Sold again: How can Bo­jan­gles’ be fixed?

The Charlotte Observer (Sunday) - - Business - BY KATHER­INE PER­ALTA kper­[email protected]­lot­teob­server.com Kather­ine Per­alta: 704-358-5079, @katieper­alta

In Char­lotte, it’s hard to tell any­thing is wrong with Bo­jan­gles’, a beloved brand that opened its first res­tau­rant on West Boule­vard and South Tryon Street in 1977.

The Bo­jan­gles’ name adorns a coli­seum that’s hosted ev­ery­one from the Foo Fight­ers to Pres­i­dent Don­ald Trump. The chain’s yel­low “Bo Boxes” are ubiq­ui­tous at Carolina Pan­thers tail­gates. The com­pany has about 17 lo­ca­tions in the Char­lotte metro.

Bo­jan­gles’ lat­est earn­ings re­port, how­ever, pro­vides a glimpse into its fi­nan­cial health: The com­pany on Thurs­day re­ported a loss of $2.7 mil­lion for the third quar­ter.

Rev­enue sys­tem-wide was $138.7 mil­lion, up 1.9 per­cent from the same 13-week pe­riod in 2017. But same-store sales, a term that gauges the well­be­ing of a re­tailer and ap­plies to sales at lo­ca­tions open a year or more, rose just 0.4 per­cent.

Over the course of its four-decade life, Bo­jan­gles’ has had mul­ti­ple own­ers who’ve worked to make the res­tau­rant chain more prof­itable. They’ve closed restau­rants, ex­panded into new mar­kets, ex­per­i­mented with menu items and laid off work­ers at the com­pany’s cor­po­rate head­quar­ters.

Bo­jan­gles’, now big­ger than it’s ever been, will once again change hands in a few months. The Char­lotte chain last week an­nounced it is be­ing ac­quired by two New York in­vest­ment firms for over $ 700 mil­lion, ac­cord­ing to an­a­lysts’ es­ti­mates.

As the lo­cal chick­e­nand-bis­cuits chain turns the page on its next chap­ter, the ques­tion re­mains: How can Bo­jan­gles’ be fixed?

Randy Ki­bler, Bo­jan­gles’ for­mer CEO, stepped back into the role in an in­terim ba­sis after Clifton Rutledge re­signed in March. Ki­bler out­lined a few ways the com­pany has been work­ing to im­prove it­self, in­clud­ing through em­ployee train­ing, speed­ing up ser­vice at the driv­ethru and pro­mot­ing sig­na­ture menu items.

“We be­lieve our backto-ba­sics strat­egy of oper­at­ing ‘well-run restau­rants’ is el­e­vat­ing cus­tomer per­cep­tions of Bo­jan­gles’,” Ki­bler said in the earn­ings re­port.

Bo­jan­gles’ be­comes the lat­est Char­lotte re­tailer to change hands in re­cent years.

An­other lo­cal pop­u­lar brand Belk, which opened its first store in Mon­roe in 1888, was sold to pri­vate eq­uity firm Sycamore Part­ners in late 2015. Sycamore has been qui­etly mak­ing changes to get the most out of its $3 bil­lion in­vest­ment, in­clud­ing by launch­ing more pri­vate la­bel brands, and by cut­ting some jobs (although the com­pany still em­ploys about 1,300 at its head­quar­ters off Tyvola Road.)

‘THIS ISN’T OUR FIRST RODEO’

After it went pub­lic in 2015, Bo­jan­gles’ was ea­ger to sat­isfy Wall Street’s ap­petite for growth, so it laid out an ex­pan­sion plan that in­cluded grow­ing in ar­eas where it’s al­ready well-known, then grad­u­ally mov­ing into neigh­bor­ing mar­kets. In the sum­mer of 2015, for in­stance, Bo­jan­gles’ opened its first West Vir­ginia lo­ca­tion and an­nounced plans to ex­pand its Ken­tucky pres­ence.

Not hav­ing that pres­sure from Wall Street might be a re­lief, said Cam McRae, pres­i­dent of the fran­chise group Tands Inc.

“Be­ing a pub­lic compa- ny does cre­ate pres­sures. I don’t re­ally know the new own­ers, but I think it’s a good thing if they’re tak­ing it pri­vate again,” he said.

McRae, who bought his first Bo­jan­gles’ lo­ca­tion from founders Jack Fulk and Richard Thomas in 1980, has seen the chain through six own­er­ship changes.

“This isn’t our first rodeo,” said McRae, a Kin­ston res­i­dent who owns 66 Bo­jan­gles’ lo­ca­tions in North Carolina and Vir­ginia.

Ex­perts have pointed to Bo­jan­gles’ ex­pan­sion out­side its “core mar­kets” as a rea­son for slug­gish sales at some of those new res­tau­rant lo­ca­tions, where the brand is not as well known.

When it went pub­lic, Bo­jan­gles’ had 622 restau­rants in 10 states and the Dis­trict of Columbia. Roughly 66 per­cent of its restau­rants at the time were in the Caroli­nas. Bo­jan­gles’ said Thurs­day it has 759 lo­ca­tions in 11 states and D.C, with about 58 per­cent in the Caroli­nas.

What the new own­ers have to do is sim­ple: Grow rev­enue, said Marc Oken, a found­ing part­ner of Fal­fur­rias Cap­i­tal Part­ners, the pri­vate eq­uity firm co-founded by for­mer Bank of Amer­ica CEO Hugh McColl. Fal­fur­rias owned Bo­jan­gles’ from 2007-2011, when it sold a ma­jor­ity stake in the com­pany to Bos­ton pri­vate eq­uity firm Ad­vent In­ter­na­tional.

Un­der Fal­fur­rias, Bo­jan­gles’ shrank its menu to only in­clude its most pop­u­lar items, such as Ca­jun­fried chicken and dirty rice.

“The fewer items you have, the more time em­ploy­ees have to fo­cus on those items. That’s the gen­eral the­ory,” Oken said.

Also un­der Fal­fur­rias’s own­er­ship, Bo­jan­gles’ ex­panded to 503 stores from 377 four years prior. Dur­ing that pe­riod, rev­enue rose 40 per­cent, ac­cord­ing to a Septem­ber 2007 Ob­server story.

“Growth in rev­enue comes from hav­ing qual­ity food, good ser­vice, good man­age­ment and good lo­ca­tions,” Oken said. Also, “be thought­ful about ex­pan­sion,” he added.

A TUR­BU­LENT TIME

The 1980s were a par­tic­u­larly tu­mul­tuous time for Bo­jan­gles’ that il­lus­trates the con­se­quences of try­ing to grow a re­gional brand. Ex­perts say Bo­jan­gles’ new own­ers should avoid the mis­takes of the past.

The first time Bo­jan­gles’ was sold, it was by its orig­i­nal own­ers in 1982 to Horn & Har­dart, a nowde­funct food ser­vices com­pany based in New York. When it was sold, Bo­jan­gles’ had 34 restau­rants.

The new own­ers soon em­barked on an am­bi­tious growth plan.

Horn & Har­dart grew the chain to 328 stores at its peak, with stores all over the U.S., from Texas to Florida to New Jer­sey. But un­der Horn & Har­dart, Bo­jan­gles’ lost mil­lions of dol­lars, mostly be­cause of the new man­age­ment’s ef­forts to ex­pand a re­gional com­pany na­tion­ally.

In 1988, Bo­jan­gles’ posted a profit for the first time in two years. But it came with a cost: The com­pany trimmed cor­po­rate staff by one-third, to 82 em­ploy­ees. Car­los Gar­cia, pres­i­dent at the time, closed or re­fran­chised 100 restau­rants, and pulled out of un­prof­itable mar­kets in Florida, Alabama, Texas, Mis­sis­sippi and Louisiana, ac­cord­ing to a March 1988 Ob­server story.

Cost-cut­ting un­der Horn & Har­dart con­tin­ued. In early 1989, Bo­jan­gles’ an­nounced plans to close 16 com­pany-op­er­ated stores, in­clud­ing three in Char­lotte (the oth­ers were in Mem­phis and At­lanta.)

Re­la­tions soured be­tween Horn & Har­dart and fran­chisees, who said the com­pany ex­panded too quickly, and with­out any di­rec­tion, ac­cord­ing to an Ob­server story from May 1989.

“Dur­ing those years, there wasn’t a lot of sup­port (for fran­chisees) be­cause (Bo­jan­gles’ own­ers) were cut­ting costs from the par­ent com­pany,” McRae said.

LOOK­ING AHEAD

It’s not clear what Bo­jan­gles’ new own­ers, Du­ra­tional Cap­i­tal Man­age­ment LP and The Jor­dan Com­pany L.P., have in store for the chain or the hun­dreds of its cor­po­rate em­ploy­ees at com­pany head­quar­ters off In­ter­state 77 in south­west Char­lotte. Rep­re­sen­ta­tives from the firms could not be reached for com­ment last week.

In the short term, ex­pect the new own­ers to close more un­der-per­form­ing stores, and in­vest in tech, such as mo­bile or­der­ing and de­liv­ery, ar­eas that Bo­jan­gles’ has “been be­hind in for a long time,” C.L. King an­a­lyst Michael Gallo said last week.

One plan to im­prove prof­itabil­ity to­day is re­fran­chis­ing, a term that refers to brands flip­ping com­pany-owned stores to fran­chisees, who have the ad­van­tage of fa­mil­iar­ity with the brand, the com­mu­nity and their em­ploy­ees. Bo­jan­gles’ has said it’s al­ready look­ing to re­fran­chise 25 to 30 com­pany-owned lo­ca­tions as part of its “res­tau­rant port­fo­lio op­ti­miza­tion pro­gram.”

Re­fran­chis­ing would be “fa­vor­able” for Bo­jan­gles’, Jef­feries an­a­lyst Andy Bar­ish wrote in a re­search note last week, “but we sus­pect this work would be best ex­e­cuted as a pri­vate com­pany.”

Once the deal closes, all the steps Bo­jan­gles’ new own­ers take over the next sev­eral months to over­haul the beloved brand will de­ter­mine the com­pany’s fate in Char­lotte and be­yond.

Ob­server file photo

Randy Ki­bler, Bo­jan­gles’ for­mer CEO, stepped back into the role in an in­terim ba­sis after Clifton Rutledge re­signed in March. In this 2008 file photo, Ki­bler took a walk through a Bo­jan­gles’ in Char­lotte.

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