Koo Koo Roo begins franchising chicken eateries; L.A.-based chain targets an upscale, healthy market.

Koo Koo Roo begins franchising chicken eateries

L.A.-based chain targets an upscale, healthy market

Koo Koo Roo, a Los Angeles-based chicken restaurant chain, has hatched expansion plans that include 13 new stores in Orange County, 12 in San Diego, five in Nevada, and a string of outlets in New York, New Jersey and Florida. All told, 27 franchisees have been sold for about $30,000 each.

"There is a void out there in the market-place and Koo Koo Roo has significant nationwide potential if it can fill that void," said Thomas Tashjian, a consumer analyst with Seidler Amdec Securities Inc.

The goal of founder Mike Badalian, now president, is to carve out a slice of the $65 billion fast-food industry by catering to upscale consumers who will pay higher prices for healthier food.

"When the fast-food chicken business grew in the 1960s and 70s, it was viewed as a business that catered to low-income people," he said, "certainly Kentucky Fried Chicken and Church's Fried Chicken went after those markets. Koo Koo Roo is entirely different in that the stores recognize an upper-income demographic group."

Started in 1988 with a prototype store on Sixth Street in the Mid-Wilshire district, Koo Koo Roo is being touted as the only "skinless" chicken restaurant chain in the United States. Badalian said he has discovered a process that makes it possible for unskilled labor to produce "restaurant quality" marinated chicken quickly and efficiently.

Badalian, who created the Bistango restaurant on La Cienega Boulevard in the early 1980s, put out low-priced French food and brought in $6 million in its first year. He said that he has spent two years designing Koo Koo Roo's work stations so that five or six employees can handle a lunch rush, when an average fast-food restaurant would need at least 10.

"It's not a renegade methodology that went into the development of Koo Koo Roo," Tashjian said. "Management has gone about testing the product and refining operations carefully. They may now be ready to significantly roll out the stores."

Said Buddy Sarkissian, a former stock broker and investor who plans to build the five Koo Koo Roo stores in Las Vegas by 1991, "this has great potential, it could grow beyond El Pollo Loco and equal a Kentucky Fried Chicken within 10 years."

Badalian, who opened Koo Koo Roo's fourth store in Marina del Rey last month, said "we could have sold 60 to 100 franchises within the first year of operation. But we didn't. We simply wanted to get the kinks out of the system. From here on out it will be a store a month."

But it will not be easy. If Koo Koo Roo is able to execute its plan, it will have to compete with the highly successful Irvine-based El Pollo Loco chain.

A division of Denny's Inc., El Pollo Loco has dominated the market for healthy fast-food chicken in recent years.

Mexican entrepreneurs Juan and Pancho Oachoa developed the El Pollo Loco concept in Mexico, where they own and operate 85 to 90 roadside stands and freestanding restaurants on Mexico's Pacific Coast. In 1981, they started building El Pollo Loco stores in Los Angeles.

In 1983, Denny's Inc. paid the Oachoas $10.4 million for the El Pollo Loco concept and six Southern California stores, including the flagship United States store on Alvarado Street in Los Angeles.

"At the time, people said that we paid a lot for El Pollo Loco," said James C. Verney, divisional president of El Pollo Loco and a vice president of Denny's Inc. "But we were simply acknowledging that large chains, such as Denny's, don't do well at building their own concept. We saw limited expansion possibilities for Denny's and real potential for El Pollo Loco, if we could position it as a chicken restaurant rather than a Mexican restaurant."

Denny's entry into the chicken business put Koo Koo Roo on the back burner for years, Badalian said.

"When Denny's bought El Pollo, I pulled back from the development of Koo Koo Roo," said Badalian, who had been working on the concept since the early 1980s. "I waited because Denny's paid such a large price for the chain and is such a large player in the restaurant business. I just decided to see what El Pollo would do in the fast-food market before moving ahead."

What El Pollo did was dominate the market, producing a complete shake-out in the charbroiled chicken industry and forcing the majors, including McDonald's, Burger King, Carl's Jr. and Kentucky Fried Chicken to add healthier products and new chicken products to their menus.

Last month, the El Pollo Loco power-house opened its 200th store in Yorba Linda. The chain, which has stores in Arizona, Nevada, New Mexico, Texas and Orlando, Fla., sold $175 million in charbroiled chicken dinners last year. Denny's expects its El Pollo division to clear $200 million in 1990, according to Verney.

Los Angeles has been far and away El Pollo Loco's best market. When the likes of El Pollo Asada, Chicken on Fire and El Pollo Verde made attempts to complete against the charbroiled chicken giant in Los Angeles County, they were crushed by the big El Pollo Loco bird.

"There have been a variety of competitors through the years," said Verney. "At one time we had more than 300 competitors, including mom-and-pop shops. Through the last seven years we've seen them drop by the wayside because, while they all had parts of the equation for success, they could not put all of the elements together."

But Badalian's chain has a new niche that El Pollo Loco has yet to find. The skinless chicken is cooked on a rotisserie, using an operational system that he claims requires fewer employees than a typical fast-food chain.