Krystal's Latest Culture Shift Brings Plenty of Opportunity

Krystal’s leadership has been riddled with inconsistencies over the past decade.

Fred Exum served as CEO for nine years until Argonne Capital purchased the brand in 2012. After that acquisition, Krystal flipped through a half-dozen executives before declaring bankruptcy in January 2020. It was the chain's second time going through court proceedings. The first came in the late 1990s when Krystal filed bankruptcy to settle with workers who wanted overtime backpay.

Krystal emerged from bankruptcy after paying $13 million to settle the claims, and in September 1997, Port Royal Holdings Inc., headed by former Coca-Cola Enterprises Inc. executive Phillip Sanford, paid $108 million for Krystal.

The 90-year-old concept was later bought in May 2020 for $48 million by Fortress Investment Group and its operating partner Golden Child Holdings. Tom Stager, a former Arby’s executive and COO of a franchisee company, was named CEO. Within the first week of his tenure, he brought Krystal operators to his office with the intention of building trust. Given the chain’s recent history with leadership, Stager could sense the skepticism. “Okay Tom, what are you going to do different?” “We’ve had several CEOs, what’s next? What’s corporate going to do?”

Stager stopped the inquiries, and made it known the new era wasn’t going to be corporate versus franchise. Before Golden Child and Fortress struck the deal, both sides crunched numbers and saw “a lot of upside,” Stager says. They found Krystal to be a well-known, legacy brand that had a loyal customer base. It just wasn’t operated properly in the preceding years.

“For this brand to be successful, we, and I said it multiple times, we need to work together to grow the brand,” Stager recalls. “I've been on the corporate side and I've been on the franchise side in my past life, and I know what it’s like to be a franchisee. So we're going to win and we're going to improve this brand together. We're going to make decisions together and we're going to work together to move the brand forward.”

To start “walking the talk,” Stager says, Krystal removed a handful of boards and centralized franchise matters into a single Crystal Council. That set the stage for closer collaboration on menu, pricing, delivery, and other key matters. He also upgraded the executive team, from real estate to accounting and marketing. Stager estimates he updated 50 percent of the corporate office and 50 percent of the operations field team.

He remembers asking the old C-suite about Krystal’s vision and mission statement, and no one could provide a definitive answer. Stager addressed that by installing six guiding principles—grow and evolve, make informed decisions, value the truth, enjoy your work, be accountable to guests, and find a way. He also emphasized five buckets the company should focus on, including people, sales, profit, ops, and culture.

“If you notice the way I read them off to you, it starts with people and ends with culture,” Stager says. “If you know great people and a good culture, getting sales profit, ops, isn’t too difficult.”

The CEO complemented this culture-shifting verbiage with action. When Stager first arrived to headquarters, he was placed in an office with a corner view and executive board room. He only lasted a day and a half in there because he couldn’t see the rest of his team. Stager took himself out of the office and placed himself in a cubicle alongside everyone else. Additionally, he made sure to interview everyone—not to keep up with anyone’s technical responsibilities, but to see if they are truly a cultural fit.

“You want to talk about changing the culture? That changed the culture immediately,” Stager says.

Krystal

Krystal's drive-thru-only prototype.

A little more than two years after these initial moves, the executive is able to paint a clearer picture of growth. A welcomed sign from franchisees, especially after seeing the footprint shrink from 400-plus units to fewer than 300 in the past couple of decades.

Krystal is moving forward with two prototypes—a slimmer, 1,700-square-foot restaurant and a 1,200-square-foot drive-thru-only model. Compared to the chain’s 2019 box, these builds are expected to save 25–30 percent in costs and provide a 25 percent sales lift. In early August, Krystal broke ground on its first drive-thru-only prototype in Center Point, Alabama. It’s projected to open within the next 75–90 days. The new dining room model is part of a scrap and rebuild in Atlanta. That’s scheduled to break ground in September. Both of the upcoming locations will be corporately owned, so Krystal can prove the concept out for franchisees.

Stager says these prototypes are based on a drive-thru channel that’s grown from 50 percent of sales pre-pandemic to now in the 80-percent range.

“I think it's just going to give a different look,” the CEO says. “We haven't had a new building in a while, and if you look at the building, we want this thing to pop. We want it to look good from the road.”

The two prototypes are likely to be Krystal’s primary form of growth. And franchisees have expressed optimism. Wayne Hale, the brand’s largest franchisee with roughly 40 restaurants, told Stager he wants to double his footprint. Also, in fall 2021, a new Krystal franchisee opened a unit for the first time in 15 years. Since then, two more new operators have debuted outlets.

“We have franchisees that haven't built in a very long time that are really excited and already out there looking for land and property to start growing,” Stager says. “More importantly, we have a number of outside folks that are not Krystal franchisees at this time that are extremely interested. So it's exciting because they're looking at our business and going, 'Wow you can build this more efficient restaurant with some really good volume at a reasonable price?' So I think we have a large number of folks that are extremely, extremely excited about this building and joining Krystal.”

Krystal is maximizing its opportunities with key celebrity partnerships. In late 2021, the chain announced former New York Giants player Victor Cruz was becoming a franchisee. The athlete plans to open up to five restaurants in the Northeast, bringing Krystal out of the Southeast for the first time. The stores, which will be labeled “Victor Cruz’s Krystal,” will debut by the end of 2023. Additionally, to remind customers of its return to late-night, the brand is partnering with TV personality Ray J for a series of commercials systemwide.

The biggest get, however, is naming rapper 2 Chainz head of creative marketing. The artist is looking to build five restaurants, as well.

“Having a having a relationship with 2 Chainz, it touches so many other areas that we just don't touch,” Stager says. “I mean he has so many connections. He's so well-known. If you look at his Instagram, he's followed by so many people. With 2 Chainz being involved, you can't really put a price and say that he's able to contribute this much. We're honored to have this relationship with him. He's a great partner. We collaborate all the time when it comes to the design of the building, when it comes to the menu and real estate. That's why we're connecting with some of these celebrities—to help move the brand forward. I think it just ties in a different connection. They relate to different folks in a way that we could never relate to them.”

The impact of new ownership is obvious just by looking at franchisees’ top and bottom lines. Stager says that in 2021, a majority of operators had their best year in a long time.

The CEO believes Krystal’s renewed relationship with franchisees is stronger than it’s been for a number of years.

“I think that says it all there,” Stager says. “They haven't grown stores in a while and they're anxious to grow and get the brand going.”