico.
Boston Chicken is moving into Southern California and Sacramento as part of a national strategy that calls for more than 400 locations to be open by year’s end. The company recently agreed to pay $22.3 million for 87 Philadelphia-area Roy Rogers restaurants that will be converted to Boston Chicken eateries.
Boston Chicken isn’t the only chain eyeing California. Kenny Rogers Roasters, a Ft. Lauderdale, Fla., chain with 100 units nationwide, plans to add “several hundred locations in the next four or five years in the state,” spokesman David Morrow said.
Boston Chicken also faces stiff competition from El Pollo Loco, an Irvine-based chain with 210 locations in California, Nevada and Texas.
“No doubt about it, we’re a direct competitor,” said Ray Perry, El Pollo Loco’s president. “We’ve been expecting their arrival, and we have some things planned to blunt their arrival. We’ve got 200 restaurants out here, and they’ve got none, so we think we have a good chance of performing well.”
Doyle said he doesn’t expect Boston Chicken to be a direct competitor of the 649-unit Carl’s Jr. chain because “Boston Chicken is clearly positioned as takeout meal replacement. It’s not part of the day-to-day fast-food environment. It almost has the feel of a take-out deli.”
Stephens agreed: “The vast majority of our customers say they used to cook at home. The next-largest group is consumers who used to order pizza. You have to go way down the survey to find fast food.”
Consumers are warming up to chicken because of perceived and real health benefits, said Kenneth Berg, chairman of Koo Koo Roo Inc., an eight-unit Los Angeles chain that serves broiled, skinless chicken.
“Rotisserie chicken is healthier than fried foods, obviously, and it’s a little healthier than beef or pork,” Berg said. “But it’s not really considered a healthy food unless you take the skin off before cooking it, which is what we do.”
Hamburgers Still Rule
Nationally, fast-food chicken restaurants run a distant third to hamburgers and pizza.
1992 MARKET SHARE
Hamburger: 42%
Pizza: 20%
Chicken: 7%
Mexican: 5%
Asian: 2%
Other: 24%
Note: Market share based on number of customers.
Source: National Restaurant Assn.
