Carl’s Jr. and Hardee’s both have storied histories dating back over half a century, but the quick-service chains are now going through perhaps their biggest transformation yet. Parent company CKE Restaurants Holdings Inc. today announced a holistic reimaging effort that includes everything from updated exteriors to new kitchen equipment to technology upgrades.
The effort is expected to be completed in the next four to six years and cost about $500 million, $60 million of which will be earmarked for corporate locations.
According to CKE CEO Ned Lyerly, who has been with the company for 40 years, such a transformation is long overdue.
“The whole goal is to re-anchor ourselves in elevating the guest experience. I’ve always believed the best representation of our brands is our premium quality food and best-in-class service,” he said. “It is equally important to have best-in-class digital engagement and assets. We need to put those four components together to put forward a guest experience people expect from our brands and that’s what we’re now doing.”
The biggest priority from this market transformation is restaurant exterior updates. According to Matthew Walls, chief global development officer, reimaging the assets has the potential to have the biggest impact.
“The exterior is what every guest sees before they decide to pull in,” he said. “We are really focused on ensuring the outside of our stores is parallel to everything else we’re doing. Our commercials are a good example. They’re relevant, they’ve got edge. Our stores don’t reflect that. We believe if we can fix that, more customers will pull in.”
Early signs of the transformation have proven just that. The effort began two years ago in Columbia, South Carolina, and that market has sustained sales that are double digits higher than the rest of the system. Knoxville, Tennessee, was also reimaged in November and is performing 3-to-4 points better than the system.
“This is driven by transactions, which is a good sign for the health of the business. They see the new restaurant, they pull in out of curiosity, they realize we’ve got an easy digital process and great products and service. Who doesn’t want that? Our early results are telling us that more people are coming to see us,” Walls said.
A Carl’s Jr. restaurant’s exterior before the transformation.
CKE Restaurants
Walls makes it a point to note these exterior upgrades are about more than just a fresh coat of paint. Much of the system hasn’t been updated in decades, so new features include color schemes, new towers to add height, updated signs and so forth.
The exterior effort also focuses on the drive-thru and parking lot, as 85% of guests order through off-premise channels, including the drive-thru window and curbside. The brands are starting to prototype dual drive-thru lanes to move the queue more expeditiously, for instance. They’re also installing digital menu boards that can highlight certain items and testing technologies such as artificial intelligence order taking.
“These are things we’re testing now that we know we can layer on in the future to make transactions even more frictionless,” Walls said, adding that he expects the company’s AI ordering system to reallocate labor and provide a better experience for guests.
The company’s efforts also extend to the interior, the kitchen, the menu and the technology infrastructure. The company has standardized its point-of-sale platform and rebuilt its tech stack to introduce mobile-enabled websites and loyalty, for example, and is piloting operationally efficient kitchen equipment, including robotics.
Both brands are also slimming down their menus and streamlining their core equities, including made-from-scratch biscuits, hand-breaded chicken and Angus burgers.
“This is all becoming part of our operating model to increase productivity and produce hotter, faster food. That speed and productivity will move people through restaurants faster and contribute to sales growth,” Lyerly said. “Revenue enhancement is critical to grow our business and is a tremendous piece of this work.”
Indeed, CKE wants to add another 1,000 restaurants domestically in the next several years. Such an objective not only requires “revenue enhancement,” however, but also franchisee buy-in.
According to Walls and Lyerly, 95% of all restaurants have already committed to the reimage efforts. With the early data from the Columbia and Knoxville markets, the transformation has shown a 5-to-6-year payback.
CKE is also enticing franchisee growth by expanding its asset portfolio. Now, franchisees can choose from five different typologies that reduce the cost of construction, such as drive-thru-only, modular builds and dark kitchens. The company is also expanding through ghost kitchen provider Reef Technology.
“Our franchisees are not just operators, they’re investors and we have to provide the best cash-on-cash for them which is the point of these alternative real estate options,” Walls said. “It just so happens to be a great time where consumers are asking us to give them the opportunity to experience the brand in a different form factor and in a manner that is convenient for them.”
All of this work has manifested throughout the past two years, which Lyerly has called a “watershed moment” for the company. As a large-scale, well-capitalized, off-premise-heavy company, CKE was insulated more than many of its peers throughout much of the Covid-19 crisis.
As Lyerly explained, this transformation effort requires a significant capital commitment, but the brands performed well through 2020 and 2021 and, “our franchisees are well positioned to move forward with this.”
Walls expects the company to not only move forward, but to do so with urgency. The company projects that more than 500 restaurants across 20 markets will be updated by the end of this year, 80% of which are corporate-owned.
“We’re going to be reasonable given the headwinds that currently exist. If a franchisee says they can’t do it, we’ll focus on what they can do. But there is a reason we’re leading from the corporate side this year, so we can show them what’s possible,” he said. “In QSR especially, you have to stand out or you’ll move into an irrelevant position. There is no better time for us to do this than right now.”