Krystal’s “Craver Cruiser tour,” promoting the chain’s new Stacker burgers, is not only a 10-city sampling tour, but also a chance to accelerate the quick-service operator’s plans from turnaround mode back to unit expansion, chief executive Doug Pendergast said.
Krystal’s recent gains in unit-level profitability over the past two years, since Argonne Capital Group LLC acquired the brand, helped the chain reverse multiyear declines in traffic and unit count, he said. But Krystal wants to go from opening six net restaurants in 2013 to between 17 and 20 this year, and then another 150 new units over the next three years.
The brand has 350 locations in the Southeast today, but will target nearly three times as many units identified in sites that could support a Krystal at or above its current average unit volume of $1.3 million, Pendergast said.
“We are blessed with an enduring brand with a loyal following that has tremendous awareness in our 11 states,” he said. “But we have 1,000 trade areas just within our 11-state market that we’re targeting. It’s a fortunate combination of events, and we’re excited to be part of it.”
Pendergast recently spoke with Nation’s Restaurant News about the long road from turnaround to renewed growth.
What were the key pillars of the turnaround plan at Krystal?
We’ve made big improvements to the restaurant-level economics and took $300,000 out of the cost to open a new store. There were several elements in that savings, one of which was shrinking the size of the restaurants from 2,300 square feet down to 1,700 square feet, but only losing a couple of seats in the dining room. The kitchens were really oversized, and by making a couple of menu tweaks we reduced the scope of the equipment package needed. We also leveraged remanufactured equipment, which was green and eco-friendly but also the other kind of “green,” saving up-front dollars. Another part was a more competitive process to bid out the work.
We can take some of those extra dollars we freed up and can invest them in better real estate sites. Some of our new AUVs are averaging between $1.5 million and $1.6 million. In the couple of years prior to us taking over the business, AUVs had been closer to $1.0 million, which we think was [the result of] getting real estate that was cheap, but not the best fit for the brand.
What’s the biggest challenge to your growth plans calling for 50 openings per year?
In terms of driving new store growth, it’s about finding sites, unit-level economics, capital, people and the overall processes to open a new location. The rate-limiting factor will be the people piece of it, and quite frankly that’s the most important element. Other pieces are coming online and making good strides. We’ll let our bench of talent dictate how many units we open in any given year.
We worry less about factors that broadly impact the industry, and worry more about the key execution elements that we can control. The biggest is attracting, training, developing and engaging the talent we need. Second, the unit-level economics gets to the brand positioning and execution, menu development, and execution, and we feel good about the improvements we made. We’re on the cusp of announcing a new CMO, who will be instrumental in driving that part of the equation.
What were the big deliberations behind the Stacker? It’s double the beef during a time of high beef inflation.
Over these first two years, we’ve focused on increasing perceived value. We’ve done some bundling and more value-oriented pricing of core products, but we wanted to go after a more premium product and price point. We also wanted one that allowed a variety of flavor options. But it is true to the heritage of the brand: fresh, hot, small, square burgers. We landed on Stackers and have four different varieties we’re launching, but it also creates a platform for flavors, whether they’re permanent or LTOs.
We seem to have reached the peak of beef prices, so we’re more worried about delivering a new flavor and value for our guests. Over time, those commodity prices will moderate, so we’re not too concerned about short-term profitability.
What are your expectations and goals for the Craver Cruiser tour?
The single biggest driver of a visit to Krystal is a craving for the product. You can’t crave what you’ve never tried. We can remind our current customers about why they love Krystal, but if we want to serve new customers, we’ve got to drive trial. What better way to drive trial than to bring the product to our customers? Those 10 cities account for 70 percent of our system sales, so we’ll cover quite a bit of ground. The biggest benefit will be driving trial, and the second is taking advantage of all the radio remote appearances and social media.
Contact Mark Brandau at email@example.com.
Follow him on Twitter: @Mark_from_NRN