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Boston Chicken regroups amid mixed sales

September 17, 1997

DENVER (AP) _ A simple sandwich has put a dent in Boston Chicken Inc.’s armor.

After five years of steady growth, the company that operates Boston Market stores has hit a rough patch, recording mixed sales for the first time and facing a host of shareholder lawsuits.

Boston Chicken blames the problems on a line of sandwiches introduced last year. Customers liked them so much they began eating them for dinner, cutting into dinner revenues. That, coupled with problems related to the chain’s quick expansion, has sent Boston Chicken’s stock plummeting 65 percent since December.

In response, the company has shuffled top management, eliminated about one-fourth of its corporate jobs and slowed development _ hoping the turnaround will show up by the fourth quarter.

``The challenge we find ourselves in today is really a result of self-inflicted wounds as opposed to a competitor taking some action,″ said Scott Beck, Boston Chicken co-chairman. ``It’s all sort of cumulative.″

Mitchell Pinheiro, an analyst with Janney Montgomery Scott Inc., said it will take a while for Boston Chicken to get back on the right track, but added: ``They’re doing the right things.″

Founded in Massachusetts in 1985, Boston Chicken has built a billion-dollar business on homestyle food: mashed potatoes, gravy and rotisserie chicken. It is now headquartered in Golden, Colo.

Beck, Saad Nadhir and Jeffry Shearer gained control of the company in May 1992 and set it on a course for a nationwide expansion. Shearer since has left the company.

Since May 1992, Boston Chicken expanded from 34 stores in the Northeast to more than 1,200 in 38 states and the District of Columbia. Sales jumped from about $21 million in December 1991 to nearly $1.2 billion in 1996.

Along the way, Boston Chicken renamed its stores to Boston Market and added entrees of meat loaf and ham. It also invested in a bagel chain later named Einstein Bros. and began to eye foreign markets.

When the sandwich line was added in 1996, executives said it neared 40 percent of sales within a month.

This year, executives noticed mixed sales in the first quarter. There also were other problems, such as a lack of consistency in food portions and hospitality, which they say were created because managers moved quickly from new store to new store, creating a gap in training.

Pinheiro said the company was expanding too aggressively and lost its way.

Along with the internal problems came the lawsuits stemming from losses sustained by franchisees.

While Boston Market posted a 50 percent increase in net income to $66.7 million last year, franchisees recorded a loss of $156.5 million, about three times as much as the 1994 loss of $51.3 million.

The shareholders have alleged they were misled because Boston Chicken failed to include the franchisee losses in quarterly reports. Boston Chicken officials have denied the allegations and Beck declined further comment. Pinheiro said the franchisee losses were disclosed in Securities and Exchange Commission filings.

``I don’t think any of the things that were claimed were done with malicious intent or in a premeditated way,″ Pinheiro said.

To begin correcting the problems, Beck took charge of day-to-day operations. He and Nadhir, who is sharing the chairman’s duties, eliminated the job of president, held by former Pepsico executive Larry Zwain, and cut about 115 jobs at the corporate staff.

They also halved the number of stores planned for this year and next to allow area developers and managers time to focus on training, Beck said.

And they have refocused on dinner, with a new line of prepackaged takeout meals, ranging from casseroles to lasagna. The products are being tested in a store in Charlotte, N.C.

The meals are manufactured under the Boston Market name by Harry’s Farmers Market Inc. of Atlanta.

The products will help Boston Chicken take aim at its nearest competitor _ supermarkets, said Nadhir, also chairman of Progressive Food Concepts Inc., a private company in which Boston Chicken has invested that is researching meal concepts.

``The fresh convenient meals category is sort of a bridge that exists between food service and the supermarkets,″ said Nadhir.

With the new products, Boston Chicken hopes to increase the frequency of customer visits as well as attract new customers.

Beck and Nadhir believe the company already is turning around.

``From an overall performance standpoint, what we’re seeing is the bottom,″ Beck said. With the changes and the back-to-basics philosophy, ``we will begin to see that shift and positive momentum that we’re all looking forward to.″

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