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MANAGEMENT

10.20.98  
Surviving the Boston Market Massacre
Lone franchisee stands his ground as parent company flounders

The year was 1989, and David L. Rice had found just the gig he was looking for. The mechanical engineer had been laid off from his middle-management post at a Boston-area power company. He considered betting his savings on a Subway sandwich franchise or a pizza joint. But what really caught his eye was an up-and-coming operation that sold take-out rotisserie chicken throughout the Boston area. It was called, simply enough, Boston Chicken.

After scraping together $400,000, Rice and his partner, Gary Harper, became the chain's 20th official franchisees in March, 1991. Their restaurant was in Boston's Jamaica Plains neighborhood, which straddles the border between the city's poorer West Roxbury area and Brookline, a wealthy suburb. "It was a risk," Rice says, recalling how he secured a Small Business Administration loan through a local bank. "I never wrote a business plan, but just went down to the library, got a form, and filled in the blanks."

That was the modest beginning of his relationship with the troubled Boston Chicken chain. Now known as Boston Market, it grew very fast, going national and moving its headquarters to Chicago and then Colorado. It went public in 1993 and briefly became a Wall Street phenomenon, when its stock rocketed from the initial offering price of $10 to as high as $40. But on Oct. 5, the parent filed for Chapter 11 bankruptcy. Its stock now trades at less than $1 a share.

Rice is still an independent franchisee, one of only seven such independents that control 11 stores between them out of 909 Boston Market stores in 33 states and the District of Columbia. And his store is still called Boston Chicken -- he never got around to changing the name, he says, and the company is now too distracted to make him. This is just as well, since Boston Market has now decided to change the name back to Boston Chicken.

IDENTITY CRISIS. The chain has had a long-running identity crisis, moving from the original Boston Chicken concept to Boston Market in 1995 to help sell a new line of ham, meat loaf, and sandwiches. It's just one of the problems that have brought the company and some of its franchisees to their knees. Just last week, a major regional franchisee said it was closing 56 restaurants in Washington, Oregon, and Idaho and laying off 900 workers. Increasingly, Rice's profitable little franchise is looking like an anomaly in the midst of this debacle.

Not that he hasn't been hurt by Boston Market's problems. The chaotic reorganization, says Rice, has a "negative impact on customers because they hear all the negative publicity." Rice wonders how long the franchisor will stay alive as it tries to swim through $900 million in debts. "I'd look to sell my business to anyone looking to get into it," he concedes. But if he can't sell, the scenarios become more frightening: What would happen to his food costs if he didn't have the buying power of 909 stores behind him? How would he pay for advertising? Would he still be able to license the Boston Chicken name if the company went bust? The answers now rest with the bankruptcy court in Phoenix.

Being independent may be what will save him, says Adam Solender, another of the early group of Boston Chicken franchisees who controls four stores in New Hampshire. "It's easier to move a concept or a proposition when you're doing it for four stores, vs. 400 stores. We could move on a dime," says Solender. "My backdoor on the concept was that if the whole thing went belly up, we could run it independently."

How did Rice end up being one of the last of the Mohicans? In 1992, the chain was bought by a pair of Blockbuster Video executives who set up 14 "franchise area developers," super-franchisees that owned groups of restaurants. Financed with hundreds of millions of dollars from the parent's public stock offerings, the area developers worked on a grand scale, rolling out restaurants by the dozen. There was no more room -- or time -- for any new single-unit franchisees.

As Rice describes it, the regional Boston Chicken developers grew so fast that they lost sight of the thousands of tiny details that make a restaurant successful. The chain's skilled managers shuffled from one new store to the next, leaving the old units without competent leadership. Stores struggled to motivate employees and build relations in the community.

EYE ON THE PRIZE. In Rice's mind, that was the parent company's undoing. There's no substitute for a store owner who keeps his eyes on the operation. And that's the main reason, he says, his store has remained profitable while company-owned stores continue to close. "It's about being around to be sure the radio is on the right station and the uniform is on right and the portion control is correct and kids aren't hanging around. The owner being here makes a difference," he says.

In the seven-and-a-half years Rice has manned the Boston Chicken store, he has built a catering business and knows by name the regular customers who order his chicken and fixings for meetings or holidays. And there's the neighborhood, too. Rice has gotten friendly with the store's regulars, many of whom come in four to five times a week.

He still has had to meet strict demands from the franchisor. He antes up 9% of gross sales to fund general franchise costs and cooperative advertising. The restaurant itself undergoes periodic "quality, service, and cleanliness" inspections.

There are dozens of other decisions -- from menus to coupons to employee training procedures -- that he must delegate as part of his contract. And the latest bankruptcy pressures aren't making anything easier. "I felt somewhat lost in the big picture when everything moved out to Colorado," says Rice. "Being as small as we are, we don't fly out there and go to meetings."

But being small and independent may mean that Rice has a chance of staying aloft, says Robert Purvin, CEO of the American Association of Franchisees and Dealers and author of The Franchise Fraud (John Wiley & Sons). Assuming Boston Chicken went under, the independents would still be able to buy supplies. "If KFC went under, you wouldn't have any food to sell. It's based on a commissary owned by the franchisor," he says. Boston Market's real value, however, is its brand name, and Purvin says he doubts Rice and the others could continue without getting hold of the name via a licensing deal or a new contract. But he cites home-furnisher ColorTile as a model. The ColorTile franchisor went bankrupt, and a group of franchisees bought the name during liquidation and simply licensed it.

Bankruptcy court is the best possible forum for the small operators, says Boston franchise expert Harold Brown: "Those large operators are dropping like flies. This is the time to change the terms. Bankruptcy is marvelous in one way: You can rewrite the contract."

Rice says he thinks consumers will soon forget Boston Chicken's financial woes. In the meantime, he's reminded of what he has picked up through his years as a franchisee: "You've got to learn to rely and depend on yourself." That is a tough lesson to learn at a time like this.

By Dennis Berman in New York
dennis_berman@businessweek.com


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