Koo Koo Roo Plans to Take 14 Hamlets Under Its Wing

Koo Koo Roo Inc. wants to beef up its eclectic mix of chicken restaurants, coffee bars and ceramics studios.

The small but rapidly growing chain said Thursday that it agreed to pay $11.5 million for 14 outlets owned by Hamburger Hamlet Restaurants Inc., which is in bankruptcy reorganization.

Los Angeles-based Koo Koo Roo said several of the acquired Hamburger Hamlet properties might be divided to include Koo Koo Roo’s casual-dining restaurants, and it plans to test-offer Koo Koo Roo items on the Hamburger Hamlet menu.

The planned purchase is another example of Koo Koo Roo’s idiosyncratic expansion concept, which goes beyond just opening clones of its chicken restaurants.

The company also owns Arrosto Coffee Co., an operator of gourmet coffee bars located inside Koo Koo Roo outlets, and a chain of paint-your-own pottery stores called Color Me Mine, several of which are located next to the eateries. Koo Koo Roo says the properties--though unrelated to chicken--generate added traffic for its restaurants.

Founded in 1988, Koo Koo Roo specializes in selling skinless, flame-broiled chicken, specialty sandwiches, soups, salads and other side dishes. It has 28 restaurants, all but four of them in California.

Ten of the Hamburger Hamlet restaurants are in California--the company is based in Sherman Oaks--and four others are in the Washington, D.C., area, where Koo Koo Roo already plans to expand.

The proposed deal illustrates recent trends in the fiercely competitive restaurant world, where a variety of new, trendy chains touting fresh and moderately priced food are trying to unseat established but often-staid operators.

Outlets such as Koo Koo Roo, the Boston Market chain owned by Boston Chicken Inc., and PepsiCo Inc.'s California Pizza Kitchen are among those making gains, although Koo Koo Roo’s expansion binge has prevented the company from turning a profit as yet.

Still, Koo Koo Roo’s announcement exemplifies how some of the new chains are absorbing vanquished rivals as they seek wider brand recognition.

Indeed, the 47-year-old Hamburger Hamlet chain ran into trouble in good part because it failed to update its menu to keep up with changing consumer tastes. When it filed for reorganization under Chapter 11 of the bankruptcy laws in December 1995, the company also closed a dozen outlets.

Hamburger Hamlet had tentatively agreed last year to sell its remaining restaurants to Los Angeles-based Grill Concepts Inc., which runs the Daily Grill restaurants, but that deal later fell apart.

Hamburger Hamlet offers its own rotisserie chicken, “which continues to be a significant percentage of [its] entree sales,” Koo Koo Roo said. The company also said about 60,000 customers a week visit Hamburger Hamlet outlets in Los Angeles and Washington.

Koo Koo Roo executives declined to elaborate, pending approval of the deal by the U.S. Bankruptcy Court.

Although Koo Koo Roo has yet to announce its annual results for 1996, its sales for the year are expected to approach $40 million, up tenfold from three years earlier. And although the company has lost more than $20 million since 1990, it expects to start generating positive cash from its operations this year.

Earlier this week, the company also said it raised $29 million from a private issue of securities to finance its expansion effort.

However, Koo Koo Roo’s publicly held stock has been a disappointment. The company went public at $5 a share in 1991. The stock closed at $6.875 a share Thursday, up 37.5 cents for the day on Nasdaq.

Koo Koo Roo was started by brothers Michael and Raymond Badalian. Former mortgage banker Kenneth Berg, having been enthralled by a Koo Koo Roo outlet he visited by chance in 1990, later bought control and has spearheaded the chain’s expansion.

Berg is now chairman and chief executive of Koo Koo Roo, whose directors also include Lee Iacocca. The former Chrysler Corp. chief also led a group that helped raise earlier financing for the restaurant chain.