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Bojangles’ stock plan will bring pressures

Bojangles’, which started in 1977 in Charlotte, announced plans Monday for an initial public offering of stock. The company is also embarking on an aggressive growth strategy.
Bojangles’, which started in 1977 in Charlotte, announced plans Monday for an initial public offering of stock. The company is also embarking on an aggressive growth strategy. mhames@charlotteobserver.com

When Charlotte-based Bojangles’ goes public, the company known for its fried chicken and biscuits will have to satisfy Wall Street’s appetite for growth at a time when the fast-food market isn’t growing that fast.

Bojangles’, which announced plans Monday for initial public offering of stock, said it’s planning a big expansion, though it will stick largely to areas where it already has a presence. The chain operates in 10 states and the District of Columbia, but two-thirds of its restaurants are in the Carolinas.

Part of the company’s challenge is avoiding the pitfalls it has faced in previous growth efforts. After trying to expand outside the Southeast in the 1980s – including locations in New York and Honduras – Bojangles’ ran into hard times and shrank to fewer than 200 restaurants.

Since then, Bojangles’ has stuck to its Southern roots, and the company’s plans for expansion center on the South. A Bojangles’ representative said this week that the company can’t comment. But in the past, executives have said they think there’s plenty of room for growth in their home markets.

“We can double the size of our company without really having to step outside of that footprint,” Bojangles’ chairman Randy Kibler told the Observer in 2012.

Bojangles’ operates 622 restaurants, split between franchised and corporate locations. The company wants to expand the number of restaurants by 7 to 8 percent a year, according to paperwork filed Monday with the Securities and Exchange Commission. That would add up to 50 stores in the next year, and more each year after that.

Bojangles’ said its analysis shows it can add hundreds of restaurants in its current markets. Based on its research, the restaurant has the potential for more than 1,400 locations in its current 10 states, more than double the restaurants it has now.

Although there are 409 Bojangles’ restaurants in the Carolinas, the chain’s other states have far more open room. Bojangles’ has 65 stores in Georgia, 54 in Virginia, 43 in Tennessee, 29 in Alabama and 11 in Florida.

Other states where it operates have even fewer locations: Bojangles’ has just one store each in Pennsylvania, Washington, D.C., and Kentucky, and five in Maryland.

Expanding primarily in the chain’s current footprint does carry some risk. It could cannibalize sales from its existing stores, Bojangles’ said in the filing.

“Opening new restaurants in existing markets may negatively impact sales at our and our franchisees’ existing restaurants,” Bojangles’ wrote.

If the company were to expand across the U.S., there’s the potential for more than 3,500 locations, Bojangles’ said. But such a wide expansion could come with even more risk.

Eli Rosenberg, vice president of marketing at Food Genius, a food industry data and insight firm, said the challenge for any regional restaurant chain is to be familiar with local markets into which they’re expanding. Something that works for Bojangles’ customers in the South, he said, may not work for those in the Midwest, for example.

“There’s a regional and local market focus that big chains need to be aware of, especially as they enter new markets,” Rosenberg said. “Bojangles’ is a Southern, chicken-focused chain. If they’re going to expand into the North or the Midwest, they need to understand how restaurants that are doing fried chicken in those markets cater to their customers.”

Bojangles’ was founded by Jack Fulk Sr. in Charlotte in 1977, with a first store at the corner of West Boulevard and South Tryon Street. The company is headquartered off West Arrowood Road, and its name adorns Bojangles’ Coliseum.

The company’s financial results show its sales have been increasing. The company’s revenue is up 24 percent from 2012, totaling $407 million in fiscal 2014. Atlanta-based Popeye’s, another chicken chain, saw its revenues jump by 32 percent over the same period, to $236 million.

But Bonnie Riggs, restaurant analyst with consumer firm NPD Group, said fast-food restaurants in general face a tough environment. The sector’s traffic growth is expected to barely average 0.5 percent over the next seven years, said Riggs, as more consumers shun highly processed fast foods.

“It’s going to be a real battle for market share,” Riggs said. That doesn’t mean all restaurant chains will struggle, however. Chains such as Chipotle, Five Guys Burgers & Fries and Panera, so-called “fast casual” restaurants, have been growing rapidly.

Tougher competition

Fast-food restaurants are fighting hard for customers. Consulting group IBIS World put its take on the next five years bluntly: “Industry revenue growth is expected to be flat ... Competition will likely intensify.”

Just this week, McDonald’s announced plans to add 1/3-pound sirloin burgers to its menu to lure customers. The restaurant operator has been struggling with declining sales and is trying to win customers with increased menu options, touch-screen ordering and more customization.

Riggs said that dynamic will force restaurants to fight harder for customers, keeping their prices low.

“If the overall market isn’t growing and there are concepts that are growing, that’s stealing visits from somewhere else,” Riggs said.

One potential bright spot: Breakfast. That’s the only one of the fast-food industry’s “dayparts,” or meal times, with growing sales, Riggs said.

And Bojangles’ has a loyal breakfast following, with its fresh biscuits and a coffee retooled in recent years to a darker roast to follow consumer tastes. In its IPO filing, the company said 38 percent of its company-owned restaurant sales come before 11 a.m.

“Bojangles’ is operating in what is clearly one of the strongest and fastest-growing sectors of the (quick-service restaurant) industry – breakfast – and everyone’s chasing it. They’ve chased it better than almost anyone out there,” said Paul Schlesinger, senior vice president of business intelligence at Buxton, the firm that handles Bojangles’ growth strategy analytics.

Boston-based investment firm Advent International bought a controlling stake in the company in 2011 from Falfurrias Capital Partners, the Charlotte-based private-equity firm co-founded by former Bank of America CEO Hugh McColl Jr. and the bank’s former chief financial officer, Marc Oken. Advent is among the stockholders selling shares, but the firm will retain a controlling interest after the stock sale, Bojangles’ filing states.

When Bojangles’ debuts on the public markets, it will be following in the footsteps of another North Carolina company with a cult following: Winston-Salem-based Krispy Kreme Doughnuts.

Krispy Kreme, founded in 1937, hit a rough patch after going public in 2000, with years of losses and an accounting scandal. After shuttering a number of stores, the company re-entered the Charlotte market in 2012. Krispy Kreme has been adding stores, nearly doubling its store count to 987, up from 582 in 2010. The company returned to profitability in fiscal year 2011 after six straight years of losses, according to Bloomberg data.

Since 2010, its stock has grown fivefold.

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Twitter: @katieperalta

Bo grows

The company’s revenue is up 24% from 2012, totaling $407 million in fiscal 2014. Atlanta-based Popeye’s, another chicken chain, saw its revenues jump by 32% over the same period, to $236 million.

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