Billions of Chickens Sold

By ABIGAIL A. LORDEN | September 01, 2007

Okay, so their chcken is truly delicious. First marinated and then double battered, the resulting bite is a perfect blend of crunchy and juicy that is nothing short of the ultimate fried chicken experience. The exact formula remains just as closely a guarded secret as it was in 1952, when George W. Church founded the chain. Offering consistently tasty fried chicken, however, is just one part of the recipe for success that has turned Church's Chicken into a billion dollar business. And the company isn't stopping there. Through an approach that blends innovation and simplicity, Church's Chicken plans to double in size by the year 2011.

And how, one would ask, is a company that is already one of the largest quick-service concepts in the world going to double in size in just four years? Simple: by expanding its market presence through increased store count, currently at approximately 1,600 locations, to 2,500 locations across the globe.

Independence day
On the surface, achieving that level of growth could seem daunting. Not so for Harsha V. Agadi, the company's president and CEO. "The billion dollar mark is the most significant milestone a global restaurant company can achieve," says Agadi. "We are on a strong growth path, and doubling the size of the company will be our next major goal. It will take us less than five years to hit the two billion dollar mark," Agadi announced last year.

Agadi became chief executive on December 26, 2004 ¬a date referred to within the company as "Independence Day" ¬ when Church's ownership officially shifted from AFC Enterprises to Crescent Capital, now called Arcaptia, a private-equity firm based in Manama , Bahrain . The $390 million transaction allowed Church's the freedom to revise its menu strategy to target the silver bullet of the category¬ spicy, flavorful product offerings.

Positive change quickly took shape following the acquisition. In 2005, customer counts began increasing and Church's introduced two highly successful product launches ¬spicy bone-in chicken and the 99-cent Spicy Chicken Sandwich. These developments propelled the company to the billion dollar milestone almost two months ahead of schedule and profits are now up fifty percent since the acquisition.

Agadi explains that new growth will be accomplished through several core areas: expanding the number of units in both domestic and international markets; building out its base of franchisees; and a continued focus on simplicity coupled with innovation. Simply put, "more stores and better stores," says Agadi.

Down the street, across the globe
Church's Chicken is currently located in 30 states in the U.S, targeting lower income neighborhoods where the restaurant's value proposition " great food at low prices " is particularly valued. Domestic growth is expected to take place by maximizing the penetration of stores in its current market. Current domestic store openings are averaging 60 sites annually, up from 17 new sites prior to the acquisition. "This year, we'll have opened more company stores than in the five years combined prior to the acquisition," notes Agadi.

International growth goals are just as robust, and constitute approximately half of planned new stores. Church's currently has approximately 400 stores in 18 international countries, and plans to add another 500 over seas by 2011. "We are unabashed about being an American fast food company," says Agadi proudly. "Positioning your food as 'made in the U.S.A.' is one of the biggest fast food sales tactics over seas," he says, especially in Asian and Indian markets where consumers value quality food sold in a clean environment.

Franchisees will play a large part in Church's growth plans, both at home and abroad. Internationally, 80 percent of new locations will be franchised and 20 percent company owned. Domestically, Church's is launching a re-franchising strategy that calls for selling company-owned stores in selected markets to proven franchisees.

To that end, the company recently announced the transfer of 36 restaurants in Georgia , Mississippi and Arizona to franchisees. In some markets, the company is exploring the acquisition of restaurants from Church's Chicken franchisees, as well as acquisition of other restaurant brands for conversion into Church's Chicken locations. The overall goal of the strategy is to fuel new store development and to maximize operating efficiencies at both corporate and franchise levels.

The key to successful franchising, according to Agadi, is setting the standard at the corporate level. "You need to be willing to franchise aggressively, but you set the standard by opening a lot of corporate stores as well." In fact, Church's has invested 50 million dollars in company stores in the last three years. "Very few companies have 50 percent higher sales in company stores than in franchise stores," says Agadi, pointing to McDonald's, Starbucks, Jimmy John's, and Church's Chicken, to name a few. "When corporate stores are that successful, it makes the franchisees willing to listen, cooperate and work together."

Innovative simplicity
The Church's concept has always been based on the philosophy of simplicity of operation, starting with a limited menu, equipment designed to do one thing well, people trained to do one thing well, and control of operational costs. As such, the company runs small, labor efficient kitchens in a cost-effective building and real estate model.

Agadi is committed to this approach and sees it, when combined with innovation, as the backbone of the growth strategy. "Innovation is a mindset," says Agadi. "We do a lot of routine activities in the offices and stores. Innovation would be doing something in a different manor to achieve a faster, quicker and greater result."

Innovation at Church's has meant outsourcing many of its operating and technology systems; it's meant installing new Radiant (www.radiant.com) point of sale systems and Texas Digital (www.txdigital.com) drive thru timers; obtaining unprecedented company data through its Mirus Restaurant Solutions (www.mirus.com) business intelligence tool; adding sandwich stations into kitchen operations; rebuilding and relocating numerous company stores; and introducing spicy chicken options to compliment its original flavor offering.

As a mid-sized company, Agadi points to the role that outsourcing has played in achieving innovative simplicity. Outsourced functions include accounting and employee expense reporting, bank reconciliation, and payroll, among others. Through its IT partner Sonata Information Technology (www.sonata-infotech.co.in), out of

Bangalore , India , Church's is able to outsource its IT help desk. Through renegotiating its outsourced IT, accounting and payroll contracts, the company was able to save $2.9 million annually.

"We've taken outsourcing to a new level, where we have Spanish-speaking help desks in the middle of India," explains Agadi. Sonata also provides IT consulting, application development and management services. The company creates individualized reports for Church's executive and management staff that allow for speedy decisions.

"Typically at about 8 a.m., we get a report of how sales are doing worldwide. If we think a certain product isn't doing well, you can be sure there's a discussion about it before 8:30 a.m.," says Agadi. Church's Internal IT staff coordinates closely with Sonata, Mirus and other technology partners for personalized solutions and a streamlined relationship. The setup allows Church's immediate access to information, while focusing more resources on the core business function: making chicken.

"Outsourcing allows us to grow without having to add resources. It's important to build a platform and infrastructure for profitability. If we add another 50 stores, we don't need to expand our headquarters." Agadi prides Church's on being the only restaurant company in the top 50 that outsources key functions while maintaining seamless integrity in the way it does business.

All of these factors come together toward the goal of simplifying operations, driving down operating costs, and freeing up more capital to invest in the product and grow locations. Agadi puts it best: "As we crush our routine operating stores, we free up money to build more stores in the U.S., create more jobs, and make more chicken."

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