Karcher Gets Into Chicken Business
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. outlets in Southern California and Sacramento.
The move is designed to augment flagging profits at Anaheim-based Karcher Enterprises by giving the parent company of the Carl’s Jr. hamburger chain a strong presence in the fast-growing broiled chicken segment of the market.
The deal marks Karcher Enterprises’ first move in a new direction since a highly publicized dispute pitted founder Carl N. Karcher against his handpicked board of directors. Karcher, who was ousted on Oct. 1 as chairman but was subsequently invited back as chairman emeritus, split with the board on a proposal to sell Green Burrito Mexican-style foods at Carl’s Jr. restaurants.
Karcher Enterprises President Donald E. Doyle said the hamburger chain will continue to experiment with new menu items and that Boston Chicken products won’t be sold at Carl’s Jr. locations. Instead, the company will create a separate division to build the 300 Boston Chicken locations.
For Boston Chicken, a Naperville, Ill.-based rotisserie chicken chain that set records when it first offered stock to the public in November, the deal is a major piece in its ambitious plan to expand nationwide.
Boston Chicken said it was attracted to Karcher Enterprises’ land holdings. “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 has 649 Carl’s Jr. fast-food restaurants in California, Nevada, Oregon, Arizona and Mexico. Doyle said the company will convert about 35 Carl’s Jr. stores to Boston Chicken locations.
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 Verdes. “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.
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 Fort 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.”
The Boston Chicken deal won’t take away sales from the 649-unit Carl’s Jr. chain, Doyle said, 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 takeout deli.”
And the deal isn’t likely to take away from Carl’s Jr. sales--a typical dinner at a Boston Chicken outlet costs about $4, more than a meal at Carl’s Jr.
Top Chicken Sales
Biting into the market for rotisserie chicken could earn millions of dollars in sales for Carl Karcher Enterprises. Estimated 1993 sales, in millions: Kentucky Fried Chicken: $160.0* Boston Chicken: $101.0** Kenny Rogers Roasters: $100.0 Pollo Tropical: $8.0 Clucker’s Wood Roasted Chicken: $7.8 * July 12-Nov. 10, 1993 ** Jan. 1-Oct. 3, 1993 Source: Kentucky Fried Chicken
