Turmoil Envelopes Parent Company AFC Enterprises

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CHICAGO ( -- The chief marketing officer for Church's Chicken has resigned, becoming the latest in a line of executives to
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exit AFC Enterprises amid a corporate accounting scandal and a barrage of shareholder lawsuits.

Discarded tagline
Ann Stone left her post July 2, the company confirmed. A marketing veteran of Coca-Cola Co. and Pizza Hut, she joined the No. 4 chicken chain two years ago. At the time, the company was unveiling a brand relaunch that replaced its 50-year-old tagline, "Big Pieces Little Prices," with "Full Flavor, Full Pockets, Full Life."

Franchisees criticized that effort, which included ads showing cartoon characters without heads. In a July 1 story in The New York Times, Church's President Hala Modelmogg said the chain was evaluating the campaign "head to toe." Already, Church's had shifted most of its creative assignments from Omnicom Group's BaylessCronin, Atlanta, to a South African agency, Gecko Motion, Johannesburg.

Popeyes Chicken
AFC's other chicken chain, No. 3 Popeyes Chicken and Biscuits, has seen its own

Church's ad campaign focus on headless characters experiencing 'Full Flavor, Full Pockets, Full Life.'
recent turmoil. In June, Popeyes ended its seven-year run with Interpublic Group of Cos.' Hill, Holliday, Connors, Cosmopulos, New York, following the departures of President Jon Luther and Chief Menu and Marketing Officer Joe Scafido.

Popeyes has since elevated Tom Whitley to chief marketing officer, from vice president of advertising, according to executives close to the company. He is conducting an agency review through Agency I.D., Atlanta. Popeyes spent $22.3 million in 2002 in measured media, according to TNS Media Intelligence/CMR.

AFC's Cinnabon chain earlier experienced its own executive changes. In February, Cinnabon named Chris Elliott its president, a post he had held on an interim basis since June 2002. Chief Marketing Officer Steve McMahon left the chain earlier this year.

Offer for Cinnabon
A well-capitalized franchisee group is said to have made an offer for Cinnabon, according to one executive with knowledge of the situation. AFC did not respond for comment.

AFC is in the process of selling its Seattle's Best Coffee and Torrefazione coffee chains to Starbucks Coffee Co. Frank Belatti, AFC's chairman-CEO, on July 8 presented a 100-day plan to turn around the company's three remaining brands. He blamed marketing for woes at Popeyes and Church's at an earlier investment conference, telling analysts that executive and agency shakeouts were "called for."

Same-store sales for the combined chains fell 5% during the first quarter at Church's, Popeyes Chicken & Biscuits, Cinnabon and Seattle's Best Coffee, compared to a 2.3% gain in the earlier year period.

Earnings restatements
On March 24, AFC said it would restate its financials for fiscal year 2001 and the first three quarters of 2002. AFC stock plunged 20% in very heavy trading. Shortly after, investors began filing lawsuits. A month later the $2.6 billion company said it would also restate results for fiscal 2000, and that it was threatened with being delisted by Nasdaq for failing to file its annual report.

A week later, AFC's executive vice president and chief financial officer, Gerald Wilkins, resigned.

Court filings
Court filings to the U.S. District Court in Atlanta allege securities fraud by "failing to reveal that AFC had inflated its operating results" by improperly accounting for sales of company-owned stores to franchisees, value of long-lived assets and inventory at Seattle's Best, as well as understating advertising costs.

The suit also alleges that by restating its financials the company "has admitted that its prior financial statements were materially false and misleading when issued."

Insider allegations
Their filings include an accusation that some executives capitalized on the overstated figures by selling their stock.

AFC said it's policy is not to comment on pending lawsuits.

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