`Chicken' inks licensing deal with Heinz

Nation's Restaurant News, May 3, 1999 by Richard L. Papiernik

Bankruptcy court must approve pact

GOLDEN, COLO. -- Put the soup on the back burner, can the Ken-L Ration, hold up those Weight Watchers and cap the ketchup.

Make room for Boston Chicken to flap its grocery-store wings among those and all the other "57 Varieties" that have made Pittsburgh-based conglomerate H.J. Heinz Co. one of the largest packaged-food suppliers in the world.

Boston Chicken Inc. -- now in bankruptcy reorganization -- and Heinz have signed a 10-year licensing agreement that would give Heinz an exclusive right to "the manufacture and sale" of packaged-food products under the Boston Chicken and Boston Market brand names.

Though numerous details. including specifics on the packaging and naming of the products, have not vet been revealed, the deal is expected eventually to put Boston Chicken's prepackaged goods into thousands of supermarkets. convenience stores and warehouse sales operations throughout the country.

Heinz, which has annual sales of $10 billion and a marketing presence in some 200 countries, said it would begin getting the Boston Chicken products into test markets later this year if mandatory bankruptcy court approvals are cleared.

Upon completion of the tests, Boston Chicken would join a growing list of restaurant companies marketing branded packaged goods in grocery stores. Among them are Pizzeria Uno, Marie Callender's, Starbucks, White Castle and Taco Bell. Several of the chains work with manufacturing firms, such as Kraft and Procter and Gamble, to put their foods in the retail markets.

Heinz officials said they ordinarily would not reveal such information so far in advance of a product introduction, but the proceedings of Boston Chicken through bankruptcy court have made those revelations necessary.

Boston Chicken has asked the bankruptcy court to keep the details of the Heinz contract sealed because of proprietary and competitive concerns.

Once one of the fastest-growing companies in the country, BCI filed for a Chapter 11 reorganization and protection from its creditors in U.S. Bankruptcy Court in Phoenix on Oct. 5,1998.

BCI has delayed reporting financial results for 1998, but its mounting losses are expected to total in excess of $1 billion for the year. Its 1,200-unit Boston Market system has been reduced to about 860 locations.

Jack Kennedy, Heinz general manager for strategic communications, said that his company became interested in working with BCI because marketing tests have shown that the Boston Market brand is "respected" and has strong recognition among consumers.

He said the companies have been talking about the licensing agreement "for months."

Though the new packaged food operation alone would not lift BCI out of its current financial abyss, company officials and creditors see it as an increasingly important contributor to the company's future stability.

But before any implementation of the BCI-Heinz agreement can begin, it will need the approval of the bankruptcy court and must overcome various creditor and "property rights" issues in the reorganization proceedings.

The court is expected to review the pact at a hearing in Phoenix scheduled for May 25.

At least one group, important to the approval process, the official committee of unsecured creditors, representing the bondholders, is expected to lean toward acceptance of the deal.

Evan Flaschen of the Herb & Gitlin L.P. law firm, Hartford, Conn., which represents the committee, said: "We are pleased with management's initiative in establishing this relationship with Heinz. It will be good for the company in the long run, and it will be good for the creditors."

In its petition to the court, BCI said: "It is difficult, if not impossible, to quantify in dollar terms the exact impact of the increased product exposure and name recognition. But it is anticipated that the national exposure provided by Heinz placing Boston Market branded food products in thousands of grocery stores will have a positive impact on BCI's business operations."

BCI chairman president and chief executive J. Michael Jenkins said, "We believe this agreement strengthens the long-term value of our brand."

Jenkins also said he was enthusiastic about having "a company as well respected and recognized as H.J. Heinz to manufacture food products under our trademarks."

Heinz products include StarKist tuna products, The Budget Gourmet, the Heinz soup and ketchup lines and various pet food products, such as 9-Lives and Kibbles'n Bits.