Lenard’s no chicken when it comes to change

With a new private equity investor on board, and big changes to its business model and product range in the pipeline, the challenges facing chicken franchise Lenard’s are far from poultry. By MIKE PRESTON

By Mike Preston

With a new private equity investor on board, and big changes to its business model and product range in the pipeline, the challenges facing chicken franchise Lenard’s are far from paltry.

The name Lenard’s is synonymous with chicken, but if chief executive Bruce Myers has his way the humble chook could soon be just one part of the company’s battery of meat products.

And if the shift away from poultry is big, the shift in the Lenard’s business model could be even bigger – currently fully franchised, the company plans to directly own and run its new stores.

The reason for the coming revolution? The customer. Time-poor customers want to be able to get all their meats from a single destination, and, increasingly, in a pre-packed or even pre-prepared form.

This is what the company plans to deliver through its Lenard’s Extra concept, stand alone stores that will sell chicken, beef, lamb and pork products, both in the traditional behind-the-counter style and in a pre-packaged and prepared format designed to maximise shopper convenience.

“Increasingly people have a lack of cooking skills or time to cook, and that is significant for the food industry. They want to get something for dinner tonight, get it quickly and get home,” Myers says. “It is a shift that is happening now – 50% of our current business is between 3pm and 6pm. That is basically mum picking up the kids on the way home from work, and we are responding to that.”

The move is not driven by any sense of desperation – Lenard’s 2007-08 revenue will lift by 2% to around $148 million – but Myers admits he hopes it will produce a lift in the pace of sales growth.

The wider product range will also help the stores attract customers in their own right, rather than locking Lenard’s into the shopping centres and the passing traffic they bring, Myers says.

“The model is designed not to be as shopping-centre dependent,” he says. “In the last five years shopping centre rent increases have been significant, so we hope this will allow us to open stores in lower rent environments.”

Of course, while there is plenty of potential upside to the move, the challenges in making it work will also be significant.

Putting together a marketing campaign to convince rusted-on shoppers that Lenard’s Extra stores stand for more than just chicken shapes as a key hurdle.

“We will need to broaden out customer perceptions and help people understand what we’re doing,” Myers says. “Our research suggests people associate Lenard’s with quality and trust, and we think they trust Lenard’s meat products.”

Obtaining the finance required to build the stores and the centralised food manufacturing system that will supply them also loomed as a stumbling block, but equity funding from private equity firm Blue Sky means it is no longer an issue.

Lenard’s founder Len Poulter will retain a majority stake in the company, but Blue Sky now holds a significant equity stake and will take a position on the board.

Myers says Poulter is entirely comfortable with the arrival of the new part-owner. “Len’s still very actively involved; he’s been a driver of all this so it is not a challenge to him – he is very pro it.”

But perhaps the biggest challenge of all in Lenard’s plans – and, perhaps the biggest opportunity for the business – lies in the fact that it plans to directly own the Lenard’s Extra stores.

The company’s existing stores are all franchises, now franchised directly to the company following the mutually agreed return of the last master franchise licences covering South Australia/Northern Territory and Victoria/South Australia.

Despite the decision to keep the Lenard’s Extra stores in-house, Myers says he remains a believer in the franchise model.

“The great strength of the franchising model is the dedicated owner in the store. Even when you can find an employee, in current times they tend to want to clock on and off, but an owner will always work to drive the business forward because they are motivated by profit,” he says.

So why the change? Myers says the key reason was the need for the company to have greater control over the stores, particularly given the risks involved with any new concept.

The prospect of the bigger reward that comes with risk was also attractive. “More capital investment is required, but clearly you get more margin out of company-owned stores,” he says.

As for the company’s existing 180 strong national network of franchisees, Myers says they have been taken through the plans and are comfortable with them.

“We have been very open and honest and we know our moral and legal obligations to our franchises. They’ve got licences over territory and we will make sure they will not in any way conflict with the new businesses,” Myers says.

The new stores will largely be outside of shopping centres, while most franchises are within them, providing a natural buffer. Franchises may also be able to access pre-packaged product lines in the future if the concept succeeds, according to Myers.

He says there are no plans to buy up any of the existing franchises. On the contrary, he says, if the new concept takes off Lenard’s may consider adding new franchises.

But all that depends on the initial store rollout working– four stores in Brisbane will hopefully be up and running by the end of this year – and, more importantly, that customers embrace the change.

It may be early days for Lenard’s Extra, but Myers is clearly thinking big. “If all goes to plan, three years from now I would like to see Lenard’s Extra central production facilities supplying product to company-owned stores, and a selected range to franchises, across the country.”

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