Inside Knowledge
By Lea Davis Paul

Dave Miller, Keith Sirois

"If you want to understand franchisees, be a franchisee."

Dave Miller, executive vice president and chief operating officer of the Checkers and Rally's brands, is reflecting upon an idea that's gaining popularity in the quick-service industry. After all, his brands are affiliated with Carl's Jr. and Hardee's, both of which have put insiders at the top positions.

But Checkers and Rally's share something else with Carl's Jr. and Hardee's: a struggle to make money. This company's seen more challenges lately than many brands could manage to emerge from. The numbers all point to one thing: It's been a lean, rough couple of years. Miller attributes the performance in large part to the role of the double drive-thru concept in the ultra-competitive burger segment. "The first real challenge," he says, "came when we really started to whack the competition, taking 15, 20, 25 percent of the share from the likes of Burger King, McDonald's, and Wendy's." The burger giants, he says, fought back on price points, using their penetration and size to quash the double drive-thru competitors. "We started," says Miller, "to see ourselves eroding away."

Their mistake, Miller says, was in trying to be like the big burger chains. So today he's using a strategy of differentiation, painting Checkers and Rally's as what he calls "challenger brands." That means serving a quality product at a relatively low price point—and doing it faster and more efficiently than anyone else. Operationally speaking, the concepts can deliver at the store level. Checkers beat all those burger big-guys in the 1999 QSR Drive-Thru Time Study, finishing first overall with a score of 20.5 out of 25. Rally's tied for third place overall with a score of 18.3 out of 25. The company is also selling off restaurants to franchisees to reduce its debt.

Now the executive management team, including Miller, vice president of franchise operations Keith Sirois, and a handful of other industry veterans, will name a new CEO to continue these strategies. It's quite possible they'll tap a franchisee, someone who knows the system inside-out. The question remains, though: Will these new strategies be enough to make the double drive-thru thrive? Miller and Sirois met with the editor of QSR to talk about the search, the strategies, and the road ahead for Checkers and Rally's.

QSR: What kind of person does the new CEO need to be?

DAVID MILLER: We should have an announcement in the next couple of weeks. We want that person to be very franchisee-oriented-in fact, the person might be a franchisee. It should be someone with a self-made background, to be able to come in and continue the momen-tum we're starting to pick up here. Checkers and Rally's will now be a predominantly franchise business. We were fifty-fifty company and franchise. Now we're selling off a couple hundred of our company restaurants to franchisees. Eventually that strategy is going to take us to a 75-percent franchise, 25-percent company mix, and we feel having a franchisee driving the system makes sense.

That's an interesting approach. Do you see more of that happening in the industry?

MILLER: As you know, we're affiliated with the Carl's Jr. concept and the Hardee's concept, and the president and CEO of Carl's Jr., Tom Thompson, is a successful franchisee of that brand. It has worked very well for them. The marketing executive at Carl's is also a franchisee of the brand. Our vice chairman here at Checkers and Rally's is a franchisee of the brand. It's really making sense for us: If you want to understand franchisees, be a franchisee.

What factors in the industry gave rise to the double drive-thru concept?

MILLER: I've been around for ten years, so I think I speak with a lot of knowledge going back that far. If you look at the trends in the industry-and those trends continue today-there's less time at lunch, there's more to [do in each] household, and there are more single families out there. All of that gave rise to people being more on the move. If you look at the evolution of McDonald's, Burger King, and Wendy's over the past ten years, I would guess that every single year they do more business through the drive-thru than the year before.

The double drive-thru was, and continues to be, a niche business. It tells the consumer on the go that we have more opportunity to serve you faster in your car than some of the other businesses. The downside to that is we don't get the dining room-only customer, but you have to sacrifice somewhere in the business. The other thing that started most of the double drive-thru companies—and I would say most, if not all, took this approach to the business—was serving a quality product at a cheaper price point because of low overhead. We were a high food-cost, low overhead business for a long, long time. And now, because sales are down a little bit, we are a little higher overhead and lower food-cost business. It's kind of flip-flopped a little bit. But the dynamics are there. We want to be the value leader and be able to provide a better product at a cheaper price point faster than the competition. That's what we're built upon, and that's what we want to continue to strive for.

What created the challenges along the way for double drive-thrus—Checkers and Rally's in particular?

MILLER: The first real challenge was when we really started to whack the competition—started opening hundreds of restaurants and taking 15, 20, 25 percent of the share from the likes of Burger King, McDonald's, and Wendy's. Eventually, as we continued to [do well], they decided they weren't going to take that anymore and started to fight back with price points. Since they have more convenience than we do—more restaurants on more corners, dining rooms—when they started to set price points the same way, then that very major point of difference went away. We started to see ourselves erode away.

Strategically, our mistake was that we started to be like them. We started to lose our identity with the consumer, and we're really trying to get that back. You're going to see even more of that as we go forward. We've really taken a strategic plank and said we can't be like them anymore in our advertising and the way we operate our business. We really have to be what I call "the challenger brand." We were the preeminent challenger brand in the early 1990s as we went in and took market share and really got into this business full force. We lost our way, and I want to take us back to being the challenger brand by being the fastest in service and delivering a better product at cheaper price points.

Do you see some industry trends at work today that are going to help you with that strategy?

MILLER: I've been all around the country speaking to all our multiunit managers and general managers, and I feel very confident that we're perfectly situated today just like we were ten years ago for the continuing trends towards takeout drive-thru business. In today's industry, there are more drive-thrus than before. If you look at what Taco Bell is doing these days, they've slimmed down to a very short dining room with fewer seats and put more focus on drive-thru and drive-thru speed. That's where we need to be, and I don't see that trend changing in the near future. So the trend seems to be supporting what we are, who we are, and where we are.

You spoke of working to get the chains' identity back. By what characteristics do you want consumers to identify Checkers and Rally's? MILLER: When you think of us, I want you to think of the best product out there at the best value price, and I want you to think, "You know, they do it pretty darn fast, too." That's what I want people to say about us. Even though service is a given and we kind of scream "Fast service!" because of the double drive-thru and the way we look, I've seen a lot of double drive-thrus come and go over the years because they haven't served a product that beats the competition. If you look at our marketing ratings, you can see how we compare with the rest of the industry. We are equal with Wendy's in food quality.

So not only do we do double drive-thru fast and at a value price, but the consumers think we do pretty darn good on food quality. Those are good things to have going for your company. So why don't we have million-dollar averages? We've had a lot of management changes, we lost our way, we started doing products like everybody else, and we tried to bring food cost in line rather than serving great products. That hurt us along the way, but for the future—if we stay the course of great value, great product, fast service—everything looks rosy. We're selling off these markets [to franchisees] to bring our debt down. My intention is to start building the chain again in the next couple of years and start opening more restaurants to fill out current markets where we really are underpenetrated. That's one of our next initiatives to get going as we continue to keep our sales up. I wonder if it's a difficult part of your job dealing with analysts and investors right now.

How do you present your vision?

MILLER: I have to do the same thing for an internal customer—a franchisee—who's trying to get the trust back. The people I have to get to believe in where we're going is the franchisees. We haven't been strong enough over the past five or ten years, and the franchisees have lost a little confidence and trust in us. I understand that [way of thinking] in a down environment, but I'm going to stay the course and be very disciplined in my approach to the business. I think I know what we're going to do that's going to win the game, and eventually they'll get with us and understand that we're doing the right things. And, if I can convince my own franchisees—who are my toughest critics—the analysts will come right along with us right after that. If I can convince the franchisees we're going in the right direction, that means they're winning at the game, too, and profits and sales and analysts' recommendations will be right behind that. So, I'm going to start with the franchisees first.

KEITH SIROIS: It has been a touch-and-go relationship over the past few years. One good thing that's occurred in the last year and a half is our franchise advisory council. A group of representatives from both brands meets either by conference call or in person once a month—or more, since right now we are planning for next year. We address virtually everything we're doing in the business. They bounce it off each other and talk about the why's and how's, and we make determinations. They don't make the decisions—we make the decisions about the business—but they give us the view from the franchise world. This is very important, because a lot of them have put a lot of money in the business, and that's a lot of confidence they have in the brand.

What kind of person makes the best franchisee for your company? Has that definition changed over the years?

SIROIS: If you were going to have a prototypical franchisee, it would be someone who is a nuts-and-bolts kind of person—or hamburgers-and-french-fries kind of person. It would be someone who cares about what happens in the restaurant and understands what happens at the window. Over the years in foodservice, lots of folks have been investors as franchisees, but the folks we see in our segment and our company who are truly successful are the ones who understand what's happening when the rubber meets the road in those two drive-thru lanes. You'll see some of our most successful franchisees hanging out the window at their restaurant at lunch time. They're actually serving guests, because that's the kind of thing they love to do. Not everybody is hands-on; there are going to be investors as part of your group, but we mandate that they have operating partners who hold a certain percentage of the business and we consider them franchisees right along with people who may be the bigger owner of the system. Those guys or ladies go way out of their way to make sure this thing works. I love to go to seminars and do workshops for franchisees. You can look around the room and pick out the ones who actually work in their restaurants all the time. They understand it; they're there to help us make the system better, and we appreciate their feedback. They are always involved, and that's the way we want to make Checkers and Rally's successful long-term, especially since we're going to be 75 percent franchise.

Labor management is difficult in any concept. Considering how things have changed for your company the last few years, how are you creating consistency at the restaurant level and encouraging consistent performance from employees?

SIROIS: We encourage the same thing on the franchisee side as we do on the company side, and that is retention, retention, retention. The people are there; we've hired people over the past two or three years. The problem is an industry problem: We don't always take care of the people, and if the grass looks greener, then away they go. We're working against that in a couple of ways. One of the most important ways is through emphasis on quality training, focusing on giving folks the tools they need.

MILLER: We're also doing testing prior to hiring, which is taking out a lot of the people we might otherwise have hired who weren't going to do the job we're looking for. Once we get the right people inside, we're helping them with quality training through a system that is very regimented and disciplined. What you usually see in the business is, for instance, you need a cashier, and when they come in the door you put them on cashier—and they become so frustrated because you really didn't train them right that the next day you need a cashier again.

I try to push against that by saying if it's been broken for a while, take your time, do the quality training, be disciplined in it, and eventually you'll have an employee who stays with you a lot longer. We started doing crew training videos, especially for all of our promotions that are coming online, and we have VCRs and televisions. And, every year we set an objective against crew and management turnover; in the last two years, both turnover rates have been down in the system. That's a positive for the operators out there, as well as our human resources department. It's still a number I'm not exactly proud of, but it is coming down pretty dramatically. I think leads to why we're a little better in service than we have been before. When turnover is down, you're eventually going to do a better job with the guest.

Could you attribute Checkers' winning the overall 1999 QSR Drive-Thru Time Award to that emphasis on training?

MILLER: Absolutely. We put a lot of emphasis on service and being faster. I'll tell you where that comes from: When I look at my most successful franchise partners, what comes up time and again is that they're faster in the drive-thru than everybody else. That's what our business is about. Those are the franchisees who are winning. So it wasn't very hard in my position, coming over from the franchise side, to say I'm going to do what the successful franchisees are doing. They're serving good food and doing it faster—and we need to do the same thing.

What motivates employees? Does money work, or something softer?

MILLER: Every survey I've ever seen in the industry shows that money is a very short-term motivator. Employees have to feel they are being compensated fairly, but the way the manager deals with them, the comaraderie within the restaurant, the opportunity to do the things they want when they need to them within the framework of the restaurant—those are far more important than what you do money-wise. In today's industry, people can go up and down the street and get a job at any restaurant they want to. If they leave me today, there is McDonald's tomorrow, then they're at Burger King the day after that.

Labor retention is being able to give them something they can feel good about. We're doing incentives for every marketing program we have, so people can be rewarded if they are doing a good job. Coca-Cola helped us do a program last year called "Get Caught Red Handed," where [Coca-Cola] mystery-shopped every restaurant in the system and if the shoppers were upsold and given good hospitality, then the employee immediately won awards through Coca-Cola. That worked wonderfully for us. Those people were geared up waiting for these shoppers to come by. Certainly money isn't everything with crew people.

A couple of years ago, you were testing interior dining rooms on Rally's. Is that something you might do more of?

MILLER: I don't want ever to say never, but I will tell you my philosophy is we're a double drive-thru company. If you talk with a focus group in a heavy Rally's or Checkers market and you talk about taking a drive-thru off and putting a dining room on, you look at their eyes and they kind of tell you, "That's not who you guys are. That doesn't make sense to me—why are you doing that to my Rally's or Checkers?" I will tell you that in the test we did in Rally's a few of them worked and the rest of them didn't, so I firmly believe the double drive-thru is the right way to go. I don't want to cut off a drive-thru lane to be able to put a dining room on. I just don't think you're get the return you're looking for. In some cases, sales went down. It's probably not an initiative you'll see us do.

Now, at one Checkers that is located right down the street from our corporate office and support center here, we put a dining room on, but we didn't cut a drive-thru lane off. We have double drive-thru going and a detached dining room which we've not put a canopy over—it's kind of attached to the main restaurant. That has worked very well for us. The issue with that is finding a site big enough to put a separate dining room on. That really wasn't our concept—we've built on very small pieces of property to keep our overhead down. Even though we may work on that a little bit more, there are just not a whole lot of sites we'll look at to do that. In the future, as we look at Building 2000 and we [create a look that's] futuristic as we start to build the system again, we're looking at a double drive-thru with front dining, maybe thirty-six seats on the front, kind of like what Taco Bell is doing with their single drive-thru and limited dining up front. There is an opportunity for us to possibly do double drive-thru thing we may play with.

How well do these concepts work in the North, where the harsh winters can affect drive-thru business?

MILLER: A lot of people look at it and come up with the same thing, but my highest buying restaurants are in the North. That might partly be the demographics, but the point is it works no matter where. SIROIS: And obviously weather affects it—you get ten inches of snow and you're out of business. But when people can get there, they will get there. How easily does the concept work overseas, and what are the benefits and challenges to those locations? SIROIS: Some of the challenges are largely cultural and the local laws. The concept works; in fact, in most parts of the world folks are looking for American things, whether it's clothes or food or what have you. So it works well, and the franchisees in those areas have done a very good job with developing their business in that market.In fact, I'll be going over to Bethlehem to open in several weeks.

Concepts like yours should be experts in doing drive-thru right. What exactly makes the drive-thru work?

MILLER: We're no different from any of the other drive-thru chains out there, but we invested in a couple of pieces of technology this year: headsets and drive-thru timers. Both of those pieces of technology have created more productivity in the restaurants. Headsets allow people to do more than one thing at a time, which probably works better in low-volume than high-volume situations. In high-volume restaurants, you're really stuck to one [employee per] position, but we often don't have that luxury anymore. The headsets have given us the opportunity to greet customers immediately, be able to give feedback in the restaurants, get things into the registers, and move cars quicker.

We have drive-thru timers on both sides of the drive-thru where we rate people on a daily, shift, or hourly basis and stage competitions—we try to challenge each side of the line as to who can do it faster and who will have the best average time at the end of the shift. Those kinds of things really work well for us. Usually it's dayside against nightside. If dayside is at nightside to keep it at that number, or if it wasn't such a good day, to drive down the number. That competition works well in the restaurants. I'm real big on talking about transactions at peak times and being able to raise transactions at our peak half-hours or hours. Any time you start to raise your transactions and really move more cars through, eventually the half-hour before the peak and the half-hour after the peak begins to go up, too. As we concentrate on when to bring our labor in—just before the peak time—hopefully you move more cars through at that particular peak time and it just drives more cars into the line. I read a statistic the other day: 25 percent of the customers going down the road pass your restaurant because your line is too long. So if I can grab as many of those 25 percent by keeping my lines moving faster, I'm going to raise sales. And that is really about transactions and moving more cars through during your peak. I can't build sales as much from 2 to 5 in the afternoon, but I sure can from 11:30 to 1:30.

SIROIS: I would add that we've upgraded our menu boards and improved the photography—for example, with larger combo photography—and changed the fonts. We partnered with Coca-Cola on some of their studies, and it's had a great impact on the time the customer spends at the order point. It's much quicker and easier for the customer to make their selection and move on.

MILLER: Next year, one of our major initiatives is new POS system, which will lead us to order verification and some of the other things that are in drive-thru today. If we're going to be the leaders in drive-thru, those are just some of the things we have to have. We're looking at the year 2000 as an initiative to start down that road.

I imagine keeping a pretty slim menu is part of your operations?

MILLER: Slim and slimmer. We're a simple business, and in the past one way we went wrong was we tried to complicate things as much as we possibly could. We had three or four different chicken sandwiches and all this other stuff going on. I'm a big believer in trying to keep the business as simple as possible as long as I can reach my customer base and make sure that they are satisfied with our selection. But you will see us keeping the menu as simple as possible.

What about marketing changes in the near future?

SIROIS: Oh yes, we will have some of those. I don't think we'll discuss them specifically right now. Keep watching—that's all we can say.

MILLER: The agency will stay the same, but as part of being the challenger brand, one of the things we can't do is be like everybody else. To help us identify Checkers and Rally's as their own brands, we have to be different. I think you'll see that in some of our creative—we're going to try to do some of that. But, I can't go any further than that.

What will the Checkers and Rally's business look like five years from now if all your visions come to pass?

MILLER: I would picture us as a chain with a lot higher volume. By that time, I would hopefully also have developed out my existing markets with Checkers or Rally's and then be in a position to move on to markets we're not in. I expect to have a very strong franchise base—75 percent of the system. I expect those franchise partners to continue building restaurants, and to me that's a success story right there.

SIROIS: One thing Dave is not saying but that's in his vision statement is that Checkers and Rally's will be the standard of excellence in operations in our segment of the quick-service business. That's the thrust of everything he's doing—and we don't have to be big to be excellent. Being a challenger brand means you have to out-execute the other people, and that's the story I've continued to take to the field: Don't worry about what everybody else is doing; just worry about being the best and out-executing [the other chains] where you are. Sales were down one day this week, and I just sent a voice-mail message out saying, "Just say no to Pokemon." We serve adult food; we serve it fast and hot. We're not about kids' meals, so I told them to stay focused on what we are and not worry about those guys. We will never be them, but we can be a great little double drive-thru chain making tons of money if we just stay true to who we are.