CAN BOSTON MARKET BE SAVED?

Consistently good food, moderate pricing, solid real estate, good service, a dandy couponing program...boy, Boston Market had what seemed to be an ideal format for success and executed it well chain-wide. Yet the comfort food giant struggled for so long that owner McDonald’s finally dumped it for an unknown sum to a private equity firm. How did this once-dominant chain—formerly the record holder for restaurant IPOs on Wall Street and numbering 1,143 units at its peak—lose so much traction? And for the about-to-be new owner, Sun Capital Partners, what now?

In Wall Street mythology, the IPO of search engine juggernaut Google reigns as the most lucrative initial public offering of all time. Chipotle Mexican Grill, which doubled on its first day of trading, is a close second. But even Google and Chipotle didn’t see the kind of price appreciation Boston Market (then known as Boston Chicken) stock did on its first day of trading back in 1993. It finished the day up 143 percent.

Boston Market was initially so strong and its approach—full meal takeaway, complete with tasty sides—so revolutionary for its time that analysts had to invent a new term to explain it: home meal replacement. The company’s method of doing business was seen as such a threat to the existing order that foodservice manufacturers, distributors and brokers joined forces to figure out how to respond. Research gurus McKinsey and Co. did the data gathering and analysis and the result was the landmark study, Foodservice 2005. It was a road map showing how and where foodservice players of all stripes, including restaurants, should adjust their businesses to survive in a world forever changed by the emergence of home meal replacement, i. e, Boston Market and its lesser imitators.

Well, a lot of home meals have been replaced since that time, but Boston Market hasn’t been the one doing the replacing. An accounting snafu lead to a 1998 Chapter 11 bankruptcy filing. Boston Market stock, once at $50, fell to less than $1 a share. Many analysts argued then that its stock actually had zero or negative value, even though it the company still had more than 900 units turning out good food seven days a week.

McDonald’s bought Boston Market in early 2000 for $173 million. Initially, the idea was to gain control of Boston Market’s extensive real estate holdings and convert them to other use. But McDonald’s quickly came to the conclusion that Boston Market was a good business that, with a little marketing polish, could get back on track. Done right, it would give McDonald’s exposure to the dinner market, a daypart with which it and every other fast-food feeder struggles.

Didn’t happen. Boston Market flat lined while under McDonald’s ownership, shrinking to 630 units in 28 states by the time Sun Capital Partners got involved. The deal has yet to close, so details of the financial arrangements aren’t public yet. McDonald’s did reveal in its SEC filing that Boston Market has assets of $180 million and liabilities of $89.1 million. The company noted that it does not expect to record a loss on the transaction, which could be finalized as early as this month.

Soon, Sun Capital will be calling the shots at Boston Market, just as it does at the other restaurant chains it owns: pasta chain Fazoli’s; bagel maker Bruegger’s; Dale & Thomas Popcorn; Garden Fresh Restaurant Corp., which owns Souplantation; and Real Mex Restaurants, which consists of El Torito, Acapulco and Chevys. So what’s it going to do with it?
We’re eager to find out. Boston Market was low energy during the McDonald’s phase. It was marginally profitable, with analysts estimating a net of $5 million off of annual sales at $600 million. Check average is about $10.50. It’s ready for a transfusion, that for sure.

But new ownership will find plenty to work with at Boston Market, which comes with a unique selling proposition. It offers slow-roasted food, all of it (except the meatloaf) whole muscle proteins. Its offerings are eaten with a knife and fork, off plates. Paired with its extensive lineup of side dishes (many credit Boston Market with driving a general upgrade of side dish quality industrywide during its late-1990s heyday), it’s an old-fashioned sit-down meal. If you want comfort food fast, this is where you go.

There are many fast casual concepts with high quality offerings, but for many people, a sandwich or a burrito doesn’t qualify as a decent dinner. They want to eat a meal off a plate, using a knife and fork, and they want a full-muscle protein and a couple of tasty sides.
But for some reason, it doesn’t occur to very many of these people to go to Boston Market to get one of these meals right now. That’s despite an ongoing couponing program in Sunday newspapers and online that provides a whopping discount. The usual offer we see is $1 off any meal (meat, two sides and cornbread), and these are meals where the full price is a modest $7-$7.50 in the first place. Spend $20 or more and you get $4 deducted from your tab. Got a family to feed? In-store specials routinely offer a whole chicken plus three large sides and four portions of cornbread for $19.95 (no coupons accepted on this one, however). All this deal-making would belie the consistent quality of the chain’s food, but these are the offers available right now. As for the convenience factor, Boston Market has to be the top I couldn’t do it at home for this price bargain in all of foodservice—and that’s not even factoring in the time to slow-cook all the items.
It all adds up to a can’t-miss proposition, except Boston Market’s been missing the mark for a number of years. If it’s break-even now, Sun Capital Partners must be salivating at how easy it should be to bump up customers counts and unit sales. They’ve got the product and the system; all they need to do is to get people excited about going there again.

If they do, watch for another Boston Market IPO. It wouldn’t double on the first day, but good management could make this company a strong industry player once again