The Tri-County's Most Comprehensive Business Coverage

By Cheryl Kane Heimlich

South Florida Business Journal, February 1996

Fort Lauderdale-based Kenny Rogers roasters is approaching it fifth birthday amidst slowed growth, executive turnover, and at least two pending lawsuits from unhappy franchisees.

The chicken chain has fallen well behind the projections of its founder and chief executive office, John Y. Brown, who two years ago was predicting 500 stores by the end of 1995, at 1,000 by 1997.  In reality, Roasters has opened about 300 stores but also has closed more than a dozen, leaving the company with only 284 locations.

Colorado-based Boston Market, the nation's largest rotisserie chicken chain, has more than 850 units nationwide.

"(Boston Market is) going to continue to grow at the rate of 300 stores per year, and (Roasters is) stagnant at best," said Todd Sorrin, director of real estate for R&A Food Services Inc., the Boca Raton developer of Florida's Boston Market restaurants.

Dawn Hu, an associate director with Standard & Poor's Ratings Group in New York City, said Roasters my be the nation's second-largest rotisserie chicken chain, but it's not considered a serious threat to Boston Market.

They're a competitor, but I don't know how substantial they are at this point," Hu said.

Roasters public relations director Robyn Perlman said the chain will open only 100 stores this year in order to concentrate on streamlining franchise operations, which account for 80 percent of its restaurants.

"Our main trust now is to go back to the stores and really work on the bottom line," she said.  "We really want to work with our franchisees now.  We want to retain and refocus.

Perlman said the company's new emphasis on franchisee support is one of many shifts in strategy that have contributed to turnover at its corporate offices.

In the first wave of layoffs last August, at least 10 of Roasters' top executives lost their jobs.  They included Larry Peters, the company's vice president of construction; Brian Zeller, vice president of research and development; and Andrew Howard, senior vice president of marketing and real estate.  Howard has since returned to Roasters on a consulting basis.

Others who have let go in recent months include Glenn Fromer, controller; Fran McDonald, vice president of marketing; Lenny Abelman, vice president f international development; and Mel Schneider, vice president of purchasing.  Robert Blessing, who was hired in September as Roasters' executive vice president, is no longer with the company.

And several key staffers also have left the chain of their own accord---including Philip de Mena, a former Blockbuster executive who was Roaster's senior vice president of development, and Stephen David, who was vice president of operations.

Brown, a former governor of Kentucky who is credited with turning Kentucky Fried Chicken into a national chain in the late 1960s, refused to comment for this article.  So did Roasters vice chairman Greg Dollarhyde.

But Perlman said she doesn't consider such turnover at the executive level to be unusual for a young company with 100 employees.

"Yes, there are departures, and there are going to keep being departures," Perlman said.  "We're an evolving concept.  We've built over 300 restaurants in five years.  You begin with certain people, and it evolves.  It's just an on going process."

Perlman would not disclose overall sales or earnings figures for the privately held company, although Brown has publicly confirmed reports that Roasters lost $1.7 million on revenue of $145 million in 1994.

Brown's original plan to take Roasters public---a plan he talked of often in 1993 and 1994---has not come to fruition.  And the company's publicly owned Foodquest subsidiary, which operates nine Roasters restaurants and one Clucker's saw its tock price and shareholders equity drop sharply in 1995.

In the last two years, Roasters' growth has been funded in part by a $50 million investment form the Berjaya Group Herhad, a Malaysian firm that has been a partner in the company's international expansion.  Forty-five of roasters' 284 stores are now outside the United States.

Perlman said system-wide sales have been averaging $1 million a year per unit---unchanged from 1994, according to the company's press materials.  She said the closing of some unprofitable stores and the buying back of others can be attributed mostly to inexperienced franchisees.

"We are looking at all the stores now," she said.  If the franchisees can't keep up with their stores, we'll either buy them out or close the stores and find new franchisees."

Indeed, relations between Roasters and some of its franchisees have been less than smooth.  Two lawsuits scheduled to go to court this April involve disgruntled franchisees who claim the company signed them up before its concept was solidified and its support systems were in place.

"The problem is that John Y. Brown launched the Roasters system prematurely," said Robert Zarco, the Miami franchise attorney who is handling both cases.

"Brown did not have the infrastructure in place to provide prospective franchisees with appropriate levels of management, services, marketing, training and other types of support which are the essence of a franchise system," Zarco said.

The case that has attracted the most attention is that of Kevin Melilli, A tamarack flooring contractor who once owned three Roasters restaurants in New York and New Jersey.  Melilli, who has an April 1 trail date in U.S. District Court in Miami, is suing Roasters for breach of contract, tortious interference with business relationships, and fraud and misrepresentation, among other counts.

He is asking $4 million in compensatory damages and $9 million in punitive damages.

Melilli claims that Roasters underestimated the cost of opening a restaurant, provided misleading information about potential profitability, changed its real estate guidelines and cooking methods in mid-stream, offered little operational support, and prevented his from selling his failed stores to another chicken chain.

Melilli also claims the company provided no help when neighbors of his Fairlawn, N.J., store launched protest over the odor form his wood-burning oven.  That issue, along with his claim that most of Roaster's chickens are not really cooked with wood, thrust Melilli's case into the national spotlight when his suit was filed last year.

Also suing Roasters is Michael Albarkat, a Michigan franchisee who owned Wendy's restaurants before joining the Roasters chain in 1992.

"They told us that for the price of one Wendy's we could do four Kenny Rogers restaurants, so we sold our Wendy's," Albarkat said this week.

But when Roasters changed it concept from strip mall stores to freestanding units, Albarkat said he no longer could afford to open more stores.  He also claims that he received almost no marketing, training, or operational support form Roasters; that he lost sales over a change in Roaster's cooking method from hand-marination to injection of seasonings; and that he was misled as to the extent of singer Kenny Rogers' personal and promotional involvement in the chain.

Albarkat, who has closed two of his stores and claims Roasters is trying to shut down the third, is suing the company on 15 counts including breach of contract, breach of fiduciary duty, fraudulent concealment and negligent omission of fact.  His case is set for an April 28 trails in U.S. District court in Detroit.

Zarco, who has won settlements for franchisees of Burger King, McDonald's, and Dunkin Donuts, said he also is talking with together Roasters franchisees who may file suit.

Roasters spokeswoman Perlman wouldn't comment on the specifics of the Melilli and Albarkat lawsuits, but she said Roasters is generally trying to weed to inexperienced franchisees.

"This goes back to the issue of getting seasoned player," she said. "A lost of our early franchisees were very eager to get involved and didn't really know about the industry.

"When you begin, you're selling an idea.  And a lot of people in the restaurant industry say, "Hey, you get the kinks out and get back to us in a few years'.  Now we really have something to sell."

Keith Kanouse, a Boca Raton attorney who recently published a guidebook for franchisees, said people who get involved in start-up concepts often run into problems.

"There's and old rule that you never buy, the first model of a new car," he said .  "But everyone wants to be in on the ground floor of the next McDonald's or Blockbuster."