chances are pretty great that you’re not going
to make a lot of money at a lot of outlets.”
The archetypical case in point was Boston
Market. It grew from 20 stores in the late
1980s to more than 900 franchises by 1998.
Costs rose significantly and stores could nei-
ther pay their bills nor repay their debt to the
franchisor. In 1998 the chain declared
Chapter 11 bankruptcy, closed over 200
stores, and looked for a buyer. McDonald’s
absorbed the company in 2000.
RECENT EVENTS
Sherri Miksa was honored when the Chain
Leader2004 cover story appeared. Her per-
formance was lauded and the challenges she
faced were described. At the time the compa-
ny’s sales were increasing 5 percent per year
and its stock was at a five-year high. But the
challenges proved to be too much to over-
come. On December 20, 2005, less than a
year later, Miksa was replaced. She might
have quit or been fired; it has never been for-
mally revealed. But on December 21, 2005,
the San Diego Union-Tribune reported that
Rubio’s suddenly announced her resignation
and Ralph Rubio, founder and chairman of
the board, retook the operational reins. A
search for a successor to Miksa was
announced as well.
Maybe it was not surprising that Miksa
was pushed out. Performance for 2005 was
way below expectations. The third quarter of
2005 showed a deep decline in profitability
and flat sales. The company’s stock was down
over 20 percent.
The analysts and pundits pounced. They
reported dissatisfaction with marketing
efforts and investor relations. Brand posi-
tioning was also called into question. The
menu had become decidedly “value orient-
ed,” which means many items were in the $1
to $1.50 range. This occurred while Rubio’s
was positioning for a more upscale niche.
Fast food and an upscale brand do not yet go
together in the public’s mind.
But all was not negative in the news story
announcing the transition. The stock analysts
were still bullish. According to Ian Corydon,
an analyst with Los Angeles-based B. Riley,
“The stock is cheap and the balance sheet is
OK. I think they have good growth opportu-
nities.”
The financial results for the latest period
appear in Exhibit 5.
In the August 2, 2006, conference call for
the public and analysts, Ralph Rubio, still
interim CEO, John Fuller, CFO, and Larry
Sink, VP of Marketing, described Rubio’s
latest plans and took questions from the
audience.
Ralph Rubio began the conference with a
review. He said that current sales initiatives
were focused on improving the guest experi-
ence. Recent past initiatives might have been
inconsistent, he said. The new focus is on the
quality product, the freshness of the ingredi-
ents, and the healthy nature of many of the
offerings. A survey of the quick-casual seg-
ment showed that the fish taco, burritos, and
salads were clear winners. But Rubio
acknowledged the need for better service. He
had commissioned three organizations to do
real-time research to find ways to improve
service levels: Kurt Salmon Associates, the
premier service operations consulting firm;
Technomics, a high-tech consulting firm; and
IBM Web services.
In addition to the focus on the guest expe-
rience, Ralph promoted the company’s store
design and development program. The new
reimaged units were producing above-aver-
age unit sales. They had a colorful and new
look. But the expansion was on hold. This
year they had opened only one new store,
one new franchise store, but had repurchased
the four Las Vegas franchises. They also
closed one store. Basically, the net was zero.
John Fuller presented next. He reviewed
the financial results and provided these help-
ful hints:- Net income for the quarter was
$439,000 versus $909,000 for year
over year. - Earnings per share were $.05 versus
.09 year over year.
472 ENTREPRENEURSHIP CASE