Boston Chicken Announces Stepped-Up Plans for Expansion

Boston Chicken Inc. is stepping up its expansion, planning to triple the number of restaurants it will open to 2,700 in the next five to seven years, company executive said Thursday.

The owner of the Boston Market chain also plans to begin opening restaurants outside the U.S., roll out a network advertising campaign and offer new products to attract more young men, who are big consumers of fast food.

The moves are designed to help the Golden, Colo.-based concern compete better with industry giants such as McDonald’s Corp. and PepsiCo Inc., whose chains include Pizza Hut.

“McDonald’s leads the burger business,” said Mark Stephens, chief financial officer. “Pizza Hut leads the pizza business. KFC leads the fried chicken business. Taco Bell leads the quick Mexican and we lead the quick-quality meals segment.”

Boston Chicken’s strategy carries some risks. Adding stores too quickly makes it harder to maintain quality and could lead to saturated markets. Many hot restaurant concepts have lost their appeal after as few as five years, said NatWest Securities analyst Damon Brundage.

“The history of the restaurant industry is littered with the corpses of companies that were growing their store bases in excess of 25% annually and then hit the wall,” Brundage said.

The company also hopes to make the Boston Market brand name strong enough to sell its foods from supermarkets to airport kiosks, Starbucks-style, Stephens said.

So far Boston Chicken has been able to hire the right people to maintain consistent operations, analysts said. Keeping about 350 new stores a year in line, however, will be no small task.

Alex. Brown & Sons analyst Steven Rockwell says that because Boston Chicken has managed to open more than 300 stores in a year before, the risk is “manageable.”

Shares of Boston Chicken rose $1.625 to $32.25 in trading of 2.8 million on Nasdaq, compared with their three-month daily average of 1.03 million. The stock has risen 35% since September.

Boston Chicken’s franchisees, called area developers, have agreed to open 2,700 restaurants, up from 900, in the next few years. That will raise the total number of stores to 3,600 from 970 now. Boston Chicken had 83 stores in 1993.

To help finance the expansion, area developers will receive about $50 million through private placements during the next few weeks, Stephens said. Most of the money will come from investors who already have money in the stores, analysts said.

“It’s a show of confidence from third-party investors/lenders that the Boston Market concept is performing well,” Rockwell said.

Boston Market restaurants offer ready-to-eat meals for takeout.

The company also plans to take its stores outside the U.S. in the next six to 18 months. Boston Chicken will team up with a joint-venture partner who can roll out restaurants just as fast as the company has in the U.S., Stephens said. He wouldn’t say which country will be first or when the first store will open.

“Wherever we go, I want to go really big,” he said.

Boston Chicken also plans to have as many as 400 company-owned stores by the end of next year, up from 91 now. That will mean more money for the company as it reaps the profits from sales at its restaurants instead of just royalty fees.

And, in a move to quiet critics who say the company doesn’t disclose enough financial information about its franchised restaurants, Boston Chicken will include data on area developer finances in its quarterly filing next week with the Securities and Exchange Commission.

Boston Chicken is testing changes from a complete reworking of the stores to eliminate inefficient service to fine-tuning such as reducing food waste.

“Our biggest problem is our customers stand in line too long,” Stephens said.

To eliminate bottlenecks, test restaurants have people order and pay first and then pick up their meal. The revamped restaurant served 180 people per hour with nine workers compared with 90 people an hour with 13 workers in the current setup.

Boston Chicken is likely to build all its stores in 1997 in the new design format, Rockwell said. It would cost $30,000 to $90,000 to convert each existing restaurant, according to Stephens.

To take average weekly store sales to $28,000 by 1999 from the $24,000 reported in the second quarter, Boston Chicken will introduce new foods, advertise heavily and work on attracting key customers such as young men, families and kids.

Next year, the company will introduce a line of sandwiches called Extreme Carvers to supplement its Boston Carver sandwiches, which alone helped increase the number of store transactions by 10% in the second quarter.