FAST-FOOD'S BLOCKBUSTER CHAIN

BOSTON CHICKEN IS NO KFC IN SIZE, BUT SOARING GROWTH IS TURNING HEADS

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Peter Roskothen fell in love with the concept of rotisserie chicken while working in the hotel business in Colombia. He purchased his first Boston Chicken store three years ago and now has three restaurants in western Massachusetts.

Mr. Roskothen, 29, said he's glad he was in the right place at the right time.

"Three years ago, this was run more like a ma and pa organization," he said.

New management and a new marketing emphasis have changed all that for the 9-year-old chain, bought by the current managers in early 1992.

Mr. Roskothen's birds are turning faster these days, as Boston Chicken, the hottest concept in fast-food, picks up speed.

Fast-moving verbs seem to creep into most reports of the chain's progress: The stock rocketed to a 143% gain in its initial public offering last November. The chain is accelerating expansion in one market while it swoops into another, and having outgrown its suburban Chicago headquarters, will relocate to Denver in September.

Activity at Boston Chicken's home office in Naperville, Ill., reinforces this image. The cramped quarters have been divided and subdivided into increasingly smaller cubicles as the rotisserie chicken marketer adds to its staff. Employees dart past one another in the narrow hallways like worker bees.

With all the buzzing, it's easy to forget Boston Chicken operates only 300 stores, compared with KFC Corp.'s 5,100.

Not that sales figures haven't been impressive. The company announced in May that first-quarter 1994 systemwide sales more than doubled, to $84.8 million, with net earnings of $2.5 million, compared with a loss of $1.3 million in 1993.

Boston Chicken won't release same-store sales-the true measure of fast-food success-until a market has been saturated for 18 months.

And Kyle Craig's recent decision to roost on Boston Chicken's executive team should have KFC looking over its shoulder. Mr. Craig, the ex-KFC USA president instrumental in rolling out Colonel's Rotisserie Gold last summer, will work on marketing and new-product development at Boston Chicken.

KFC and Boston Chicken have worked hard to carve different niches out of the fast-growing rotisserie chicken segment. With lower prices and a chicken-centered campaign, KFC sees itself as the Rotisserie Everyman. Boston Chicken skews a little more upscale, positioning itself as the place to go for freshly prepared meals.

"The chicken is important, but it's not the end-all," said Boston Chicken Chief Financial Officer Mark Stephens. "Just as important are the side items."

Restaurant consultancy Technomic, Chicago, estimated KFC's average unit sales for 1993 at $685,000 and Boston Chicken's at $655,000. Boston Chicken's average unit sales are difficult to gauge, as the company opens newer, larger stores and increases its level of TV advertising, said Technomic President Ron Paul.

Boston Chicken this month launches a summertime commercial from Bayer Bess Vanderwarker, Chicago, spotlighting fresh fruit salad.

Although VP-Marketing Warren Ellish said the company isn't currently planning new entrees like beef, Boston Chicken would "consider anything the customer says is appropriate."

Boston Chicken is big on consumer research. Touch-screen computers tested in two units gave store managers, franchisees and corporate headquarters instant feedback, and the company recently set up a toll-free number to field consumer comments.

The company also makes sure it stays in close touch with its franchisees, or "area developers." Through an online computer system called Boston Notes, franchisees have access to most marketing and operations projects currently in development.

The company plans to reach 450 stores by yearend. Recent franchising deals underscore the chain's strategy: Rather than issuing one or two franchises to dozens of individuals in a market, Boston Chicken has recruited roughly 30 area developers to oversee all large markets.

Mr. Ellish said he doesn't expect that number to grow much higher. Unlike many other fast-food chains, Mr. Ellish said, Boston Chicken considers its franchisees true partners, relying on their real estate and retailing expertise and rewarding them with the chance to oversee dozens of stores.

"Usually in franchising, it becomes a we/they situation, but here it's teamwork," said Michael Forgus, who along with partner Marty Naumann operates four stores in Cincinnati, with plans to open 32 by mid-1996.

Boston Chicken's area developers vary in their experience. While Mr. Forgus, 42, has served in various restaurant management positions for 21 years, Detroit area developer Jeff Butler, 32, came to the restaurant chain from Blockbuster Video, where he served as regional director of operations for southern California.

Mr. Butler, running 16 restaurants with partners Rick Tasman and Mark Thomas, said he isn't deterred by his lack of restaurant expertise. "Things are not that different [from Blockbuster]-multi-unit is multi-unit," he said.

Detroit is one of the company's most mature markets and thus the beneficiary of much "guinea pig testing," Mr. Butler said.

Having been on TV for more than a year, the Detroit stores will be the first to start radio spots this summer.

Mr. Butler has also been testing two drive-through units in his market with "positive results."

Although Boston Chicken says it is wary of installing drive-through windows, not wanting to give its restaurants too much of a fast-food look, restaurant analyst Allan Hickok of Piper Jaffray, Minneapolis, points out that most units were designed to eventually accommodate a drive-through window.

"Once I've been inside a Boston Chicken a few times, I know it's different from McDonald's and KFC," Mr. Hickok said. "Now we've eliminated that barrier, so why not make it easier for me to pick up the food?"

This summer, the whole system will be watching as Detroit opens its first city store. Though the chain has some stores in affluent city neighborhoods, most Boston Chicken sites are suburban.

Like Mr. Butler, several of the chain's senior executives and area developers are Blockbuster veterans; along with Chairman-CEO Scott A. Beck and Vice Chairman Saad J. Nadhir, area developers in Chicago, New York and Washington have put in time at the video chain.

Speedy development, a la Blockbuster, is the bedrock of Boston Chicken's marketing program.

"We want to be on TV in a very short time," Mr. Ellish said. "Within six months of opening the first store, we want to be at a level of concentration that allows us to stay on TV at heavy weights."

TV is Boston Chicken's priority, and that's a big change.

"Two and a half years ago, we were producing our own TV commercials because we knew TV was best," said franchisee Mr. Roskothen. "We are glad to see a corporation take over that approach."

Mr. Ellish said the chain does very little sales promotion.

"You'll find the only place we use price incentive at all is with coupons in free standing inserts and direct mail, and the reason is not to provide a discount as much as a trial incentive," he said.

Mr. Ellish credited Bayer Bess' media department for developing some innovative methods of negotiating with TV stations as it spends the chain's $30 million budget.

"We've done a few things that have given us a proprietary edge in terms of airtime, quality of programming and pricing," Mr. Ellish said. Mr. Ellish was quick to deny that Chicago creative boutique Leap Partnership is encroaching on Bayer Bess' agency of record status. Earlier this year Leap pitched some ideas to Boston Chicken Vice Chairman Jeffry Shearer, who hired the shop to create what Mr. Ellish termed "motivational videos for in-house use." In April Boston Chicken paid Leap roughly $200,000 for the four 30-second spots, which Mr. Ellish said his company has no plans to air.

Cincinnati area developer Mr. Forgus said his market has teamed up with Warner Cable Communications, Dublin, Ohio, to deliver cable TV to school classrooms. For each new restaurant opened, Boston Chicken donates two TVs and two VCRs to area schools.

Mr. Forgus' market is also sponsoring Teen Information Programming at Children's Hospital, working with the local ABC station to deliver health and safety tips to teens.

The programming is a good way for Boston Chicken to polish its family image, Mr. Forgus said.

Warming up to families, after all, is a vital part of Boston Chicken's carefully plotted game plan.

"They have the most clearly defined strategy of any restaurant concept I've seen," said analyst Mr. Hickok. "In a few years, I think they'll set the industry on its ear."

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