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 well-being of a retailer and applies to sales at locations open a year or more, rose just 0.4 percent.
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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 month. The Charlotte chain this week announced it is being acquired by two New York investment firms for over $700 million, according to analysts’ estimates.
As the local chicken-and-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 drive-thru and promoting signature menu items.
“We believe our back-to-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 company 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 Cajun-fried 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 now-defunct 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.
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 this 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 this 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 this 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.