Checkers & Rally’s Turnaround Shifts Into High Gear

Checkers & Rally’s CEO Frances Allen signed on one month before the pandemic to jumpstart a rejuvenation.

In previous years, Allen said the 836-unit company struggled against the onslaught of extreme value offered by larger quick-service chains. While the brand had built its playbook on value—resulting in flat to positive sales for eight of the past 10 years—Allen said it was clear to owner Oak Hill Capital IV that a different path was needed for long-term viability. The private investment firm purchased Checkers for roughly $525 million in 2017.

So with Allen’s tenure began a new strategic plan that envisioned renewed focus on the back of the house, e-commerce, loyalty, menu innovation, and growth.

COVID-19 bolstered those efforts as Checkers found itself perfectly placed to serve guests with its double drive-thru format. Q1 same-store sales dipped 3.8 percent, but through the crisis, comps grew 8.9 percent in Q2, 13.9 percent in Q3, and 11.3 percent in Q4. For the year, Checkers lifted 7.5 percent and doubled its EBITDA.

The momentum is a far cry from September 2019, when Moody’s Investors Service downgraded Checkers and said it believed “Checkers' capital structure is unsustainable in its current form and that the company will ultimately seek a debt refinancing that would include some impairment to the lenders.”

Now, the 35-year-old brand is thriving and looking for more.

“Without a doubt, the lockdown, the stimulus checks, and the shift to contactless transactions created significant tailwinds for the whole industry, and we were no exception to that,” Allen said Wednesday during the ICR Conference. “In fact, we were ideally positioned to take advantage with our closed kitchens and double drive-thru and our delivery setup.”

In addition to the COVID tailwinds, Allen attributed Checkers’ success to converting one of its drive-thrus to a dedicated e-commerce lane, which helped double delivery sales. Two-thirds of company stores completed the conversion, and many franchisees followed suit. To provide an additional off-premises revenue stream, Checkers launched a fully integrated mobile app and rewards program in partnership with Paytronix in January. The chain expects app users to visit stores 10 to 20 percent more often and spend an additional 10 to 15 percent per order.

To improve the menu, Checkers launched The Mother Cruncher chicken sandwich platform in June, an item tested prior to COVID. At the same time, the brand completed a refresh that made its menu clearer and shifted attention from low-value offers to premium sandwiches, entrees, and full-priced combos. The move had the intended effect—full-priced combos have grown from 25 percent mix to 33 percent. Checkers also created “Smart Combo Bundles,” which saw the brand switch from 2 for $3 promotions to 2 for $10 combo meals.

“[Value] is still important for our business,” Allen said. “We just need to balance a little more with premium products and more premium value bundles.”

Checkers

To aid expansion, Checkers recently announced a $20 million investment from Oak Hill Capital.

Allen said another key sales opportunity was focusing on metrics that matter. For example, she noted many restaurants give credence to guest satisfaction scores, but she’s found there isn’t much correlation between those scores and sales levels. However, speed of service certainly does, and Checkers is targeting that with a redesigned kitchen.

Currently, Checkers’ kitchen design requires employees to walk 1.5 miles each hour. The brand is aiming to change that with equipment improvements, balanced productivity, and simplified steps. More specifically, new kitchens will include holding equipment that keeps products hotter with longer hold times, fry stations and grill positions with better capacity, and the removal of final cooking processes from most fried products.

“We started in 1985, and some of our kitchen equipment probably hasn’t been updated since then,” Allen said. “… A lot of the equipment is outdated. It’s hard to use, it’s hard to learn, and it’s hard to deliver a consistent guest experience. So we have a new kitchen that’s in test. It’s doing really well. It’s capable of improving the food, the taste of the food, the temperature of the food, the speed, accuracy, and provide a better employee experience.”

The reimagined kitchen and dedicated e-commerce lane are pillars of Checkers’ next stage of growth, which arrives with an updated contemporary store design. Franchisees are interested in the momentum. In 2020, the brand added 40 new franchisees and more than 70 locations to the pipeline.

To aid expansion, Checkers recently announced a $20 million investment from Oak Hill Capital. Checkers consists of 572 franchises and 264 company-run stores across 35 states and Washington, D.C. Allen said no market is saturated and Checkers has 3x white space in current areas.

She believes the brand will attract more operators because of its unique value proposition: a smaller footprint, affordable modular building, and resilient operating model featuring a closed kitchen, double drive-thru, and e-commerce lane.

“All in all, 2020 was a great year,” Allen said. “We believe there are even better years ahead. We have a great team in place. We have a strong rejuvenation plan that’s well underway. And what I’ve experienced is a wonderful, resilient, hardworking organization that can just get stuff done.”