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    Krystal Returns to Franchise Growth After 15 Years

  • The legacy burger brand continues to gain momentum.

    Web Exclusive October 24, 2019 By Danny Klein
    Krystal
    Customers ate an average of 7.4 burgers in Krystal's All-You-Can-Eat deal.

    Within a week of joining Krystal as its next chief executive officer in April 2018, Paul Macaluso received a LinkedIn message. A multi-concept operator from Jonesboro, Arkansas, wanted in. Macaulso, who arrived from FOCUS Brands’ McAlister’s Deli, where he served as president, responded that he was thrilled, but could he have a year?

    The follow-up came like clockwork. And now, Krystal is about to do something it hasn’t in nearly 15 years—open a new franchise.

    Anand Patel and Kalpesh Das, of Slider Joint, LLC, are scheduled to debut a Krystal in early 2020. The duo, which run seven other restaurants in the Jonesboro market and have a combined 49 years of industry experience, inked a three-unit deal with the legacy brand.

    But notably, it marks the first fresh franchisee to join Krystal’s base since 2005.

    “It was a big milestone for us,” Macaluso says.

    It really isn’t all that surprising when you consider Macaluso’s background. At FOCUS Brands, he was heavily entrenched in the franchising arena. Moe’s, for example, a brand he started at as VP of marketing, is 98 percent franchised. That’s FOCUS’ main growth vehicle across its portfolio, which also includes Jamba, Auntie Anne’s, Carvel, Cinnabon, and Schlotzsky’s.

    READ MORE: Where Krystal’s revitalization began

    When Macaluso leapt to Krystal, it was one of the first topics he brought up with Argonne Capital Group, the firm that purchased the 1932-founded company in 2012.

    Were they opposed to ramping up the franchise engine? They weren’t, but they also were candid in saying they weren’t sure how to do so.

    “That was really an opportunity for me to add that layer of growth onto what we were doing on the company side,” Macaluso says. “But we had to build some wins.”

    And that’s where Macaluso’s year-long pause came into play. He inherited a brand that’s sales dropped more than 6 percent in the prior two years. Beyond that, though, Krystal was getting far more recognition for eight decades of history than any tangible, recent innovation.

    It’s been a busy trek since for Macaluso as he works to flip that stagnant narrative, from digital changes to cultural ones to perhaps the most visible of all—a store remodel program that has focused on “scrape and rebuilds” so far.

    Krystal Burger
    Krystal's newest franchisees, Kalpesh Das and Anand Patel are bringing Krystal back to Jonesboro, Arkansas.

    Before diving deeper into those refreshes, Macaluso shares an anecdote that illustrates the changing dynamic within Krystal’s organization.

    The company decided earlier in 2019 to reopen franchising. With some positive momentum and press, Krystal was garnering inquiries from prospective operators. Yet Macaluso thought it would be telling to first address a different reality. Krystal, which has 202 company stores and 116 franchises, had zero restaurants in the pipeline for franchise growth. That even with 22 existing operators.

    Macaluso went to the group and asked them, “Who would like to open [a store]? Is anybody interested?” he recalls.

    From that question alone, 15 development agreements were signed. “I think they saw the new executive team and the direction we were headed and they had the confidence to do that,” Macaluso says. “That was step one.”

    After that, Krystal felt ready to explore external expansion. The Jonesboro team already has the site picked out and had previous affinity for the brand, like many people Macaluso comes across. Only now those memories align with real business potential.

    Krystal had a Jonesboro location close in 2002 and the new unit will mark just the second restaurant in the state, joining a West Memphis store.

    Macaluso says they were motivated by the market’s fondness for Krystal and what bringing it back would mean to the community. But it didn’t hurt they were also getting one of the new prototypes, and all the optimism that comes with it. The restaurant features an expanded kitchen, square shape (like the burgers), and bright, vibrant design elements.

    There are nine rebuilt locations currently, and some of the results are almost hard to wrap logic around. And this is without moving the restaurant or changing its menu. It’s just a redesigned Krystal where an old one stood.

    The brand keeps a tally of the period-by-period performance of these units. One store, which opened in August, saw its same-store sales erupt 181.6 percent in the first year-over-year comp. It went as follows for the next eight: 122.1 percent; 91.5 percent; 89.5 percent; 72.8 percent; 73.7 percent; 85.4 percent; 78 percent; 83.4 percent.

    Four of the nine scrape and rebuilds witnessed comps balloon triple digits in the first period—all at 130 percent or higher. The lowest performer was a 51.1 percent hike versus last year.

    Overall, Krystal’s updated fleet tracked 97.9 percent better on average in the first period, followed by 68 percent, 48 percent, 49.8 percent, 41.3 percent, 38.6 percent, 41 percent, 38.5 percent, and 66.2 percent. Not every store figured into all nine comps based on length of opening, but the picture is pretty crystal nonetheless.

    This was a brand and customer base hungry for change.

    “Same menu, same location, just a new building,” Macaluso reiterates. “And you see how people really flock back to the brand.

    Krystal
    Krystal's food even tastes better in redesigned units, guests report.
    Krystal
    Krystal has been able to shave 20–30 seconds off speed of service in the drive thru at new designs.

    One thing Krystal noticed early with the prototype has had held steady, even as some of the sales numbers fluctuate. Because it’s a brighter, more impressive (and easier to clean) building, employees stick around. They have more pride in the place. Turnover numbers are about 40 percent lower at new restaurants than Krystal’s base average.

    In some locations, Krystal even had to staff up from 30 or so to 50 employees to meet sales-volume lifts in excess of 70 percent. On average, the company needed 66 percent more workers.

    Krystal has also been able to run lengthier guest feedback metrics to measure guest satisfaction. The nine restaurants return scores about 5 points higher. Cleanliness is getting top marks. Surprisingly, so is food. “It’s the same equipment,” Macaluso says. “So, the food should taste the exact same. But the perception of it is just better.”

    Seven of the restaurants have double drive thru lanes as well—two menuboards that feed into one pick-up point. That’s shaved 20–30 seconds in speed of service, which is no small consideration for a channel representing 70 percent of Krystal’s business.

    The prototypes are smaller, especially in the dining rooms. Krystal saved money there, too, especially as off-premises picks up. Over the past year and a half, the chain spread delivery to 60-plus percent of its system from just 2 percent, with more to come.

    All these months later, Krystal continues to report close to 50 percent of its delivery sales post-10 p.m. on third-party platforms. “That’s huge for us,” Macaluso says. “It speaks to the indulgence of our brand and it’s been really, really beneficial to our late-night business.”

    The next major step will be online ordering, and loyalty after that. Krystal is working with Olo on the first goal. Macaluso believes it has serious potential for the brand given the embedded customer behavior.

    About 20 percent of Krystal’s business comes from what it calls “multiples.” Sackfuls of 12, steamer packs of 24, and so on. Online ordering will allow guests to place these orders ahead of time and just come in and pick them up. Currently, there’s a bit of a barrier, Macaluso says, because consumers know these orders take time to make. They’re not convenient. There’s also the psychological hurdle of asking for 40 burgers when there’s five people in line behind you.

    Macaluso says the service should launch in the next month or two. “It’ll help us from a production standpoint, too,” he says. “Our operations will get better.”

    The remodel program will continue to program moving forward, with three franchisees on deck for some kind of refresh by year’s end. The goal, Macaluso says, is to complete the entire fleet within the next three to four years.

    Krystal also has a mobile employee recognition program in tests currently. It plans to launch sometime in 2020.

    The Krystal Company
    Krystal’s Nashville Hot Chik has exceeded sales projections by more than 50 percent.

    All you can eat, big results

    Krystal grabbed headlines when it launched a $5.99 all-you-can-eat burger deal over Father’s Day weekend. It first rolled in Montgomery, Alabama, and ignited sales immediately, leading to Krystal’s decision to bring the message systemwide.

    Macaluso says Krystal watched many of its competitors lower price points to compete in today’s frenzied value arena. Going from a $5 meal to a $4 meal, etc. “That’s dangerous,” he says. “We wanted to avoid that. So, we saw the success of mid-scale brands doing all-you-can-eat offers and we really thought about it.”

    Krystal was uniquely positioned to attempt it for a pretty straightforward reason: Its food tends to be ordered in bulk already due to its smaller size. Additionally, 70 percent of what the company sells, outside of breakfast, are Krystal burgers.

    Publicity and guest reaction surged from day one. Krystal planned to only run the promotion for six weeks but stretched it to nine because of demand. Customers ordered an average of 7.4 burgers. One ate 70 in a single visit. It really attracted large groups, high school football teams, and so on. Sometimes it was as much a spectator event as anything.

    Macaluso adds it even reversed a trend in terms of dine-in traffic. During the promotion, all you can eat bumped four-wall business about 2–3 points. He says Krystal is already looking at next year’s version, which should hit in the first part of 2020. “It was something pretty unique for the hamburger [quick-service] space that we think we can own.”

    A more recent win was Krystal’s Nashville Hot Chik, which exceeded sales projections by more than 50 percent since its late September launch, the company says. It some markets, it’s up more than 300 percent.