Hanover
But as any cook will tell you, when you run out of ingredients, eventually you lose items on the menu.
So it was with Boloco, which, after aggressively repaying money owed to vendors and investors, sold five of its 16 restaurants last week to make it through the traditional money-losing winter.
Boloco co-founder and owner John Pepper sold the chain’s locations in Burlington; Concord; Natick and Wellesley, Mass.; and near Northeastern University in Boston to a fast-growing chain of “farm-to-table” burger restaurants called b.good that was founded in 2004 by a former Boloco employee.
The chain’s Hanover location will not be affected by the sale.
The move follows Pepper’s return to Boloco in the summer of 2015, when he repurchased control of the company from the investor group he sold a majority stake to in 2007. Pepper stayed on at Boloco until 2013, when a dispute with the board over a financing deal triggered his acrimonious resignation and a hiatus from the business — during which time Pepper, among other activities, drove an Uber cab in Boston.
Now the Dartmouth College and Tuck School of Business graduate and Norwich resident is back at the company he and friends started in Boston in 1997, wrestling with growth that has plateaued and a more competitive “fast-casual” restaurant market than existed in the early years when the burrito chain expanded to 22 locations and $25 million in annual sales.
Pepper, in a video he posted on YouTube for employees and filmed while he munched on a “delicious Classic Mexican” burrito outside the Hanover Boloco, said “we are selling restaurants to make sure Boloco as a company can stay in business. We’re doing OK today, but we need to do a lot better. If we didn’t do what we are doing, I don’t know if we’d make it through the winter when it gets cold and we actually do lose money.”
Although Boloco exists at the far end of the fast-casual market, where customers are never required to wait longer than a few minutes for their order, the Hanover location nonetheless is facing new competition from two recent entrants into the market: Kata Thai Kitchen opened in January and Burlington creperie The Skinny Pancake opened in May.
At both restaurants customers are liable to wait longer for food to arrive, but both target the town’s student population who want freshly prepared food on a budget.
Pepper, in an email to the Valley News, said the past year since his return has been about shoring up the company’s finances and the sale of the five restaurants was to raise money “because we spent all our available cash — that includes my personal coffers — fixing the balance sheet from the time I reacquired the company.
“We inherited a great deal of vendor and finance debt, back taxes in two states and ongoing losses from operations — it cost us millions to get back current with all parties. The good news is we have stabilized all of that. The bad news is we have no money remaining as we go into winter where we traditionally lose money until March,” he said.
As a result, “we decided to sell locations instead of going back into deeper debt yet again, or worse bringing in new investors who would likely demand control of the company for any significant investment.”
Opening its first restaurant in 2004, b.good has 45 locations and plans to have 60 by March, expanding in part through franchises. The Boloco locations acquired by b.good were selected for locations where it “doesn’t have a strong presence,” Pepper said.
The two fast-casual chains have close ties: b.good founder and chief executive Anthony Ackil, a Harvard College graduate, got his start in the restaurant business working at Boloco and approached his former boss, Pepper, for advice when he was working on a plan to launch a chain of fast-casual restaurants that drew upon locally sourced, fresh ingredients for a menu of burgers, sandwiches, salads and kale grain bowls.
In the YouTube video, which was produced to explain to Boloco employees the reasons for the sale of the five restaurants and urge affected workers to stay with the new owner, Ackil — who says b.good’s goal is to reach the 1,000 restaurant mark — recounts how he learned the fundamentals of running a restaurant while training at Boloco.
Asked by Pepper what he recalled about working at Boloco, Ackil said, “I remember all of it. Everything going back. How you built the line. How you did inventory. Everything that we have built, all the systems that we have built, were really built off of that. … It all came from John and all came from Boloco.”
There is irony in that, Pepper responded, because “what’s so frustrating to us, is that we moved away from all those (things) and now we are having to come to you guys to get our own systems back.”
In his email to the Valley News, Pepper acknowledged that in markets such as Boston, where there is a “ton of competition” in the fast-casual category that has come on the scene in recent years, sales are under pressure.
“Even if you are best-in-class, too much food in too small an area is going to hit you. Sales haven’t grown. They’re not free-falling either, but we are getting used to seeing -2 percent, -4 percent, +1 percent, 0 percent on a weekly basis. Flattish, but trending down,” he said.
To an extent, however, Pepper is not competing — by choice — on a level playing field with other fast-casual chains, and that is affecting the company’s bottom line.
The Cincinnati native has been one of the lone voices in support of the livable wages movement that seeks higher payer for hourly workers in the food industy.
Boloco pays employees — it calls them “team members” — $2 to $3 on average more per hour than other chains.
And that can make all the difference between profit and loss, Pepper told a roomful of industry peers earlier this month at the Fast Casual Executive Summit in Dana Point, Calif.
“If I paid what my competitors pay it would earn me $1.3 million, but I’m not going to pull that lever,” he told the group during a session on the campaign by activists for higher wages among fast-food workers.
That $1.3 million difference for fiscal 2016, Pepper told the Valley News, “would have taken a small loss for the year to a healthy profit.”
“Our job is to build sales and make the business work while doing the right thing for our team members,” he said.
Nonetheless, he acknowledges even the higher standard falls short.
“Even though we pay more, we still don’t pay enough for (employees) to lead fulfilling lives, let alone pay the basic bills and constantly be scrambling for how to make ends meet,” he said.
And while the quick solution might be to pay workers less, Pepper’s philosophy echoes an ancient proverb about treating others as oneself would like to be treated.
“When we were doing well for many years I used to say I’d prefer to fail doing the right thing by our people than succeed by doing the wrong thing. I will admit it’s highly inconvenient to stick to doing the right thing when the business is under pressure, but if our landlords, utility companies and food providers demand we pay them 100 percent of what they need to survive, the same should go with employees.
“So we are committed to making it work while paying people more to, hopefully, show that it can be done — whether things are healthy or not,” he said.
John Lippman can be reached at 603-727-3219 or jlippman@vnews.com.
Correction
The Boloco restaurant chain has sold five locations this fall, three in Massachusetts and sites in Concord, N.H., and Burlington, Vt. A headline and photo caption in an earlier version of this story incorrectly identified the states where two of the restaurants are located.
